Moody's Report Details Scope of Power Industry's Capital Programs Over 2024-2028 Period

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. electric utilities are scheduled to invest at least $745 billion in capital projects over the next five years, according to a late-2023 report from credit ratings agency Moody's Investors Service, a unit of Moody's Corporation (NYSE:MCO) (New York, New York).

That number, as large as it is, is not the full picture: The Moody's report, released November 8, only covers 28 investor-owned electric utilities. It does not include non-utility power developers, public power utilities or electric cooperatives.

Industrial Info is tracking approximately 4,419 electric utility capital projects scheduled to kick off in the five-year period 2024-2028. Industrial Info's Global Market Intelligence (GMI) platform includes projects from power developers and public power utilities. The value of those projects, which is a more comprehensive look at capital investment plans from organizations in the Electric Power business, is about $879 billion.

For a variety of reasons, some utilities are choosing to contract with power developers rather than build a project itself. If the developer assumes the capital costs and risks of building a project, the utility will sign a power purchase agreement (PPA) with the developer for the electricity the project is expected to produce. The PPA is considered an operating cost, not a capital outlay, which means rating agencies don't treat those PPAs as debt. Having a lower level of debt on the balance sheet could help improve a utility's bond ratings.

Industrial Info does not expect all of the electric power projects it is tracking in the U.S. will get built according to their schedules. As that industry goes through its transitions, that list is expected to be highly dynamic, with projects being added or removed daily.

The IIR data showed the states with the largest Power industry projected capital spend include:

• Texas (842 capital projects valued at about $218 billion)
• Nevada (203 capital projects worth roughly $105 billion)
• California (291 projects valued at approximately $55 billion)
• New York (309 capital projects worth about $43 billion), and
• Arizona (163 capital projects valued at approximately $40 billion)

Click on the image at right to see a bar chart of the 10 states with the largest projected outlays for Power Industry capital spending over the 2024-2028 period.

Capital projects include outlays to build long-lived physical assets such as power plants, transmission & distribution (T&D) projects, environmental remediation projects, upgrades for information technology and operational technology, decommissioning and demolition of shuttered power generators, and in-plant projects such as plant life extensions, power uprates and turbine replacements.

The Moody's report listed these five utility-holding companies as having the largest projected capital budgets over the next five years:

• Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina): $65 billion
• Pacific Gas & Electric Company, a unit of PG&E Corporation (NYSE:PCG) (Oakland, California): $51.6 billion
• Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia): $47 billion
• Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway Incorporated (NYSE:BRK.A) (Omaha, Nebraska): $45.3 billion, and
• Southern Company (NYSE:SO) (Atlanta, Georgia): $40.5 billion.

The Moody's report acknowledged the current U.S. regulatory concerns over the affordability of utility services. It said some of the capital for these projects could come from asset sales. "Some planned asset sales are driven more by a company's desire to reduce business risk in conjunction with its efforts to improve its balance sheet and to avoid additional debt issuance," the credit ratings agency said.

Moody's noted several recent proposals and agreements to sell assets, including:

• FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) agreeing to sell an additional 30% stake in FirstEnergy Transmission for about $3.5 billion
• Dominion Energy agreeing to sell its natural gas distribution utilities for $9.4 billion and its 50% stake in the Cove Point liquefied natural gas facility for about $3.3 billion, and
• Eversource Energy (NYSE:ES) (Hartford, Connecticut) is seeking to sell its 50% share in three offshore wind projects totaling 1,758 megawatts (MW). For more on this issue, see January 10, 2024, article - U.S. Offshore Wind Projects: Three Steps Backward, One Step Forward.

The Moody's report also noted that other utility holding companies, including NiSource Incorporated (NYSE:NI) (Merrillville, Indiana) and American Electric Power Company Incorporated (NASDAQ:AEP) (Columbus, Ohio) are selling assets to pay for growing capital investment plans. Last November, AEP released its $43 billion, five-year capital plan, which is partly being funded by selling non-core businesses.

Britt Burt, Industrial Info's vice president of research for the Global Power Industry, said this: "Companies in the U.S. Power Industry, whether they are investor-owned utilities, power developers, public power utilities or electric cooperatives, will be investing heavily in capital projects for the next few years. Whether it's for decarbonization, environmental remediation, system hardening, cybersecurity or T&D expansions or rebuilds, the industry is in an active build mode, and that requires capital. A lot of it."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).