LOS ANGELES -- Responding to dramatic changes in the electric utility industry, Standard & Poor's Corp. will include a "business position" assessment when it rates municipal electric utilities and rural electric cooperatives beginning in January.
The business position -- to be expressed on a five-point scale ranging from above average to below average -- will be included in a commentary portion that accompanies the ratings assignment.
However, it will not replace the traditional rating.
The business position recognizes the increasingly competitive environment in the municipal electric utility industry, Marla Fox, a Standard & Poor's director who is manager of the agency's municipal utility group, said yesterday.
"Just as that industry has evolved," so has the agency's analytical approach, Fox said.
The addition of the business position assessment does not mark a major revision of the agency's rating criteria, but is rather an enhancement, said Mal Fallon, a Standard & Poor's director.
"The analysis hasn't changed. Just the way we communicate the analysis is being refined," he said.
Four credit factors will be examined before the business position assessment is given: management, operations, rate competitiveness, and the utilities' markets.
Those factors are already used in the agency's ratings of utilities, but now, for the first time, they will be publicly identified through the use of business position assessments, Fox said.
"Increasingly, these four factors have taken on more importance" as the industry changes, although they "have long been a part of [the rating agency's] analytical framework," Fox said.
"The business position assessment ... will provide investors with additional information about the issuers' ability to maintain ratings in the new environment," a press release issued Friday said.
"The business position assessment will be a more specific indicator of long-term viability and competitiveness than our traditional analysis would provide," Fallon said.
The first municipal electric utilities and rural electric cooperatives to be assigned business positions will be those that issue new-money or refunding debt beginning in January, Fox said.
However, the roughly 250 municipal electric utilities and rural wholesale cooperatives that currently are rated by Standard & Poor's will be reviewed beginning early next year, and eventually all of them will be assigned business position assessments. Combined, those utilities have about $140 billion of tax-exempt debt outstanding.
The agency, through its corporate finance department, also assigns ratings to about 200 investor-owned utilities, which have been assigned business positions since October 1993.
"We're taking an application that Standard & Poor's has already utilized [for investor-owned utilities], and we are applying it now to municipal and rural electric cooperative entities," Fox said.
"It is important to see how munis stack up relative to investor-owned" utilities, she added. "They might be competing with them in the future."
Investor-owned utilities are for-profit businesses owned by shareholders, while municipal utilities are government-owned public power systems, owned or operated by local governments or state agencies.
A heightened emphasis on utility competitive positions has been spurred by the National Energy Policy Act of 1992, and some states' recent movement toward retail wheeling, a system in which customers are free to purchase power from any supplier.
There are more than 2,000 municipal utilities nationally, which include wholesale and retail electricity providers. There are about 260 investor-owned utilities, which generate roughly 75% of the nation's electric energy. Municipal systems provide about 10%, and rural electric cooperatives and federal power agencies provide the balance.
Fox and Fallon said the business position assessment will not include some traditional factors such as legal positions and financial performance that influence utility credit ratings. Legal and financial will continue to be covered in the traditional credit evaluation process.
Business position assessments mark an "additional way to not only evaluate and refine the way we look at new issues, but also to add to the surveillance process when we review the ratings we have out there already," Fallon said.
For the first nine months of 1994, total public power issuance by volume dropped nearly 83% when compared with the same period a year earlier, according to Securities Data Co. A total of $4.2 billion of public power issuance occurred, compared with $24.5 billion in the same period for the year before. There were 83 issues so far in 1994, compared with 209 issues in the same 1993 period.
"Maybe there is not a lot of debt going to be issued in the next year or two in the public power sector, but we can't ignore the amount of debt that is already outstanding," Fallon said.
