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NEW YORK, Oct. 1, 2003 -- The ratings trend year-to-date for the traditional, nondiversified, and regulated U.S. investor-owned electric and gas industry continues to be relatively stable, with little of the downward pressure experienced elsewhere in the energy industry, according to a report published by Standard & Poor's Ratings Services.
"Downward rating pressure on these companies typically results from the strained credit quality of their nonregulated affiliates. With limited exceptions, regulation has continued to remain reasonably supportive of credit quality," said Standard & Poor's credit analyst Richard Cortright.
The report also states that the future profile of a bankrupt utility in one of the states with fractured regulatory relationships, California, has gained some clarity. Pacific Gas & Electric Co. could emerge from bankruptcy in the first quarter of next year, but as an integrated regulated utility in accordance with a settlement agreement reached between the utility and the staff of the California Public Utilities Commission.
According to the report, rating downgrades related to a weakening regulated business remain few. However, on Sept. 14, NorthWestern Corp. decided to file its utility operations into bankruptcy after the company's attempt to restructure the company's debt (largely related to major acquisitions) out of court failed.
Finally, the report notes that financial measures, most notably leverage and funds flow coverage of debt, have been stabilizing during the year, which lends support to the thesis that the severity of the downward ratings slope across the energy sector may be moderating.
"Industry Report Card: U.S. Electric/Gas/Water" is available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com.
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