The Handbook of Municipal Bonds

CHAPTER 55

Tax-Exempt Electric Utility Debt

Gary M. Krellenstein Managing Director JPMorgan Securities

 

Paul R. Bockwoldt Analyst JPMorgan Securities

 

 

 

Electric utilities are unique entities with many characteristics that are not shared by other organizations. The electricity that utilities provide is highly essential to consumers and must be manufactured and delivered at the instant of demand. Electric utilities are subject to peculiar economic relationships. This is partly because of the technology involved in providing this type of instantaneous service, the high capital costs of generation and transmission facilities, the unique physical characteristics and essentiality of electricity to a modern society (see Exhibit 55.1 and 55.2).

U.S. utilities are also the largest users of fossil fuels in the nation (mostly coal) as well as the largest producer of CO₂ gas (38%), which appears to be adversely impacting climatic conditions and will likely be subject to regulation in the next few years (see Exhibit 55.3). These organizations are also distinct because, until a few years ago, they enjoyed a legally recognized monopoly status. The peculiar nature of electric utilities, the importance of the product they provide, and concerns over pollution, climate change and the geopolitics of energy (particularly, energy independence and national security) make them the subject of numerous public debates questioning their technologies, privileges, and policies. This chapter provides key characteristics ...