Emissions, Gas, Hydroelectric

Fitch sees increasing need for liquidity in U.S. public power

NEW YORK, June 5, 2003 — Fitch Ratings strongly believes there is an increased need for U.S. public power systems to maintain sufficient liquidity reserves and access to liquidity, according to a new report published today by the rating agency. Reflecting this concern, Fitch also released updated ratings guidelines that have been expanded to include separate items focusing exclusively on financial liquidity and risk management.

“Fitch believes that the need for liquidity increases with a more volatile energy industry and natural gas price environment, and, given the increased volatility, rating changes based solely on liquidity position may be appropriate and has the potential to materially affect a utility’ credit rating,” said Alan Spen, Managing Director, Fitch Ratings. “Fitch’s risk profile and liquidity access framework provides a tool to evaluate a utility’s risk characteristics and measure the adequacy of its various sources of liquidity.”

Fitch uses a comprehensive framework to gauge a utility’s risk profile and to determine the amount of liquidity access available to meet normal business needs and unexpected events. In addition, “Fitch’s framework also considers certain risks or conditions that may not be easily controlled or mitigated, and also recognizes that a utility’s available forms of liquidity are more than just cash,” said Karl Pfeil, Senior Director, Fitch Ratings.

“The potential for soaring spot electricity market prices, fueled by high natural gas costs and greater reliance on gas fired generation, persistent transmission constraints, unexpected outages of major generating assets, as well as unusually low water levels for hydroelectric generation are all reasons public power systems need to maintain sufficient liquidity,” said Spen.

The new report ‘Liquidity Matters’ is available on the Fitch Ratings web site at ‘www.fitchratings.com’. Fitch also today published ‘Public Power Rating Guidelines – Overview’, ‘Public Power Financial Peer Study’ and ‘Fuel Factor: Assessing the Risks of Public Power’s Increased Exposure to Natural Gas’.