Alan Spen of Fitch Investors Service repeated as the first team All-American Electric, Gas, and Power Revenue Bond analyst.

Spen had a more difficult time winning this year because of strong voter support for William Chew of Standard & Poor's Corp. and Jerome Lepinski of John Nuveen & Co.

Spen said, "It's not going to be quiet in the power bond sector over the next five years."

He explained that a lot is happening in the industry that investors need to keep in mind and they should adjust their portfolios.

First, on the energy supply side, Spen noted that utilities are using up most their extra capacity.

The construction phase has bottomed out, Spen said, but the building curve is starting its upswing for base load generation.

On the demand side, the picture is changing, as utilities and energy users focus on energy conservation and reducing demand.

"Rather than build new plants that may adversely affect the environment," Spen explained, "people are managing the demand, for example, by using more efficient appliances."

Spen noted that Sacramento Municipal Utility District expects to reduce demand by 600 megawatts by the end of the decade through energy conservation.

"There are real financial incentives because in some cases it costs about three and one half cents per kilowatt hour to reduce demand, which is about half the cost to build extra capacity," Spen said.

When asked about potential credit concerns, Spen responded that enough evidence is mounting to have questions about the greenhouse effect on energy users.

He notes dramatically higher temperatures and "a gut feeling there is a correlation between ozone layers and the environment heating up."

Overall, Spen feels the greenhouse effect pushes growth in demand higher.

For example, Spen feels new technology will be spurred on by the greenhouse effect, such as the full development of electric automobiles during the 1990s. "In addition to the air conditioners, the power system may need to fuel cars," Spen said.

Moving to other credit factors, Spen believes changes in the Public Utility Holding Company Act will alter how municipal utilities operate.

The changes would open up transmission lines to independent power producers and public power suppliers.

"This will raise questions about how to price transmissions," he said, "but, ultimately the opening up of transmission lines could increase the efficiency of the nation's power supply system."

From a credit perspective, Spen noted that take-or-pay contracts that allow utilities to purchase power from suppliers that use clean burning facilities or cogeneration plants are being replaced by take-and-pay contracts. This is a positive credit trend, he said.

The next step will see traditional utilities working with independent power suppliers for traditional sources of power.

Spen said, "Independent power suppliers presently account for about 5% of the nation's supply and by the year 2000 they could represent about 10% of the total supply."

In the past, most independents built smaller units, but the entry of major players such as Westinghouse could mean larger plants will be built.

One of the major risks for utilities that depend on independents is the reliability of the supply and the ancillary concerns about the cost of replacement power.

The impact on municipal credit quality is a concern among municipal utility districts. Spen noted that Municipal Electric Authority of Georgia, North Carolina Eastern Power Supply, and Northern California Public Power already have begun requesting proposals from independent power producers.

To evaluate the risks, Spen said that Fitch has recently formed a new corporate/municipal rating committee to develop criteria for the sector.

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