Embed Size (px)
DESCRIPTION
Issues affecting Public Power APPA Finance Conference Chris Jumper Senior Director - Public Power 212-908-0594 [email protected]. September 15, 2009. Hot Topics in Fitch Public Power Committees. Presentation Overview. Market disruption The impact of volatile counterparties - PowerPoint PPT Presentation
Citation preview
Issues affecting Public PowerAPPA Finance Conference
Chris Jumper Senior Director - Public [email protected]
September 15, 2009
www.fitchratings.com 2
Hot Topics in Fitch Public Power Committees
1. Market disruptiona. The impact of volatile counterparties
b. The impact of volatile fuel costs
c. Management
2. Resource portfolio additions / changes
a. Generation & transmission/distribution b. Response to proposed environmental regulations
c. Management
3. Demographicsa. Financial metrics/cost structure
b. Operational performance
c. Political pressure
d. Management
Fitch Outlook – Stable in the Short-term Stable in the Long-term*
Presentation Overview
www.fitchratings.com 3
1. Market disruption
> Counterparty risk
> Access to bank liquidity/LOC’s?> Major providers have drastically reduced Utility’s access to liquidity
> While the market has begun to thaw, bank liquidity is:
– Higher priced; and,
– Tougher terms;
– Creative Solutions for self liquidity?
> Access to the capital markets – Build America Bonds seemed to have helped
> Volatile commodity prices
> The next shoe to drop?> A meltdown of the commercial real estate market (and CMBS transactions) or Consumer Debt?
> Inflation/declining US dollar and the future impact on fuel, labor, material costs
> The resiliency of the already stressed US consumer.
www.fitchratings.com 4
2. Resource Portfolio Additions / Changes - Generation
> Nuclear?
> Natural Gas-fired?
> Renewables?
> Fitch looks for issuer to have diversity & flexibility in power resources.
> Are new resources needed for long-term growth or regulatory mandates?
> Planned generation construction
> Impact to cost structure – Additional debt funding.
> Technology and price assumptions
– How is this option the best alternative for your community; regional context is
important
> Uncertainty in the industry results in difficultly making long-term resource decisions
www.fitchratings.com 5
Resource Portfolio Additions / Changes- Transmission & Distribution Systems
> Transmission infrastructure to alleviate capacity bottlenecks and access renewables
> Participation in Regional Transmission Organizations (RTO’s)
> Conservation and energy efficient programs
> The installation of Smart Grids
www.fitchratings.com 6
Resource Portfolio Additions / Changes- RPS/GHG emissions
> Renewable Portfolio Standards
– Over half of the states have adopted renewable portfolio standards
– What is the issuer’s strategy to meet RPS (buy credits or build)?
> Fitch expects to see federal carbon legislation within the next several years.
– Waxman-Markey legislation made it through the House, but does it have the momentum & support to make it through the Senate?
– Utilities are measuring their carbon footprint
– Modeling various environmental cost structures
– Passage of carbon legislation will at least provide some certainty on which to base future decisions about the resource portfolio.
– Fitch will monitor management’s decision on how it plans to balance its financial margins/metrics in light of these added cost.
www.fitchratings.com 7
3. Demographics
> Analyzing the service area and the customers, usage and key drivers in the region.
> Assessing the Local Regulatory Support/Politics
– City Council/Mayor priority and support for timely rate increases or revised rate structure
– Increased political pressure and potential changes to general fund transfer policies.
> Continued political support for pursuing a large capital improvement plan in light of a prolonged
economic downturn
– Flexible rate structure
– Understanding of cost of climate change
– Re-evaluating proposed generation in light of current low fuel cost environment
– Other economic considerations
> Business Strategy
> Cost Structure
www.fitchratings.com 8
Fitch Public Power Credit Outlook for 2009
> The near-term outlook for the sector is stable.
> Long-term, also stable although Fitch recognizes increasing negative credit
pressures. The public power industry remains vulnerable. (i.e., climate change).
> Public power continues to prove itself to be a very solid investment despite past
complexities facing the industry such as deregulation, fuel price volatility, and the
corporate credit crisis.
> Going forward how will public power address the issues:
– Fluctuating fuel costs and the ability to maintain financial metrics
– Market disruptions/ability to access the market and obtain liquidity
– Uncertainty associated with climate change legislation
– Demand for additional generation
– Community (and Political) appetite for new policy direction
Fitch Ratings
www.fitchratings.com
London
Eldon House
2 Eldon Street
London EC2M 7UA
UK
+44 207 417 4222
Singapore
7 Temasek Blvd.
Singapore 038987
+65 6336 6801
New York
One State Street Plaza
New York, NY 10004
+1 212 908 0500
+1 800 75 FITCH
The Fitch Group Fitch Ratings Algorithmics Fitch Training
