COC ArticlePDF.pdf

Industry Report Card:
U.S. Electric Utility Sector Performed
Well In First Quarter Of 2009
Primary Credit Analyst:
John W Whitlock, New York (1) 212-438-7678; [e-mail]
Table Of Contents
Industry Credit Outlook
Issuer Review
Recent Rating Activity
Rating Trends
Selected Articles
Contact Information
March 30, 2009
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Industry Report Card:
U.S. Electric Utility Sector Performed Well In
First Quarter Of 2009
Industry Credit Outlook
Against a strong headwind in the credit markets, the regulated U.S. electric utility sector performed well during the
first quarter of 2009. Highlights include continued capital market access with robust debt issuance by operating
companies in this quarter. March 2009 issuance volume exceeded the combined first two months of 2009; through
the first quarter of 2009 issuance exceeded $16 billion, about 25% more than the same 2008 period. Several
companies have proactively prefunded issuance in advance of maturities, taking advantage of investor appetite and
favorable spreads as compared to investment-grade issuers in other sectors.
In response to recessionary pressures and slowing demand, many companies have pared back discretionary spending
and growth plans. This moderating of capital expenditure programs should ease some balance sheet and liquidity
burden. We expect pension obligations to impair adjusted debt levels for 2009; however, the electric utility sector's
steady record of fully collecting these costs through customer rates quells this issue as an overriding credit concern.
The Obama administration's energy plan and potential passage of legislation continue to be followed closely. It is
too early to determine if there will be any lasting credit impact to the electric sector; as with any complex policy
initiatives the ultimate impact is often only discernable in the details which may include workarounds and other
mitigating factors. In the case of the electric sector, the responsiveness of state regulators towards recovery of any
federally mandated expense is a key credit determinant.
Our forecast for the electric sector is for a stable ratings trend for the balance of 2009. Currently, more than
three-quarters of rated entities have stable outlooks with the average rating at 'BBB'. The depth of the recession in
certain pockets of the U.S. economy, combined with weaker cash flow measures and ballooning debt balances, may
cause credit deterioration on the margin for some, but we expect the majority of electric companies to maintain
current ratings in 2009. Our forecast incorporates expectations of responsive regulatory decision making, continued
demand by investors for utility operating company debt, ample liquidity access provided by bank lines, and
moderate capital expenditures. On the horizon, future capital needs to improve reliability, integrated renewable
resources, and potentially address carbon emissions limit upward rating momentum for the near term.
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Chart 1
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Chart 2
Issuer Review
Table 1
Company/Rating*/Comment Analyst
AEP Texas Central Co (BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
AEP Texas North Co (BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Alabama Power Co.(A/Stable/A-1)
See Southern Co.Dimitri Nikas
Allegheny Energy Inc.(BBB-/Stable/A-3)
Allegheny’s first TrAIL transmission project continues to proceed and as construction starts, we will monitor for significant delays or cost
overruns. Supporting credit quality is the Virginia State Corporation Commission's adoption of a Potomac Edison settlement that provides
recovery of rising power costs beginning in 2009. Allegheny Energy Supply’s scrubber installation continues and is expected to be
completed in 2009. The recent Pennsylvania PUC order authorizing the company to accelerate its power procurement schedule for
residential customers by a few months so the company can take advantage of lower power prices reflects a proactive approach to help
maintain lower residential rates. The company's working-capital needs are adequate given the high availability under the company’s
credit facilities and $362 million of cash. Debt maturities are manageable for the next two years, but in 2011 and 2012, respectively, $861
million and $752 million are due.
Gerrit Jepsen
Allegheny Energy Supply Co. LLC (BBB-/Stable/NR)
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
See Allegheny Energy Inc.Gerrit Jepsen
ALLETE Inc.(BBB+/Negative/A-2)
The weakening financial measures largely due to lower operating cash flows and increasing debt leverage, during the company's large
construction program are pressing current ratings. A protracted economic downturn could lower industrial load in the utility’s service
territory and result in continued lower operating cash flows from the company’s Florida real estate division. Furthermore, the capital
spending program over the next several years will continue to need supportive regulation to bolster cash flow measures during
construction, at a time when the economy has weakened.
Gerrit Jepsen
Alliant Energy Corp.(BBB+/Stable/A-2)
Even though Alliant withdrew from building a new coal unit in Iowa on the heels of a Public Service Commission of Wisconsin's rejection
of a new coal unit, the company is continuing to pursue construction of wind generation and environmental expenditures. In the
intermediate term, with large coal construction costs eliminated, cash flow measures and debt to total capital should remain stronger
than previously expected. Any significant payment related to the pending dispute surrounding $402.5 million of debt originally issued at
Alliant Energy Resources could pressure liquidity if cash and credit facility availability do not remain adequate like current levels.
Gerrit Jepsen
Alliant Energy Resources Inc.(BBB+/Stable/NR)
See Alliant Energy Corp.Gerrit Jepsen
Ameren Corp.(BBB-/Stable/A-3)
The company’s recent Missouri rate order approved an electric rate increase of $162 million and a fuel adjustment clause that will allow
for the recovery of 95% of the company's fuel and purchase power expenses (after netting for off-system sales revenue). Although we
recognized that there has been some improvement to the business profile on the regulatory side, the company’s credit profile continues to
be pressured by its unregulated businesses. We view Ameren as about 60% regulated and 40% unregulated. The unregulated businesses
are significantly hedged for 2009 (95%), but have considerable open positions for 2010 (only 60% hedged) and beyond. Of particular
concern is the large capital expenditures required at the unregulated companies needed to meet environmental compliance standards,
while relying on falling market prices, due to the economic recession, for recovery.
Gabe
Grosberg
American Electric Power Co. Inc.(BBB/Stable/A-2)
The Public Utilities Commission of Ohio (PUCO) ruling on AEP’s electric security plan in Ohio provides for annual rate increases and
implementation of a fuel adjustment clause. This is expected to strengthen operating cash flow and help mitigate risks related to fuel and
purchased power prices. The ruling also requires the company to file a distribution rate case in 2009 on which the PUCO will be required
to rule on in about nine months. The recently authorized $42 million of rate relief in Indiana helps strengthen cash flow measures and
provides for timely cost recovery of certain costs through rate riders. Maintenance spending may be reimbursed through insurance
proceeds and warranties, but a lag in recovery could result in deferred cost recovery at some level. Although capital spending for 2009 has
been curtailed from early estimates, the level remains significant and will require prudent funding to maintain credit quality. Longer-term
challenges include the carbon legislation and its effect on AEP’s generation resources and planning decisions.
Gerrit Jepsen
American Transmission Co.(A+/Stable/A-1)
Despite the current deep economic recession and volatile capital markets, ATC has maintained its operational and strategic consistency,
which it has demonstrated over time. This includes a consistent ability to complete projects on-time and on-budget as well as its
adherence to its corporate strategy of organic growth while earning its allowed return. The company continues to benefit from FERC’s
constructive regulatory environment, which includes forward-looking rate cases, annual true-ups, a cash return on construction work in
progress, and a high authorized ROE (12.2%). The company continues to implement its large capital programs that have averaged $400
million for each of the last three years. Cash flow measures have remained adequate for the ratings. For the 12 months ending Dec. 31,
2008, adjusted FFO to debt was 20.1% and FFO interest coverage was 4.7x. Adjusted debt to total capital increased to 56.1%.
Gabe
Grosberg
Appalachian Power Co.(BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Arizona Public Service Co.(BBB-/Stable/A-3)
See Pinnacle West Capital Corp.Antonio
Bettinelli
Atlantic City Electric Co.(BBB/Stable/A-2)
See PEPCO Holdings Inc.Gerrit Jepsen
Avista Corp.(BBB-/Stable/A-3)
2008 was a rebound year for the company, with improvement in all of the company’s credit metrics, following poor performance in 2007.
General rate increases as well as interest expense savings following the refinancing of high coupon debt negotiated during the energy
crisis. While as with other utilities, pension obligations have soared given weak performance of pension investments, Avista’s fully
adjusted credit metrics remain in line with its rating. In 2009, additional modest improvement could be achieved if normal hydro
Anne Selting
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
conditions persist. In addition, the company has received retail electric rate increases approved in Idaho and Washington beginning Oct. 1
2008 and Jan. 1, 2009, respectively, which should also support cash flows. Significant improvement is not expected, as regulatory lag will
continue to be a drag on the company’s ability to earn its authorized ROEs. The company’s liquidity position is adequate, and it faces no
major maturities this year and recently negotiated a one-year facility to bolster liquidity.
Baltimore Gas & Electric Co.(BBB/Watch Neg/A-2)
The ratings and outlook on BG&E reflect the consolidated credit profile of parent Constellation Energy Group (CEG). For the 12 months
ending Dec. 31, 2008, BG&E's FFO represented almost 102% of the consolidated FFO. In December 2008, CEG agreed to a joint venture
with Electricité de France International (EDF) and terminated its merger agreement with MidAmerican Energy Holdings Co. The EDF joint
venture contemplates the sale of 49.9% of CEG's nuclear assets and placing all of the nuclear assets into joint venture with EDF. This sale
and nuclear joint venture leaves CEG as an independent entity. Additionally, CEG has continued to de-risk its unregulated operations
including, divesting its non-core capital intensive businesses to reduce its collateral obligations, and to improve its liquidity profile.
Gabe
Grosberg
Black Hills Corp.(BBB-/Stable/NR)
To finance an almost $1 billion acquisition of the non-Missouri utilities formerly owned by Aquila, Black Hills drew down $383 million on
an acquisition debt facility that, after an extension, matures at year-end 2009. Cash flow measures declined after purchasing the Aquila
assets partly from the new acquisition loan. Although the company divested IPP assets, it retains the oil and gas production operations,
and the trading and marketing business with its need for robust liquidity. Black Hills has maintained adequate availability on its credit
facilities and retains cash at the trading business to help provide additional liquidity. Financial measures that were previously strong for
the company’s intermediate financial profile declined as of year-end 2008 to be more in line with indicative ratios of an aggressive
financial profile.
Gerrit Jepsen
Black Hills Power Inc.(BBB-/Stable/--)
See Black Hills Corp.Gerrit Jepsen
California Indpt Sys Operator Corp (A-/Stable/--)
The California Independent System Operator is expected to begin its much anticipated Market Redesign and Technology Upgrade (MRTU)
market on March 31, 2009. MRTU is important for credit quality in that it will implement an improved settlement process that avoids
estimating exposure to counterparties, which currently occurs for a portion of the settlement cycle. Credit quality is supported by the
entity’s ability to dip into market revenues to fund its revenue requirements if there is a shortfall in payment, such as would occur if there
were a participant default. To date the California ISO has had negligible exposure to defaults and potential defaults of energy trading
companies and banks, although we would note that unsecured credit policies do not rule out this potential. However, the general credit
quality of the pool of California ISO members remains strong; California utilities continue to be responsible for providing the largest share
of revenues needed by the California ISO to service its debt.
Anne Selting
Carolina Power & Light Co. d/b/a Progress Energy Carolinas Inc.(BBB+/Stable/A-2)
See Progress Energy Inc.Dimitri Nikas
CenterPoint Energy Houston Electric LLC (BBB/Stable/NR)
See CenterPoint Energy Inc.Dimitri Nikas
CenterPoint Energy Inc.(BBB/Stable/A-2)
CenterPoint Houston continued to perform well during 2008, adding 1.5% residential customers and distributing 1.1% more electricity for
2008 as compared to in 2007, despite the impact of Hurricane Ike and the economic slowdown. Nevertheless, the significant costs
incurred and to be incurred to repair the storm damages, which are estimated to be in the range of $600 - $650 million, have been
deferred for later recovery which makes its recovery an important consideration in the assessment of the credit quality. As a result of the
storm costs, the company expanded its existing revolving credit facility at CenterPoint Energy Houston Electric by $600 million, which will
terminate when the company issues securitization bonds to recover the storm cost damages. For 2008, FFO to interest coverage was 3.3x
and FFO to total debt was 12.7%.
Dimitri Nikas
CenterPoint Energy Resources Corp.(BBB/Stable/A-2)
See CenterPoint Energy Inc.Dimitri Nikas
Central Hudson Gas & Electric Corp.(A/Stable/NR)
Parent CH Energy's credit ratios are expected to remain weak for the next two quarters but should improve with the resolution of the
utility’s $50 million rate request in the second half of 2009. Conservation efforts, volatile commodity prices, and additional investments in
Central Hudson and the nonregulated subsidiaries could impede near-term financial progress.
John
Kennedy
Central Illinois Light Co.(BBB-/Stable/NR)
See Ameren Corp.Gabe
Grosberg
Central Illinois Public Service Co.(BBB-/Stable/NR)
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
See Ameren Corp.Gabe
Grosberg
Central Maine Power Co.(BBB+/Watch Neg/NR)
See Energy East Corp.John
Kennedy
Central Vermont Public Service Corp.(BB+/Stable/--)
The Jan. 1, 2009 implementation of a quarterly power cost adjustment mechanism will enable Central Vermont to recover fuel and
purchased-power costs in a more timely manner. This would result in a reduced risk factor and lower associated off-balance sheet debt
adjustment. Also, the late 2008 issuance of $21 million of common stock helps to restore some balance to the company’s highly leveraged
capital structure. Meanwhile, negotiations continue to develop new long-term purchased power contracts. Though the bulk of company’s
arrangements don’t expire until 2012, replacement power supplies are likely to be much more costly. This is a credit concern, since
prospective rate needs could be large at a time of economic weakness.
Barbara
Eiseman
CILCORP Inc.(BBB-/Stable/--)
See Ameren Corp.Gabe
Grosberg
Cleco Corp.(BBB/Stable/NR)
In December 2008, as approved by the LPSC, Cleco Corp. capitalized $47 million of the total estimated storm-restoration costs of $79
million, with the remaining $31 million netted against the existing storm damage reserve. Cleco awaits the decision with respect to its
rate case which incorporated the new Rodmacher 3 units in the rate base and expects the new rates to go into effect in the second
quarter of 2009, when the new facility enters commercial operation. For 2008, financial performance was weaker than in 2007, but in line
with expectations, with debt as a percentage of total capitalization was about 52.8%, FFO/debt was weak at about 8.8%, and FFO
interest coverage of about 2.4x.
Dimitri Nikas
Cleco Power LLC(BBB/Stable/NR)
See Cleco Corp.Dimitri Nikas
Cleveland Electric Illuminating Co.(BBB/Stable/--)
See FirstEnergy Corp.Todd
Shipman
CMS Energy Corp.(BBB-/Stable/A-3)
A weak state economy and capital spending will continue to drag on the company’s performance over the near term. The company has
initiated a rate filing that will be resolved by the year end. Despite the company’s plan to cut back on capital spending, Consumers Energy
will still face a heavy capital program to comply with environmental standards, advanced metering, and system reliability. The $500
million bond issue completed in March 2009 mitigates concerns over access to capital markets in 2009. The company has about $489
million in maturities coming due this year.
John
Kennedy
Columbus Southern Power Co.(BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Commonwealth Edison Co.(BBB-/Watch Neg/A-3)
ComEd continues to be rated one notch below parent Exelon primarily due to the less-than-credit supportive jurisdiction that it operates
under and its financial measures, which although have recently improved, are expected to be pressured in the near term due to the
recession. To weather the deep recession, the company recently lowered its 2009 capital expenditures by $150 million to about $850
million and plans to redeploy its workforce. For the 12 months ending Dec. 31, 2008, adjusted FFO to debt was 14.0%, adjusted FFO
interest coverage was 3.3x, and adjusted debt to total capital was 48.6%.
Gabe
Grosberg
Connecticut Light & Power Co.(BBB/Stable/--)
See Northeast Utilities John
Kennedy
Connecticut Natural Gas Corp.(BBB+/Watch Neg/--)
See Energy East Corp.John
Kennedy
Consolidated Edison Co. of New York Inc.(A-/Stable/A-2)
See Consolidated Edison Inc.John
Kennedy
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Consolidated Edison Inc.(A-/Stable/A-2)
A final order on the company’s rate filing is expected in April. Con Edison's credit quality will be impacted by the firm's financial policy in
regards to debt leverage and cash flow realization, combined with cost recovery of capital expenditures. Future debt and equity issuances
will be required to fund annual capital spending of about $2.5 billion (2009 estimate), common dividends of more than $500 million per
year ($350 million to $400 million of dividends paid annually to Con Edison from CECONY), and debt maturities of $489 million in 2009.
Importantly, any deviation in expected cash flows, delays in reducing leverage, or difficulty recovering environmental and stranded costs
in a timely manner may weaken the financial profile, heightening the potential for outlook revision to negative or a downgrade.
John
Kennedy
Consumers Energy Co.(BBB-/Stable/--)
See CMS Energy Corp.John
Kennedy
Dayton Power & Light Co.(BBB/Positive/NR)
See DPL Inc.Barbara
Eiseman
Delmarva Power & Light Co.(BBB/Stable/A-2)
See PEPCO Holdings Inc.Gerrit Jepsen
Detroit Edison Co.(BBB/Stable/A-2)
See DTE Energy Co.John
Kennedy
Dominion Resources Inc.(A-/Stable/A-2)
Less exposure to unregulated activities, along with re-regulation in Virginia, has dramatically improved business risk in recent years. Fuel
expenses, once not fully recoverable and a drag on credit metrics, are much less of an issue for the reconstituted Dominion. Aggressive
capital plans will likely hold back any dramatic improvement in financial measures, dampening further ratings upgrade, but steady
advances in financial performance are expected to support credit quality.
Todd
Shipman
DPL Inc.(BBB/Positive/NR)
In late February 2009, Dayton Power & Light reached a settlement agreement with the staff of Public Utilities Commission of Ohio (PUCO)
and other parties on an electric security plan. If approved by the PUCO (expected in the second quarter of 2009), the plan will reduce
uncertainty and will have no immediate financial impact on DPL as it incorporates the existing rate structure through 2012. However,
under the pact, the company can seek approval for riders related to regulatory and tax statutes, storm damage costs, costs associated
with climate change laws, and costs related to transmission expenses. Importantly, the settlement incorporates a fuel-recovery rider
beginning in 2010 that provides for more timely recovery of fuel costs. The company has completed its extensive scrubber program and as
construction expenditures continues to wind down, DPL’s overall financial condition should strengthen, assuming it is not materially
harmed by the recession. With regard to the Dayton economy, it has slowed considerably, with industrial sales down about 6% in 2008
due to plant closures and lower production within the automotive and other related industries.
Barbara
Eiseman
DTE Energy Co.(BBB/Stable/A-2)
Michigan’s economy continues to deteriorate and will hamper DTE’s efforts to improve its financial profile. The electric utility has filed a
rate case that includes an uncollectible tracker, which could help recover some portion of its parent’s $213 million uncollectible balance.
Liquidity is sufficient now but could be a concern in the second half of 2009 as the company has $975 million in bank lines that expire
during that period. Near-term maturities should be manageable at about $350 million for 2009.
John
Kennedy
Duke Energy Carolinas LLC (A-/Positive/A-2)
See Duke Energy Corp.Dimitri Nikas
Duke Energy Corp.(A-/Positive/A-2)
In December 2008, the PUCO approved Duke Energy Ohio's ESP for the next three-year period which should provide stability to revenues
and cash flows and support credit quality. Given the slowdown in the economy, Duke Energy Carolinas has revised its construction
schedule related to its 620 MW Combined Cycle Buck Project and currently plans to delay its construction by one additional year along
with beginning the operations at the plant only in a simple cycle mode. Duke Energy Indiana is proceeding with its plans to build a
630MW integrated gasification combined cycle plant that is estimated to cost about $2.35 billion. Liquidity remains strong and the
consolidated financial profile for year-ended Dec. 31, 2008 remained adequate for the rating with FFO interest coverage of 5.3x and
FFO/total debt of 23.5%. Debt leverage remains modest at about 44.5%.
Dimitri Nikas
Duke Energy Indiana Inc.(A-/Positive/A-2)
See Duke Energy Corp.Dimitri Nikas
Duke Energy Kentucky Inc.(A-/Positive/--)
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
See Duke Energy Corp.Dimitri Nikas
Duke Energy Ohio Inc.(A-/Positive/A-2)
See Duke Energy Corp.Dimitri Nikas
Duquesne Light Co.(BBB-/Negative/NR)
See Duquesne Light Holdings Inc.Gerrit Jepsen
Duquesne Light Holdings Inc.(BBB-/Negative/NR)
If Duquesne moves forward on a proposed transmission project in Pittsburgh, material equity contributions could help support credit
quality during a period when cash flow measures are under pressure, at least through 2010. With rates for POLR obligations already
established, operating cash flows will be squeezed from higher-than-expected capacity payments to PJM generators through mid-2011. In
addition to these converging forces, we will monitor the costs related to the company's need to procure capacity for the mid-2011 through
mid-2012 period and how well the financial measures support the existing debt service obligations.
Gerrit Jepsen
E.ON U.S. LLC (BBB+/Stable/--)
On March 13, 2009, E.ON U.S. accepted the Kentucky Public Service Commission’s condition to pay an additional $60.9 million to
terminate the lease agreement between E.ON U.S. and Big Rivers Electric. However, consent from Henderson Municipal Power and Light
is still needed to close the transaction. While unwinding of the contract requires a large one-time cash payment of $666 million, it would
significantly reduce E.ON. U.S.’s dependence on riskier unregulated activities, thereby enhancing the company's business risk profile. A
sizable portion of E.ON U.S.’s capital spending on environmental compliance upgrades has been completed, although material
expenditures still remain primarily for additional environmental controls and completion of Trimble County Unit 2, a coal-fired station,
slated for completion in 2010.
Barbara
Eiseman
Edison International (BBB-/Stable/--)
Edison International’s liquidity remains strong. Southern California Edison (SCE) has continued to have good access to capital markets, as
evidenced by its March 2009 $750 million secured debt issuance. The issuance follows the favorable California Public Utilities
Commission (CPUC) ruling in the company’s three-year general rate case, which we expect will enable the utility to produce credit metrics
commensurate with its current rating. Edison Mission Energy’s margins continue to be substantially pressured by the collapse of
commodity power and gas prices, as reflected by its negative outlook. Its absence of maturities in the next several years will assist it in
preserving cash as it completes an estimated $1 billion in capital investment in 2009. Consolidated maturities are modest through 2012.
SCE’s credit metrics are much weaker than average at year-end 2008. SCE's cash flows have also been impaired by negative adjustments
to operating cash flows related to regulatory assets. This is chiefly associated with 2008 power cost deferrals, but a recent CPUC order
will collect 2008 shortfalls starting this month. Edison’s proposed tax settlement with the IRS regarding its SILO/LILO lease arrangements
continues to be pending.
Anne Selting
El Paso Electric Co.(BBB/Stable/--)
Higher fuel and purchased power costs have resulted in weaker 2008 cash flows but the company is now collecting on higher deferral
balances. Deferrals are not a credit concern as long as the company maintains sufficient liquidity while the deferrals are collected and the
cash flow effects reverse. Adjusted FFO to total debt has decreased to 16% for 2008 but has averaged 20% over each of the past three
years. Cash flows improved in the third and fourth quarter due to higher Palo Verde availability and strong economy margins. However,
weaker cash flows may persist due to decreased volumes and weaker commercial and industrial sales. We do not expect the company to
require external funding to meet planned capital expenditures in the 2009 and there are no near term maturities. Liquidity is sufficient.
The company has taken a precautionary step to delay share repurchases to ensure ample liquidity amid a rate freeze in its Texas
jurisdiction.
Antonio
Bettinelli
Empire District Electric Co.(BBB-/Stable/A-3)
Empire District’s financial results for 2008 displayed improvement owing to partial realization of rate relief granted in September 2008,
increased off-system sales, modest customer growth and the absence of a major plant outage. Importantly, the operation of a fuel
adjustment mechanism in all of Empire’s jurisdictions will enable the company to recover changes in fuel and purchased power costs in a
timely manner, which is crucial for Empire's credit quality given reliance on a relatively high level of natural gas-fired generation and
purchased power. In this regard, on Feb. 26, 2007, Empire entered into an equity distribution agreement with UBS Securities LLC under
which it may sell up to $60 million of its common stock from time to time through UBS.
Barbara
Eiseman
Energy East Corp.(BBB+/Watch Neg/A-2)
The company's credit ratings remain on CreditWatch with negative implications as Standard & Poor's reviews its short-term and long-term
financial position and its relationship with parent company Iberdrola S.A. (A-/Stable/A-2). Energy East's stand-alone financial condition
has fallen since we affirmed ratings in September 2008. A weak liquidity position at its New York subsidiaries, which have fully drawn
their bank facilities, has led New York State Electric & Gas and Rochester Gas & Electric to petition regulators for accelerated rate relief.
John
Kennedy
Enogex Inc.(BBB+/Stable/--)
See OGE Energy Corp.Barbara
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Eiseman
Entergy Arkansas Inc.(BBB/Negative/--)
See Entergy Corp.Dimitri Nikas
Entergy Corp.(BBB/Negative/--)
Entergy's storm restotation costs as a result of Hurricane Gustav and Ike are estimated to be in the range of $1.03 billion to $1.23 billion.
The significant costs incurred and/or to be incurred to repair the storm damages have been deferred for later recovery, making it very
important consideration in the assessment of the company's credit quality. In March 2009, the PUCT approved Entergy Texas' unanimous
settlement which provided for a rate increase of $46.7 million and which is Entergy Texas' first increase in 17 years. Also, in March 2009,
the LPSC ordered Entergy Louisiana to suspend its Little Gypsy repowering project as a result of rising project costs and the economic
justification of the project. The company’s effort to spin off its merchant nuclear generation assets to existing Entergy shareholders in
2009 could be delayed, given the recent turmoil in the financial markets. Financial performance for 2008 remained robust, with adjusted
FFO to interest coverage of 5.9x, FFO to total debt of 24.0% and debt leverage rose to 63.3% in part due to the company’s share
repurchase program.
Dimitri Nikas
Entergy Gulf States Louisiana LLC (BBB/Negative/--)
See Entergy Corp.Dimitri Nikas
Entergy Louisiana Holdings Inc.(BBB/Negative/--)
See Entergy Corp Dimitri Nikas
Entergy Louisiana LLC (BBB/Negative/--)
See Entergy Corp.Dimitri Nikas
Entergy Mississippi Inc.(BBB/Negative/--)
See Entergy Corp.Dimitri Nikas
Entergy New Orleans Inc.(BBB-/Negative/--)
See Entergy Corp.Dimitri Nikas
Entergy Texas Inc.(BBB/Negative/--)
See Entergy Corp.Dimitri Nikas
FirstEnergy Corp.(BBB/Stable/--)
The company’s settlement in Ohio setting the parameters of an Electric Security Plan in response to 2008 legislation will sufficiently keep
business risk at relatively low levels to maintain ratings stability for the intermediate term. The Ohio PUC recently approved the proposal.
Financial metrics and liquidity have improved as substantial debt was paid down in previous years, but share buybacks and capital
spending have stalled the trend. The continued prospect of a more market-based future for its generating assets will dampen credit
quality in the long-term.
Todd
Shipman
First Energy Solutions Corp.(BBB/Stable/--)
See FirstEnergy Corp Todd
Shipman
Florida Power & Light Co.(A/Stable/A-1)
See FPL Group Inc.Todd
Shipman
Florida Power Corp. d/b/a Progress Energy Florida Inc.(BBB+/Stable/A-2)
See Progress Energy Inc.Dimitri Nikas
Florida Progress Corp.(BBB+/Stable/NR)
See Progress Energy Inc.Dimitri Nikas
FPL Group Inc.(A/Stable/--)
A prolonged downturn in the Florida economy, particularly the real estate market, could affect the financial metrics of regulated unit
Florida Power & Light. The integrated utility is a significant contributor to the group’s earnings and cash flow, and its robust business
profile centers on a constructive regulatory environment and a very healthy service territory. A large base rate case filed recently with the
Florida Public Service Commission should provide a good indication of the effect of the current difficult economic environment on the
utility’s regulatory risk. Targeted growth in the unregulated wholesale energy business, a higher-risk merchant energy portfolio, and an
appetite for acquisitions will constrain credit quality. Financial metrics provide thin support for the ratings.
Todd
Shipman
Standard & Poor’s RatingsDirect | March 30, 2009 10
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Georgia Power Co.(A/Stable/A-1)
See Southern Co.Dimitri Nikas
Great Plains Energy Inc.(BBB/Negative/--)
The company’s credit profile continues to be pressured by weak financial measures that have underperformed since its merger with
Aquila, Inc. now called KCP&L Greater Missouri Operations Co. Although the financial measures are expected to improve, the company
may find it difficult to improve its financial profile due to the economic recession and the volatility of the credit markets.
Gabe
Grosberg
Green Mountain Power Corp.(BBB/Stable/--)
GMP continues to operate under an alternative regulation plan that is in effect until Feb. 1, 2010. In July 2009, the company will file a
12-month base rate adjustor for the period Oct. 1, 2009 through Sept. 30, 2010. If approved, the rate hike would go into effect on Oct. 1,
2009. GMP’s financial metrics remain somewhat weak for the current rating. Accordingly, credit supportive actions by management as
well as additional rate relief will be necessary to lift financial measures to levels more appropriate for the current rating level. Also, GMP
faces the challenge of securing replacement power supplies, which are likely to be much more costly, when half of its existing contracts
expire in 2012. This is a credit concern, since prospective rate needs could be large at a time of economic weakness.
Barbara
Eiseman
Gulf Power Co.(A/Stable/--)
See Southern Co.Dimitri Nikas
Hawaiian Electric Co. Inc.(BBB/Stable/A-2)
See Hawaiian Electric Industries Inc.Anne Selting
Hawaiian Electric Industries Inc.(BBB/Stable/A-2)
In 2008 HEI’s financial performance improved modestly, relative to last year, reflecting good interim rate relief at Hawaiian Electric Co
(HECO). We expect 2009 results to be adversely affected by expectations for a decline in electric sales, higher operations, and
maintenance expense at the utility and higher levels of provisions at American Savings Bank for loan losses. Hawaii is dependent on
tourism and declines in visitors will affect cash flows, at least until the utility implements decoupling, expected later in 2009. By far the
biggest driver in credit quality over the next year will be the implementation of the state’s Clean Energy Initiative. The preliminary
agreement, of which HECO is a signatory, promises to rapidly push the islands toward renewable energy goals that will lessen
dependence on foreign oil imports. In exchange for major changes to HECO’s business, the company is expected to decouple its revenues
from sales and receive other protections that may be credit supportive. On the regulatory front, we are watching for final orders in 2009
for all three of HECO utilities that are in line with interim awards.
Anne Selting
IDACORP Inc.(BBB/Stable/A-2)
Credit metrics have remained weak over the past several quarters, due to rising costs, growth, and poor hydrological generation, as the
company had been unable to stabilize returns and cash flow with existing rate mechanisms. However, effective Feb. 1, 2009, a PCA
sharing methodology allocates the costs and benefits of net power supply expenses between customers (95%) and shareholders (5%). We
expect this measure to improve credit metrics over time. On Jan. 30, 2009 the IPUC granted the company a rate increase of 3.1% or $20.9
million of its $62.7 million 2008 general rate case, based on a projected 2008 test year. IDACORP's adjusted funds from operations (FFO)
coverage of interest and FFO to average total debt were 2.9x and 10.3%, respectively, at the end of 2008.
Antonio
Bettinelli
Idaho Power Co.(BBB/Stable/A-2)
See IDACORP Inc.Antonio
Bettinelli
Illinois Power Co.(BBB-/Stable/--)
See Ameren Corp.Gabe
Grosberg
Indiana Michigan Power Co.(BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Indianapolis Power & Light Co.(BB+/Stable/NR)
See IPALCO Enterprises Inc.Gabe
Grosberg
Integrys Energy Group Inc.(BBB+/Negative/A-2)
The company recently announced its decision to sell or exit from almost all of its unregulated businesses. Due to the deep recession and
difficult capital markets, the company’s ability to find buyers at an acceptable price may be affected. Failure by the company to exit from
these unregulated businesses in a timely fashion, would probably lead to a downgrade. The company recently filed in Illinois for a gas
rate increase of $184 million. A commission’s order is expected by January 2010.
Gabe
Grosberg
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
International Transmission Co.(BBB/Stable/--)
See ITC Holdings Corp.Gabe
Grosberg
Interstate Power & Light Co.(BBB+/Stable/A-2)
See Alliant Energy Corp.Gerrit Jepsen
IPALCO Enterprises Inc.(BB+/Stable/NR)
The ratings and outlook for IPALCO are linked to the weaker credit quality of its parent AES Corp. For the 12 months ending Dec. 31, 2008,
IPALCO’s cash flow represented less than 8.5% of consolidated cash flow. The company’s credit quality will continue to be limited due to
its highly leveraged debt to total capital structure of about 99%. In January 2009, the company received the commission’s authority to
refinance $172 million of long-tem debt that is currently set at variable interest rates.
Gabe
Grosberg
ITC Holdings Corp.(BBB/Stable/--)
The company recently announced the Green Power Express project, which would bring wind power from the Dakotas to the Mid-Atlantic
region and cost between $10 billion and $12 billion. Also, the company continues to move forward with its KETA project and its V Plan in
Kansas. The company’s business profile remains one of the best in the electric utility sector due to favorable FERC regulation. However,
the company’s credit profile remains pressured from its financial measures that have remained weak. For the twelve months ending Dec.
31, 2008, adjusted FFO to debt was at 7.9% and adjusted interest coverage was at 2.3x. Debt to total capital was at 71.3%, which is in
line with management’s strategy for financing existing and new projects.
Gabe
Grosberg
ITC Midwest LLC (BBB/Stable/--)
See ITC Holdings Corp.Gabe
Grosberg
Jersey Central Power & Light Co.(BBB/Stable/--)
See FirstEnergy Corp.Todd
Shipman
Kansas City Power & Light Co.(BBB/Negative/A-3)
See Great Plains Energy Inc.Gabe
Grosberg
KCP&L Greater Missouri Operations Co.(BBB/Negative/--)
See Great Plains Energy Inc.Gabe
Grosberg
Kansas Gas & Electric Co.(BBB-/Stable/--)
See Westar Energy Inc.Gabe
Grosberg
Kentucky Power Co.(BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Kentucky Utilities Co.(BBB+/Stable/A-2)
See E.ON U.S. LLC Barbara
Eiseman
KeySpan Corp.(A-/Stable/A-2)
See National Grid USA John
Kennedy
KeySpan Energy Delivery Long Island (A/Stable/--)
See National Grid USA John
Kennedy
KeySpan Energy Delivery New York (A/Stable/NR)
See National Grid USA John
Kennedy
Louisville Gas & Electric Co.(BBB+/Stable/--)
See E.ON U.S. LLC Barbara
Standard & Poor’s RatingsDirect | March 30, 2009 12
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Eiseman
Madison Gas & Electric Co.(AA-/Stable/A-1+)
Madison Gas & Electric's bondholder protection parameters remain under pressure due to an onerous construction program. A credit
concern that has recently surfaced is Bechtel Power’s (the contractor) claims for cost overruns, of which the Madison Gas & Electric’s
share would be about $40.4 million. Any additional cost not deemed recoverable would be detrimental to ratings. Continued credit
supportive actions by management and responsive rate treatment in future rate filings will be necessary to strengthen financial
performance to levels more suitable for current lofty ratings.
Barbara
Eiseman
Massachusetts Electric Co.(A-/Stable/A-2)
See National Grid USA John
Kennedy
Metropolitan Edison Co.(BBB/Stable/--)
See FirstEnergy Corp.Todd
Shipman
Michigan Consolidated Gas Co.(BBB/Stable/A-2)
See DTE Energy Co.John
Kennedy
Michigan Electric Transmission Co (BBB/Stable/--)
See ITC Holdings Corp.Gabe
Grosberg
MidAmerican Energy Co.(A-/Stable/A-2)
Under rate agreements in place through 2013, MEC has agreed not to request an increase in retail electric rates unless its ROE falls below
10%, which puts pressure on the company to manage its costs, including fuel, which is largely composed of coal-fired generation. MEC
continues to invest sizable capital to increase an already long generation position by building additional wind projects, which increases
the company’s reliance on commodity energy markets for a portion of revenues and earnings. Financial performance for 2008 continues to
be solid for the rating. Debt balances rose to levels inconsistent with the rating in 2008, largely due to short-term borrowings, moving to
59%. We look to management to repay these balances with operating cash flows in 2009 to the range of 53%. In 2009, the company is
winding down an intense capital investment program that included the completion of a new coal unit in mid-2007 and the buildout of
wind generation, in which during 2008 it completed more than 600 MW of projects.
Anne Selting
MidAmerican Energy Holdings Co.(BBB+/Stable/--)
Following the termination of MEHC’s attempt to acquire Constellation Energy in 2008, we view MEHC to be in a good position to continue
to improve its financial profile, due to the fact that the majority of cash flows are produced by its stable, regulated investments. As a
result of termination fees and other payments, MEHC has realized almost $1.6 billion in pre-tax cash proceeds from Constellation, which
should help it offset future borrowing, especially at PacifiCorp, which is undergoing a large capital investment program. MEHC’s
consolidated financial profile remains aggressive in our view, with 2008 debt to total capitalization of 64%, funds from operations (FFO) to
interest coverage of 3.1x, and FFO to total debt of 13%. Provided the company continues to focus on operating and acquiring regulated
investments this profile is adequate for the ratings. The additional business risk that could be presented by new acquisitions would be
expected to be compensated by MEHC commensurate efforts to improve its financial profile.
Anne Selting
Midwest Independent Transmission System Operator Inc.(A+/Stable/--)
Central to MISO’s credit quality is the current exit fee obligations for all customers who have entered into a transmission owner's
agreement. MISO is currently in a dispute with Duquesne Light Co. regarding $9.1 million related to exit fee costs and for expenses
incurred to integrate Duquesne. The exit fee serves as a deterrent to MISO's voluntary members from leaving and ultimately serves as a
back-stop for bondholders in the event of a mass exodus from MISO. The company’s business profile is also enhanced by FERC's
constructive regulation, which allows the company to recover all of its costs from its customers. In January 2009, MISO successfully
launched its ancillary service market after being delayed for several months.
Gabe
Grosberg
Mississippi Power Co.(A/Stable/A-1)
See Southern Co.Dimitri Nikas
Monongahela Power Co.(BBB-/Stable/--)
See Allegheny Energy Inc.Gerrit Jepsen
Narragansett Electric Co.(A-/Stable/A-2)
See National Grid USA John
Kennedy
www.standardandpoors.com/ratingsdirect 13
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
National Grid USA (A-/Stable/A-2)
The company is successfully integrating KeySpan Corp. into its corporate structure and is expected to achieve its cost reduction target of
$100 million by the end of March 2009. Still, the financial profile will continue to be pressured in 2009 resulting from the financing of the
KeySpan acquisition. However, we expect to see signs of improvement as proceeds from the sale of Ravenswood could be used to reduce
debt.
John
Kennedy
Nevada Power Co.(BB/Stable/NR)
See NV Energy Inc.Antonio
Bettinelli
New England Power Co.(A-/Stable/A-2)
See National Grid USA John
Kennedy
New York State Electric & Gas Corp.(BBB+/Watch Neg/A-2)
See Energy East Corp.John
Kennedy
Niagara Mohawk Power Corp.(A-/Stable/A-2)
See National Grid USA John
Kennedy
Northeast Utilities (BBB/Stable/--)
Despite the weaker economy, we expect NU's financial profile to continue to gradually improve in the near-term. The company’s March
$360 million equity issuance related to its inclusion in the S&P 500 index helps to strengthen its balance sheet. NU is benefiting from a
number of transmission projects that are earning over 12% on equity as well as its last rate case. Still, the riskiness of the companies'
business has waned due to refocusing on T&D-oriented activity. Capital needs over the next several years will be heavy. Capital spending
and dividends of $5.5 billion over 2009-2012 will be funded with a combination of cash, debt and equity offerings. The company forecasts
that returns will improve once its rate base reflects the capital spending.
John
Kennedy
North Shore Gas Co.(BBB+/Negative/NR)
See Integrys Energy Group Inc.Gabe
Grosberg
Northern Natural Gas Co.(A/Stable/--)
See MidAmerican Energy Holdings Co.Anne Selting
Northern States Power Co.(BBB+/Stable/A-2)
See Xcel Energy Inc.Gerrit Jepsen
Northern States Power Wisconsin (A-/Stable/--)
The rating of this subsidiary of Xcel Energy Inc. reflects affiliation with the Xcel family of companies and the benefits of regulatory
insulation. See Xcel Energy Inc.
Gerrit Jepsen
NorthWestern Corp.(BBB/Stable/--)
The Montana Public Service Commission has granted the inclusion of the company’s interest in Colstrip Unit 4 into rate base, marking a
shift towards an integrated utility model in Montana—other plants are now being contemplated. Liquidity is sufficient and the company is
able to fund non-discretionary capital expenditures with internally generated funds. With the completion of a recent $250 million
long-term financing to term out short-term Colstrip acquisition related debts, the company faces no near-term debt maturities. We expect
a credit facility, set expire in November, to be renegotiated soon. Credit metrics remain solid in 2008 with adjusted funds from operations
(FFO) coverage of interest and FFO to average total debt at 4.45x and 24%, respectively.
Antonio
Bettinelli
NSTAR (A+/Stable/A-1)
NSTAR and Northeast Utilities recently announced plans to construct a transmission line to Hydro-Quebec. Although in the preliminary
stages, the proposal is likely to move forward after a declaratory judgment from FERC. NSTAR’s share of the cost is estimated at $200
million, which we expect to be funded in a balanced manner. Economic conditions in the company’s service area have weakened
somewhat, but are still much better than most parts of the country. Since NSTAR’s rate pact extends through 2012, we don’t expect
NSTAR to pursue decoupling until its agreement expires. NSTAR continues to be able to access the short-term credit markets with
relative ease. In addition, in February 2009, the company issued $100 million long-term securities at 5.625%. Cost control, supportive
regulation, and a focus on relatively low risk utility operations should continue to support financial metrics that are suitable for current
ratings.
Barbara
Eiseman
Standard & Poor’s RatingsDirect | March 30, 2009 14
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
NSTAR Electric Co.(A+/Stable/A-1)
See NSTAR Barbara
Eiseman
NSTAR Gas Co.(A+/Stable/--)
See NSTAR Barbara
Eiseman
NV Energy Inc.(BB/Stable/B-2)
Stalled economic growth, along with downturns in the housing and casino tourism have hit Las Vegas hard. However, NV Energy Inc.’s
utility customer counts have not fallen and existing users continue to pay their bills. Significant reductions in employment levels, which
have not occurred, could reduce NV Energy Inc.’s relative insulation from declining sales and revenues. Debt level has crept up; the
company continues to plan for long-term growth but has moderately reduced capital expenditures to $920 million in 2009, with ongoing
construction at Harry Allen accounting for roughly one-third, which will require significant external financings in 2009. For the 12 months
ended Dec. 31, 2008, adjusted cash flow coverage of interest and debt stood at 2.1x and 7.2%, respectively, stretched even for the highly
leveraged utility financial profile. Credit metrics have primarily weakened due to new infrastructure investments over the past year that
have been significantly debt funded but rate relief from the pending $324 million current general rate case would add financial support.
Liquidity was bolstered by the recent $500 million bond issuance at Nevada Power, which was used to reduce revolver balances.
Antonio
Bettinelli
OGE Energy Corp.(BBB+/Stable/A-2)
On Feb. 12, 2009, OGE Energy and Energy Transfer Partners, L.P terminated the agreement to form a joint venture that would have
combined Enogex’s midstream business with ETP’s interstate operations as well as its midstream operations in the Rocky Mountains. The
parties determined that due to the significant downturn in the economy and uncertainty in the credit markets, obtaining the financing and
completing the joint venture was not feasible and in their best interests.
Barbara
Eiseman
Ohio Edison Co.(BBB/Stable/A-2)
See FirstEnergy Corp.Todd
Shipman
Ohio Power Co.(BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Ohio Valley Electric Corp.(BBB-/Stable/--)
OVEC recently decided to delay the completion of the Cliffy Creek’s Flue Gas Desulfurization project for at least 18 months. The Kyger
Creek Flue Gas Desulfurization remains on schedule and is expected to be operational by 2010. Should the company decide to complete
the Cliffy Creek Flue Gas Desulfurization project, the estimated cost of all the environmental projects is now expected to be higher than
the initial estimate of $1.2 billion. The company’s credit quality continues to be supported by the historically successful long-term
partnership with the sponsoring companies, including the extension of its inter-company power agreement through 2026, and the
collective investment-grade corporate credit ratings of the sponsoring companies.
Gabe
Grosberg
Oklahoma Gas & Electric Co.(BBB+/Stable/A-2)
See OGE Energy Corp.Barbara
Eiseman
Oncor Electric Delivery Co. LLC (BBB+/Stable/NR)
In the fourth quarter of 2008, Oncor Electric Delivery recorded goodwill impairment of about $860 million (about 5% of Oncor's total
assets) related to purchase accounting. However, the impairment does not affect the company's credit rating because when computing
credit metrics, Standard & Poor's backs out the entire amount of goodwill of $4.8 billion that was created upon Oncor's inception in
October 2007. For the year-ended Dec. 31, 2008, FFO to interest coverage was 4.0x, FFO to total debt was 15.3% and debt leverage was
63.7%.
Dimitri Nikas
Orange and Rockland Utilities Inc.(A-/Stable/A-2)
See Consolidated Edison Inc.John
Kennedy
Otter Tail Corp.(BBB-/Stable/--)
Otter Tail's unregulated businesses that have been contributing about 50% of consolidated cash flow are being closely observed for
material erosion due to prolonged economic downturn. In addition, the utility's capital spending program that includes the proposed
construction of Big Stone II could pressure cash flow measures without constructive regulatory outcomes. Given the cash flow volatility of
the unregulated operations, financial measures were adequate for the aggressive financial risk profile with 25% adjusted FFO to debt as
of Dec. 30, 2008, and 50% adjusted debt to capital.
Gerrit Jepsen
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Pacific Gas & Electric Co.(BBB+/Stable/A-2)
See PG&E Corp Anne Selting
PacifiCorp (A-/Stable/A-2)
While growth in the company's service territories has attenuated its forecast capital program, its planned investments continue to be its
primary challenge in the coming years, along with assuring that it maintains a regulatory environment conducive to recovering its
investment costs in its regulated rate base. Capital investment in 2009 and 2010 is expected to be more than $2 billion, relative to annual
investment that has ranged from $1 billion to $1.8 billion since 2006. PacifiCorp's financial profile is somewhat weak at the existing rating
category. For this reason, the stable outlook is premised on the company meeting its projections, which suggest slightly stronger
performance. This will necessitate equity support from parent MidAmerican Energy Holdings Company.
Anne Selting
PECO Energy Co.(BBB/Watch Neg/A-2)
PECO’s ratings are directly correlated with parent Exelon Corp. Weighing on PECO’s credit quality is the Pennsylvania transition period,
which should be a smoother transmission than previously seen in Illinois. Factors that point to a smoother transition include: the roll-off of
the competition transition charges in 2010, new legislation proposals that include a mandate to phase in rate increases, and the lower
current energy prices.
Gabe
Grosberg
Pennsylvania Electric Co.(BBB/Stable/--)
See FirstEnergy Corp Todd
Shipman
Pennsylvania Power Co.(BBB/Stable/--)
See FirstEnergy Corp Todd
Shipman
Peoples Energy Corp.(BBB+/Negative/NR)
See Integrys Energy Group Inc.Gabe
Grosberg
Peoples Gas Light & Coke Co. (The)(BBB+/Negative/A-2)
See Integrys Energy Group Inc.Gabe
Grosberg
PEPCO Holdings Inc.(BBB/Stable/A-2)
Management’s announced strategic analysis and review of its retail energy supply business will be closely followed for any credit
implications. Before capital spending ramps up, we expect that financial performance should strengthen absent any one-time
adjustments. The most expensive component will be the 230-mile, 500 kV Mid-Atlantic Power Pathway that could cost over $1 billion, but
we presume that it would be financed in a prudent manner for credit quality. In the near term, rate relief through planned rate cases could
help strengthen operating cash flow through cost recovery. A longer-term issue that continues to be closely followed is the pending IRS
challenge to the company’s SILO investments. To mitigate the effect of any materially adverse event, we would expect credit supportive
actions to be taken to offset any negative impact.
Gerrit Jepsen
PG&E Corp.(BBB+/Stable/--)
Utility regulation in the state continues to be supportive. In March 2009, Pacific Gas & Electric received approval to upgrade its
SmartMeter program, authorizing $467 million on the project, in line with the utility’s request. Rate base growth should continue in 2009
with heavy capital investment planned. Decoupling mechanisms in the state should assist the company in maintaining adequate revenues
to cover costs, despite a slowdown in the California economy. Rising fuel and purchased power costs were addressed with the California
Public Utilities Commission’s order which approved an October 1 retail rate increase.
Anne Selting
Pinnacle West Capital Corp.(BBB-/Stable/A-3)
Challenges at real estate unit SunCor have not significantly impacted credit metrics or overall liquidity. A settlement on the company’s
requested $278 million rate increase would bring rate relief sooner which would support credit quality. Funds from operations coverage of
debt has improved to 19% from 16% in 2007 primarily due to lower income taxes and the collection of deferred power costs that
exceeded new deferrals--temporary effects. Coverage levels support current rating levels but adjusted debt to capital has risen to 60%
from 57%, due to higher collateral postings and losses on derivatives in OCI, and the real estate impairment. Liquidity was bolstered by
the recent $500 million bond issuance at Arizona Public Service, which was used to reduce revolver balances.
Antonio
Bettinelli
PNM Resources Inc.(BB-/Negative/B-2)
The company completed the critical sale its natural gas utility unit, allowing it to pay down a significant portion of short-term debt with
$460 million in after-tax proceeds. This, combined with the completed sale of $262 million of first mortgage bonds at Texas-New Mexico
Power, eliminates most significant near-term liquidity risks related to facility expirations and maturities. There are now no significant
maturities of long-term debt until 2015 and no revolver expirations until 2012. Non-regulated retail provider First Choice Power, merchant
Antonio
Bettinelli
Standard & Poor’s RatingsDirect | March 30, 2009 16
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
power provider Optim Energy, and regulated electric utility PNM experienced financial losses and very weak cash flows in 2008. Funds
from operations coverage of debt stood at 6.6% for the quarter ended Dec. 31, 2008 and 4.7% for the full year. These results are well
below the expected level, even for the current rating.
Portland General Electric Co.(BBB+/Stable/A-2)
The company’s 2009 challenges will principally focus on the company’s ability to access debt and equity markets to support its liquidity
needs and capital investment plans. Collateral requirements continue to increase for the company, as a result of declining power and gas
prices. $179 million in equity recently issued supports the $760 million 2009 capital plan; over 50% is for construction and turbine
contracts for the second and third phases of the 324 MW Biglow wind farm. The company faces in May a mandatory tender on $142
million of secured pollution control revenue bonds but otherwise has no maturities next year other than its recently executed credit
facility.
Anne Selting
Potomac Electric Power Co.(BBB/Stable/A-2)
See PEPCO Holdings Inc Gerrit Jepsen
PPL Electric Utilities Corp.(A-/Negative/A-2)
In the near term, PPLEU’s financial measures are adequate, but absent any significant changes in the utility’s financial policy, cash flow
measures may weaken materially after a $200 million competitive transition charge expires after 2009. In addition, a less than smooth
transition to competitive power procurement markets for the utility could affect credit quality. To meet its POLR obligations starting in
2010, PPLEU has a few remaining semi-annual requests-for-proposal that should help average generation prices in part to mitigate
expected rate increases. One form of rate mitigation for PPLEU is the utility’s Pennsylvania PUC-approved plan that is available as an
option to customers to make additional payments through 2009 over currently approved rates.
Gerrit Jepsen
Progress Energy Inc.(BBB+/Stable/A-2)
In pursuit of two new nuclear units in Florida, Progress Energy entered into an EPC contract with Westinghouse Electric Company LLC and
Stone & Webster Inc. in December 2008 at a contract price of $7.65 billion. In February 2009, PEF filed a request with the FPSC to defer
until 2010, recovery of the previously approved nuclear preconstruction costs of $200 million. Like many utilities, the customer base in
Florida demonstrated no growth, while the North Carolina service territory experienced a modest decline. The financial profile remains
aggressive and in line with expectations with FFO/interest coverage of about 2.9x, FFO to total debt of about 11.5% and debt leverage of
62.5% for 2008.
Dimitri Nikas
Public Service Co. of Colorado (BBB+/Stable/A-2)
See Xcel Energy Inc Gerrit Jepsen
Public Service Co. of New Hampshire (BBB/Stable/--)
See Northeast Utilities John
Kennedy
Public Service Co. of New Mexico (BB-/Negative/B-2)
See PNM Resources Inc.Antonio
Bettinelli
Public Service Co. of North Carolina Inc.(A-/Negative/A-2)
See SCANA Corp.Dimitri Nikas
Public Service Co. of Oklahoma (BBB/Stable/--)
See American Electric Power Co. Inc.Gerrit Jepsen
Public Service Electric & Gas Co.(BBB/Stable/A-2)
The utility expects that going forward its sales growth will continue to be affected by the recession. As a result, the company will only
invest further new capital in areas with sound regulatory support. This includes the recent announcement of a $773 million solar energy
program, a $698 million gas and electric infrastructure improvement, and a $190 million advanced advance energy conservation program.
The programs are designed to meet renewable portfolio standards, achieve various energy goals, while stimulating the local economy.
Gabe
Grosberg
Puget Energy Inc.(BB+/Stable/--)
Puget's acquisition by a consortium of investors led by Macquarie Infrastructure was completed in the first quarter, after final approval by
Washington state commissioners. The company has several projects on the horizon, with estimated capital expenditures of $866 million in
2009 and $988 million in 2010. Adjusted FFO FFO to total debt is expected to remain above 12% on an ongoing basis and adjusted debt to
capital near 60%. Liquidity is currently ample given the size of the new facilities implemented during the transaction.
Antonio
Bettinelli
Puget Sound Energy Inc.(BBB/Stable/A-2)
See Puget Energy Inc.Antonio
www.standardandpoors.com/ratingsdirect 17
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Bettinelli
Rochester Gas & Electric Corp.(BBB+/Watch Neg/--)
See Energy East Corp John
Kennedy
Rockland Electric Co.(A-/Stable/--)
See Consolidated Edison Inc.John
Kennedy
SCANA Corp.(A-/Negative/--)
Scana Corp. has proposed to build two 1,117MW AP1000 Westinghouse nuclear units in partnership with the South Carolina Public
Service Authority on a 55%/45% ownership basis, with anticipated commercial operation in 2016 and 2019, respectively. The South
Carolina Public Service Commission approved the construction of the nuclear units in February 2009 pursuant to the Base Load Review
Act, which provides for a legislatively supported transparent framework for construction of new baseload units. Given the magnitude of
the project, the company's business and financial risk profiles could come under significant pressure as the project ramps up.
Dimitri Nikas
Sierra Pacific Power Co.(BB/Stable/NR)
See NV Energy Inc Antonio
Bettinelli
South Carolina Electric & Gas Co.(A-/Negative/A-2)
See SCANA Corp.Dimitri Nikas
Southern California Edison Co.(BBB+/Stable/A-2)
See Edison International Anne Selting
Southern Co.(A/Stable/A-1)
Customer base, which has exhibited strong growth in the past several of years, has started to moderate due to the overall economic
slowdown. Georgia Power is pursuing the construction of a new nuclear generation facility with partners Oglethorpe Power Corp., MEAG,
and Dalton Utilities. In February 2009, the Georgia State Senate passed a bill which would allow Georgia Power to recover a return on
construction work in progress in rate base during the construction period which would support credit quality. Capital spending needs will
be significant over the next three years and total about $14.4 billion (excluding Southern Power) to address maintenance and growth
prospects, as well as to meet increasingly stringent environmental compliance standards. The financial profile remains robust, and is
further expected to benefit in 2009 from the recent rate increase of $168 million at Alabama Power. In addition, the credit metrics should
also benefit from the timely recovery of deferred fuel balances which totaled about $1.25 billion as of the end of 2008. FFO to interest
coverage for 2008 was 4.2x, FFO to total debt was 17.2% while the debt leverage increased to 59.0%.
Dimitri Nikas
Southern Connecticut Gas Co.(BBB+/Watch Neg/--)
See Energy East Corp.John
Kennedy
Southern Electric Generating Co.(A/Stable/NR)
See Southern Co.Dimitri Nikas
Southwestern Electric Power Co.(BBB/Stable/--)
See American Electric Power Co. Inc Gerrit Jepsen
Southwestern Public Service Co.(BBB+/Stable/A-2)
See Xcel Energy Inc.Gerrit Jepsen
System Energy Resources Inc.(BBB/Negative/--)
See Entergy Corp.Dimitri Nikas
Tampa Electric Co.(BBB-/Positive/A-3)
See TECO Energy Inc.Todd
Shipman
TECO Energy Inc.(BBB-/Positive/NR)
TECO management’s focus on its core regulated business provides sturdy support for credit quality. Cash flow at the electric utility has
improved with the collection of the past under-recovered fuel surcharge. Smaller amounts of legacy debt incurred to pursue the
abandoned merchant strategy continue to drag on financial measures and credit quality, but the prospect for updated base rates at Tampa
Todd
Shipman
Standard & Poor’s RatingsDirect | March 30, 2009 18
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Electric and its gas distribution utility could produce better sustainable financial results. Rates for the company’s 24%-owned electric
distribution utility in Guatemala have been drastically cut, but no cash flow from Guatemalan activities is counted on to service TECO’s
debt.
Texas-New Mexico Power Co.(BB-/Negative/--)
See PNM Resources Inc.Antonio
Bettinelli
The Berkshire Gas Co.(BBB+/Watch Neg/--)
See Energy East Corp John
Kennedy
Toledo Edison Co.(BBB/Stable/--)
See FirstEnergy Corp.Todd
Shipman
Tucson Electric Power Co.(BB+/Stable/B-2)
Improvements in credit metrics and a stronger balance sheet are likely to result from Tucson Electric’s $47 million (6%) general rate
increase effective January 2009—its first rate increase since 2000. Financial ratios are not expected to fully reflect these changes until
2010 due to CTC over-collections that will offset the first $58 million energy costs. The company should be able to internally fund a
significant portion of capital expenditures in 2009 and beyond. Due to high fuel and purchased power costs in 2008 adjusted funds from
operations to debt has decreased to 15.5% from 19% in 2007. These costs led to lower EBITDA that caused the company to amend credit
agreements in September and February to provide additional flexibility under financial covenants in the agreements. However, liquidity
remains adequate. High debt leverage persists at 73% at the end of 2008.
Antonio
Bettinelli
Union Electric Co. d/b/a AmerenUE (BBB-/Stable/A-3)
See Ameren Corp.Gabe
Grosberg
Virginia Electric & Power Co.(A-/Stable/A-2)
See Dominion Resources Inc.Todd
Shipman
West Penn Power Co.(BBB-/Stable/NR)
See Allegheny Energy Inc.Gerrit Jepsen
Westar Energy Inc.(BBB-/Stable/NR)
In January 2009, the Kansas Corporation Commission approved the company’s settlement, increasing revenue by $130 million, reflecting
an 11% increase to existing rates. However, due to the recession, the company significantly reduced its 2009 capital budget to about
$501 million, primarily by delaying the start of various capital expenditures. This will provide the company with a reduced need to access
the capital markets during a period of extreme volatility.
Gabe
Grosberg
Western Massachusetts Electric Co.(BBB/Stable/--)
See Northeast Utilities John
Kennedy
Wisconsin Electric Power Co.(A-/Positive/A-2)
See Wisconsin Energy Corp.Barbara
Eiseman
Wisconsin Energy Corp.(BBB+/Positive/A-2)
Wisconsin Energy continues to make progress on its heavy construction program. The 85%-owned coal-fired Oak Creek Unit 1 and
common facilities are about 65% complete and slated for commercial operation in December 2009 and Unit 2 is roughly 27% complete
and targeted for August 2010 in-service. A credit concern that has recently surfaced is Bechtel Power’s (the contractor) claims for cost
overruns, of which the company’s share would about $412 million. Despite a 9% decline in large commercial and industrial sales in 2008,
earnings continued to improve, aided largely by tight cost controls and strong demand for natural gas.
Barbara
Eiseman
Wisconsin Gas LLC (A-/Positive/A-2)
See Wisconsin Energy Corp.Barbara
Eiseman
Wisconsin Power & Light Co.(A-/Stable/A-2)
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
See Alliant Energy Corp.Gerrit Jepsen
Wisconsin Public Service Corp.(A-/Negative/A-2)
See Integrys Energy Group Inc.Gabe
Grosberg
Xcel Energy Inc.(BBB+/Stable/A-2)
Xcel continues to advance its large capital spending program built around baseload additions, wind generation, and transmission projects.
In Colorado, construction risk should be reduced once the Comanche 3 coal unit and the 300 MW of gas-fired generation at the Fort St.
Vrain site come online in 2009. Regulatory support has been provided during construction, but ongoing rate relief will be necessary to
continue bolstering currently adequate consolidated cash flow measures.
Gerrit Jepsen
Yankee Gas Services Co.(BBB/Stable/--)
See Northeast Utilities John
Kennedy
*Ratings are as of March 27, 2009.
Recent Rating Activity
Table 2
Recent Rating/Outlook/CreditWatch Actions*
Issuer To From Date Reason
Central Maine
Power Co.
BBB+/Watch Neg/--BBB+/Stable/--Jan. 29,
2009
See Energy East Corp.
Connecticut
Natural Gas
Corp.
BBB+/Watch Neg/--BBB+/Stable/--Jan. 29,
2009
See Energy East Corp.
Energy East
Corp.
BBB+/Watch Neg/A-2 BBB+/Stable/A-2 Jan. 29,
2009
The company's recent filing with the New York Public Service
Commission suggests that the ultimate level of support and commitment
of parent Iberdrola S.A. to Energy East may differ from what is reflected
in the current rating. The company's filing with the Commission states it
is experiencing severe financial difficulties that have produced a
deteriorated liquidity position, particularly at its New York subsidiaries
which have fully drawn their bank facilities.
Great Plains
Energy Inc.
BBB/Negative/--BBB/Stable/--March
6, 2009
The outlook revision and the downgrade reflect the current weak
financial measures that do not correspond to the current rating. Although
the financial measures are expected to improve, the company may find it
difficult to restore its financial profile due to the economic recession and
the volatility of the credit markets.
Integrys Energy
Group Inc.
BBB+/Negative/A-2 A-/Negative/A-2 March
5, 2009
The downgrade reflects Integrys' weak financial measures that do not
support an 'A' category credit profile. The downgrade also reflects the
changes to Integrys' business and financial risk profiles. Standard &
Poor's revised Integrys' business risk profile to 'excellent' from 'strong'
and changed its financial risk profile to 'aggressive' from 'intermediate'.
Kansas City
Power & Light
Co.
BBB/Negative/A-3 BBB/Stable/A-2 March
6, 2009
See Great Plains Energy Inc
KCP&L Greater
Missouri
Operations Co.
BBB/Negative/--BBB/Stable/--March
6, 2009
See Great Plains Energy Inc
MidAmerican
Energy Co.
A-/Stable/A-2 A-/Watch Neg/A-1 March
27,
2009
See MidAmerican Energy Holdings Inc
MidAmerican
Energy Holdings
Co.
BBB+/Stable/--A-/Watch Neg/--March
27,
2009
The CreditWatch resolution for the MidAmerican family completes our
review of the firm's business and financial strategy. We note that our
rating actions today are independent of Standard & Poor's March 24
announcement that placed MEHC's majority owner Berkshire Hathaway
Inc.'s 'AAA'/'A-1+' ratings on negative outlook.
Standard & Poor’s RatingsDirect | March 30, 2009 20
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Table 2
Recent Rating/Outlook/CreditWatch Actions* (cont.)
New York State
Electric & Gas
Corp.
BBB/Watch Neg/A-2 BBB+/Stable/A-2 Jan. 29,
2009
See Energy East Corp.
Northern Natural
Gas Co.
A/Stable/--A/Watch Neg/--March
27,
2009
See MidAmerican Energy Holdings Inc
North Shore Gas
Co.
BBB+/Negative/NR A-/Negative/NR March
5, 2009
See Integrys Energy Group
PacifiCorp A-/Stable/A-2 A-/Watch Neg/A-1 March
27,
2009
See MidAmerican Energy Holdings Inc
Peoples Energy
Corp.
BBB+/Negative/NR A-/Negative/NR March
5, 2009
See Integrys Energy Group
Peoples Gas
Light & Coke Co.
(The)
BBB+/Negative/A-2 A-/Negative/A-2 March
5, 2009
See Integrys Energy Group
Portland General
Electric Co.
BBB+/Negative/A-2 BBB+/Stable/A-2 Jan. 29,
2009
The outlook revision reflects the possibility that in 2009 PGE's debt
balances may increase and credit metrics weaken to levels that would
not be commensurate with our expectations for the current 'BBB+'
corporate credit rating.
PPL Electric
Utilities Corp
A-/Negative/A-2 A-/Stable/A-2 Jan. 27,
2009
This reflects our outlook revision on parent PPL Corp. (BBB/Negative/--) to
negative and our expectation of PPLEU's weakening stand-alone credit
profile after $200 million of revenue from a competitive transition charge
(CTC) ends at the end of 2009.
Puget Energy Inc.BB+/Stable/--BBB-/Watch Neg/--Jan. 16,
2009
The rating actions on PSE and Puget reflect their acquisition led by
Macquarie Infrastructure Partners. All federal and state regulatory and
shareholder approvals required for the merger have now been obtained,
and the company expects the transaction to close by Feb. 6, 2009.
Puget Sound
Energy Inc.
BBB/Stable/A-3 BBB-/Watch Neg/A-3 Jan. 16,
2009
See Puget Energy Inc.
Rochester Gas &
Electric Corp.
BBB+/Watch Neg/--BBB+/Stable/--Jan. 29,
2009
See Energy East Corp.
Southern
Connecticut Gas
Co.
BBB+/Watch Neg/--BBB+/Stable/--Jan. 29,
2009
See Energy East Corp.
The Berkshire
Gas Company
BBB+/Watch Neg/--BBB+/Stable/--Jan. 29,
2009
See Energy East Corp.
Wisconsin Public
Service Corp.
A-/Negative/A-2 A/Negative/A-2 March
5, 2009
See Integrys Energy Group
*Dates represent the period from Dec. 15, 2008 to March 27, 2009, covered by this report card.
Rating Trends
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Chart 3
Selected Articles
Table 3
Previously Published U.S. Electric Utilities Articles
Article title Published date
Clean Coal: Is It An Alternative Fuel?March 9, 2009
Credit Implications Of Smart Grid For U.S. Electric Utilities March 9, 2009
Looking At Renewable Energy Options In New England March 9, 2009
Recovery Mechanisms Help Smooth Electric Utility Cash Flow And Support Ratings March 9, 2009
Shedding Light On Solar Energy's Credit Implications For U.S. Electric Utilities March 9, 2009
The Obama Administration Has Ambitious Energy Plans, But Uncertainties Abound For Electric Utilities Feb. 4, 2009
Credit FAQ: Top 10 Investor Questions For The U.S. Electric Utilities Sector In 2009 Jan. 23, 2009
U.S. Utilities Make Some Progress On New Nuclear Power, But Hurdles Still Linger March 9, 2009
When Energy Efficiency Means Lower Electric Bills, How Do Utilities Cope?March 9, 2009
Will IFRS Affect U.S. Electric Utilities' Credit Quality?Jan. 15, 2009
Wind Power Is Gaining Velocity In The Midwest March 9, 2009
Disclaimer: Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No
sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted.
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
Contact Information
Table 4
Contact Information
Credit Analyst Location Phone E-mail
Antonio Bettinelli, Associate San Francisco (1) 415-371-5067 [e-mail]
Barbara Eiseman, Director New York (1) 212-438-7666 [e-mail]
Gabe Grosberg, Associate New York (1) 212-438-6043 [e-mail]
Gerrit Jepsen, Associate Director New York (1) 212-438-2529 [e-mail]
John Kennedy, Director New York (1) 212-438-7670 [e-mail]
Dimitri Nikas, Director New York (1) 212-438-7807 [e-mail]
Matthew O'Neill, Ratings Analyst New York (1) 212-438-4295 [e-mail]
Anne Selting, Director San Francisco (1) 415-371-5009 [e-mail]
Todd Shipman, CFA, Director New York (1) 212-438-7676 [e-mail]
John W. Whitlock, Managing Director New York (1) 212-438-7678 [e-mail]
Comments and ratings reflect available public data as of March 27, 2009.
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Industry Report Card: U.S. Electric Utility Sector Performed Well In First Quarter Of 2009
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