U.S. Public Power Utilities Coping With High Fuel Costs, Report Says

NEW YORK Oct. 6, 2005

As fuel prices change dramatically, we need to ask whether the robust credit profiles that are broadly associated with U.S. public power utilities are sustainable if fuel prices remain exceptionally high over time, according to a report published today by Standard & Poor's Ratings Services titled "High Fuel Costs May Present A Challenge For U.S. Public Power Utilities."

Because public power utilities are not operated to yield robust excess margins that represent profits, the question arises as to how many public power utilities may lack a large enough financial cushion to absorb and temper the significant financial pressures created by sharp increases in the prices of natural gas, coal, and oil.

"The stability and direction of credit quality for public power will require management to keep revenues and expenses aligned, which in some cases may not be palatable," said Standard & Poor's credit analyst David Bodek.

Those utilities that seek to preserve credit quality in the face of rising costs will need to either adopt power-cost adjustments or will need to find considerable savings elsewhere in their budgets to offset rising fuel costs. Based on public power's strong track record of financial stability, Standard & Poor's expects that most public power utilities will work to align revenues and expenses, but there may be some that will find it difficult to do so.

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