What methods do S&P and Moody's use to rate electric utilities?  What
is the difference between an A rating and a B rating in terms of cost
of debt?

S&P has a overview of how it rates utilities here:

http://www2.standardandpoors.com/servlet/Satellite?pagename=sp/sp_article/ArticleTemplate&c=sp_article&cid=1021558138675&b=2&s=20&i=&ig=&dct=26&r=1&l=EN

(In case the ugly link breaks, I also converted it to a tinyURL
http://tinyurl.com/4g7gw )

An excerpt from that says:

Issue credit ratings are based, in varying degrees, on the following
considerations:

.Likelihood of payment?capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
.Nature of and provisions of the obligation; 
.Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.

-------------------

Different ratings lead to different yield spreads over
similar-maturity treasury rates (since treasuries are risk-free, while
corporates are risky). http://bonds.yahoo.com/rates.html shows
different yields for differing maturity/rating classes of corporates.
By subtracting the comparable treasury yield, you're left with the
spread demanded on A or B debt.