Public Power - January/February 2009 - (Page 11)

difficult decision because nobody knows when the economy will move back to where it’s been—whether it will be a six-month downturn or longer. It takes some pressure off. I don’t believe this is just a direct result of the slowing economy, but lower natural gas prices have clearly eased the rate pressure, which is a positive. Again, given that public power’s strength is the ability to set its own rates and ensure that it maintains margins for its financial coverages, not having to raise rates and still maintain those coverages obviously is a better position to be in. In ratings public 7 developing how do for afactor in the power utility, you financial health of the municipal government and the potential demands for higher transfers from the utility to the municipality’s general fund? It is an important aspect of the credit rating of an electric utility because the utility in most cases is owned by the general government or the city. There are some unaffiliated utilities, like Salt River Project and the [public utility districts in the state of Washington]. The strong financial health of the city has two positive factors for the utility. One is that the likely pressure on the utility for transfers might be lessened if the city is in strong financial health, which allows the utility to keep its rates competitive and keep internal funds for capital improvement projects. Second, in times of stress for the utility, the city may be able to help the utility out. A strong city can be an important backstop in some respects. That’s proven to be an important strength historically. Look at what happened to Seattle City Light during the energy crisis in 2001, the Aaa-rated city government was able to help City Light for a period of time as the utility worked through the problems it faced during that low-water, high-wholesale-market period. new generation projects? I wouldn’t say it’s changed. I’d say we have always factored financial resiliency into our assessments. If there is a slow economy for a longer period of time and there is a significant effort toward conservation as well, then building a power plant that is too big for the utility and its service area is a concern. That is somewhat mitigated by the stronger wholesale markets that have developed. Obviously they’re not perfect markets, but they are much more open than they were during the last building cycle, where this type of excess capacity caused many utilities to have credit problems because they could not find easy buyers for surplus. The mismatch of supply and demand for a local utility is an issue. But a bigger credit question is the impact of greenhouse gas emissions regulation and how that may affect a utility’s decision making. Already, a number of coal plants have been canceled and utilities have had to switch to other fuels. Whether that provides, longer term, the same type of reliability and price advantage that public power systems have had is an open question. In Florida, for example, six coal-fired generation plants were cancelled; there’s a really long lead-time for nuclear. Many of the municipal utilities have had to gear up for natural gas-fired generation, which is showing in the retail rates. a pollutant, there needs to be a best available technology that will limit the emission. At this point in time, even if EPA moves ahead with the regulation, there is no commercially acceptable or available “best available technology” for limiting greenhouse gas emissions. So it is a conundrum. Last 10 September, Moody’s announced plans to recalibrate its municipal bond ratings to the global rating scale by January and in October, Moody’s announced it would delay recalibration in light of the problems in the financial markets. When does Moody’s now expect to go forward with the transition to the global rating scale? Moody’s continues to work on the process that would be required to recalibrate ratings. There’s been no announcement on when we would proceed on implementing the recalibration. ❚ 9 you think climate change concerns Do are greater now with the change in the White House? The Environmental Protection Agency has stated that it has no authority—despite a Supreme Court ruling—to regulate carbon. That position is now under reconsideration again. But the EPA under the Obama Administration is expected to be more focused on regulating carbon. Whether Congress can get a consensus to pass broader legislation that specifically defines carbon as a pollutant is an open question that may be pushed off into 2010. From Moody’s perspective, we believe that, to be ruled January-February 2009 11 8 the turmoil in financial markets Has changed how Moody’s plans to assess public power’s bond issues for major www.APPAnet.org http://www.APPAnet.org

Table of Contents Feed for the Digital Edition of Public Power - January/February 2009

Public Power - December 2008 Contents Perspective 10 Questions Heat or Eat? Achieving Excellence in Nuclear Operations Training Grand Ambitions for Wind Power Visions of Green Carbon Trading Across The Pond Reliability Green Energy Customer Service DEED Hometown Connections Parting Shot

Public Power - January/February 2009

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