Moody: Negative outlook For NE Power Generators

Moody’s raises concerns in wake of power auction

Changes outlook to negative for region’s electricity generatorsBy Bruce Mohl  Feb 16, 2016 

MOODY’S INVESTORS SERVICE on Tuesday issued a negative outlook for the region’s power generators in the wake of a very successful auction held last week to secure electricity supplies for New England in 2019-2020.
Each year, the operator of the regional power grid holds a so-called forward capacity auction to secure electricity supplies three years out. The auction sets the price generators receive for having their plants ready to produce power when needed. (Power generators pay a steep fine of $2,000 per megawatt hour if they are not able to deliver power when needed.) In addition to the capacity payments, generators also get paid a wholesale price for the energy they actually deliver. 

Last week’s forward capacity auction easily secured enough electricity to meet the region’s power needs at a price that was $1 billion, or 25 percent less, than the clearing price of the previous year’s auction. 

Moody’s said in an analysis that the plentiful supplies and the low price “confirm our expectations that the downturn in the merchant sector is likely to persist,” resulting in a negative outlook for the industry.Moody’s said companies such as Dynegy Inc., Exelon Corp., NRG Energy, Dominion Resources, and NextEra Energy will see their cash flows pinched. Moody’s said debt issued by such power generators as Entergy Rhode Island State Energy LP, Essential Power LLC, and FirstLight Hydro Generating Co. will be negatively affected.

The downturn in forward capacity prices was driven by 1,459 megawatts of new generation, 371 megawatts of demand-side resources (promises by large energy users to reduce usage when called upon by the power grid operator), 27 megawatt s of new wind power, and 44 megawatts of new large-scale solar. Moody’s also noted that the region’s power grid operator, ISO-New England, had estimated that rooftop solar installations were reducing overall demand in the region by 390 megawatts, the equivalent of 57 percent of the output of Pilgrim Nuclear Power Station, which is slated for retirement...