Upload
jerome-bishop
View
214
Download
0
Tags:
Embed Size (px)
Citation preview
APPA NATIONAL CONFERENCEHow Policymakers are Responding to the Economic Downturn-A Credit Perspective
Presented by:
Dan Aschenbach
Senior Vice President,
Global Infrastructure
Presented by:
Dan Aschenbach
Senior Vice President,
Global Infrastructure
June 16, 2009
2
Agenda
Economic Recession
Moody’s Outlook
Key Credit Strategies
Credit Ratings and Outlook
3
ECONOMIC RECESSION
4
Moodys.Com Economic Outlook
Recession now engulfs virtually all U.S. states and metropolitan areas
Confidence is beginning to stabilize; surprisingly, the Northeast leads the way
Manufacturing in the Midwest and Southeast—excluding automakers—will get a lift as new orders stabilize
House prices have dropped enough in the weakest markets to entice investors and first-time buyers
5
Rays of A Better Outlook
Consumers, businesses and financial markets are showing signs of improving health
Fiscal and monetary policy steps are cushioning the recession
Layoffs need to ease, consumers need to regain confidence, and loans need to become more available for the economy to recover
For the first time in nearly two years, the near-term outlook is a bit brighter
Full recovery remains a long way off
6
AP Stress Index Falling Slightly
The AP calculates a score from 1 to 100 based on each
county's rate of unemployment, foreclosure and
bankruptcy, with lower numbers indicating less economic
pain.
A county is considered stressed when its score jumps
past 11. In February, nearly 40 percent of the nation's
counties were at or above that threshold. In April, 34
percent scored 11 or higher.
Source: AP May 2009
7
Impact on Public Power Electric Utilities
Demand is down in 2009 in single digits but not all related to recession…weather driven and conservation-related
Municipal utilities with large industrial customers closing may be most exposed particularly if fixed costs need to be spread on smaller sales base
Still magnitude and depth of economic downturn unknown and holds potential for sector outlook to turn negative
8
Fiscal Stress of Local Governments Continue to Be A Possible Public Power Utility Pressure
Most of the defaulted local governments (850) happened several years after the 1929 Depression
Today unfunded pension and medical benefit liabilities present a burden not experienced in the past
Some evidence this year of increased General Fund transfers from utility
Significance of this fiscal stress issue will be dependent on recovery in economy
9
Strategies in Response to Current Downturn
Maintain Liquidity and Mitigate Risk
Public Power Resource Optionality
Maintenance of Financial Metrics
Strengthen Governance Relationship In Particular as it Relates to Rates
10
Maintain Liquidity and Mitigate Risk-The Challenge
Evaluate risks and
establish liquidity targets
and communicate this
From Nebraska ice storms
to California drought
impacts on hydro to
collateral posting or
swaps-know your threat to
liquidity
New costs expected to be
coming so stronger
balance sheet needed
11
Public Power Resource Optionality Planning-A Key Process
Recessions end so plan
through the cycle
Resource optionality as
it relates to carbon
important
“Long term cost-based
approach with options”
12
Strengthen Metrics-More Focus by Moody’s
Debt service coverage
Days cash on hand
Debt ratio
See Moody’s medians
13
Strengthen Governance Relationship As it Relates to Rate Setting
• Best practice is keeping
governing board close
so rate requirements are
understood
• Explain pressure
General Fund Transfers
have on utility and rates
• Rate pressure the most
important credit issue
14
Moody’s Has A Stable Credit Outlook On The Electric Industry
• Less certainty to longer-
term outlook due to
recession, carbon and
commodity market
uncertainty
• Average credit rating for
U.S. investor-owned electric
utilities is in Baa range with
stable outlook
• Public power credit quality
of A2 has stable outlook
15
Moody’s Public Power Credit Ratings
Public
Power
Utility
Number of
Rated
Issuers
Median
Credit
Rating
Credit
Outlook
Debt
Outstanding
($billions)
JPA 42 A2 Stable $31.3
Municipal Electricity
Distributors
300 A2 Stable $8.0(est.)
Largest 25 City-owned
Elec. Utilities
25 A1 Stable $20.7
Largest 9 State/district
utilities
9 A1 Stable $41.6
16
What Factors Likely To Be A Concern In 2009-2010?
Resource uncertainty due to
the scale, scope and depth
of regulatory intervention
on carbon
• Political risk rising due to
new costs related to
shifting from carbon to
renewable and nuclear may
lead to rate resistance and
lower debt service coverage
margins
17
What Factors May Continue To Improve Credit Quality In 2010?
Less political appetite for major industry market
restructuring will limit challenges to business
model and maintain unregulated essential service
Potentially more reasonable phase-in of carbon
policy
• Risk management experience has stabilized cash
flow forecasts
• Some easing of commodity prices
18
Questions?
Thank you.