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Moody's Investors Service said Monday the outlook for electric utilities remains stable in the coming year, although the industry faces financial, operational and regulatory risks that could catch companies "flat footed."

Utilities continue overall to have strong credit metrics and support from federal and state regulatory authorities. Moody's expects only a modest decline in the sector's credit position, with a "remote" likelihood it would fall below investment grade.

"Near-term liquidity profiles appear adequate at this time and the option of raising external capital remains viable, albeit at higher costs," Moody's analysts wrote in a report released Monday.

But expected fundamental changes in the industry and the need for "unfettered access" to capital markets raises growing, longer-term concerns, Moody's said.

A leading issue is matching the financial needs of utility companies with capital spending on electric infrastructure. Moody's questions why companies haven't taken more aggressive steps, including the issuance of new equity, to strengthen their balance sheets.

At the same time, companies face less liquid power markets and eventual federal limits on carbon dioxide emissions. Utilities also face traditional operational challenges, including pension costs and an aging workforce, Moody's said.

"These issues might have a significant impact on overall credit quality for the sector - especially if they materialize more quickly than expected," said Jim Hempstead, a senior vice president at Moody's. "Our concern is that the sector is caught flat-footed."

Electric utilities represents an array of companies that generate and deliver power under a variety of state regulatory policies. The sector includes FPL Group Inc. (FPL), Exelon Corp. (EXC), Dominion Resources Inc. (D) and Southern Co. (SO).

-By Mark Peters, Dow Jones Newswires; 201-938-4604; mark.peters@dowjones.com

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