Energy Act Presents Modest Benefits to Public Power

Energy Act Presents Modest Benefits to Public Power

NEW YORK, Aug. 2 /PRNewswire/ -- Standard & Poor's Ratings Services said today that the effects of the Energy Policy Act of 2005 passed by Congress last week on U.S. public power credit quality will be relatively positive overall, although any benefits will be modest and slow to be realized.

Key areas of benefit include provisions for increased fuel supply, support for nuclear and renewable energy, improved transmission, and federal authority related to specified legal proceedings.

The Energy Act includes a series of favorable provisions and incentives aimed at increasing domestic production of oil and gas -- a goal that might ultimately be difficult to realize.

"In recent years, tight supply of natural gas has resulted in higher and more volatile commodity prices," said Standard & Poor's credit analyst Peter V. Murphy. "The absence of long-term gas price stability has been of particular credit concern due to the large volume of power plant capacity completed, in progress, or planned, that uses natural gas as its primary fuel. While the Energy Act's provisions alone will not solve production and demand imbalances, any improvement in the supply of natural gas over the long run will beneficially affect electricity production costs."

Likewise, the Energy Act supports the continuation or development of nuclear and renewable energy, which could similarly affect power supply and prices over the longer term, with little upfront benefit.

"The Energy Act also contains provisions to enhance the nation's transmission system and the authority of the FERC to site critical reliability and growth projects, as well as to try to improve the overall transparency in transmission cost of service--all of which are important to the transmission- constrained wholesale power markets of the U.S.," said Mr. Murphy.

In addition, by establishing the Electric Reliability Organization to enforce reliability standards, the Energy Act should improve the operations of the grid. However, upgrades to the nation's transmission system will remain costly, and how these costs will be allocated remains uncertain.

One narrowly drawn provision of the Energy Act that could have a more immediate effect is Section 1270, which could potentially provide relief to Snohomish County Public Utility District, Wash. ('A+' electric system revenue bond rating, stable outlook), and other power purchasers in the West affected by market manipulation in the Western energy crisis of 2000-2001. The provision gives FERC jurisdiction to determine whether purchasers are required to make termination payments for power not delivered by a seller found to have manipulated wholesale electricity markets: a reference to Enron Corp. If FERC so rules, Snohomish would not be required to make the termination payment of more than $125 million claimed by Enron, which is in bankruptcy.

It is expected that President George W. Bush will soon sign the Energy Act of 2005 into law.

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Source: Standard & Poor's

CONTACT: Media Contact: David Wargin, New York (1) 212-438-1579 david_wargin@standardandpoors.com Analyst Contacts: Peter V Murphy, New York (1) 212-438-2065 Theodore Chapman, Dallas (1) 214-871-1401

Web site: http://www.standardandpoors.com/

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