Alan Spen of Fitch Investors repeated as the First Team All-American Municipal Power Bond Analyst for the third consecutive year.

Jerry Lepinski of John Nuveen had a solid voter turnout in the 1992 election and his vote total helped make his firm No. I among the funds.

The electric and gas power bond sector is entering a period of change driven by regulation at both the state and federal levels, according to Mr. Spen.

Only a few years ago the industry was in a era of great stability because it had completed its major construction programs. As a result, the industry and its bonds benefited with better ratings.

However, Congress has agreed to substantial changes in the regulation of utilities and the industry.

The new national energy bill has many components that mean changes for the industry. For example, the bill streamlines nuclear power development and promotes greater use of natural. It also provides greater opportunity and incentives for the use of independent power producers as well as drilling on federal properties.

The bill essentially deregulates the electric utility industry by allowing more competition from independent power producers.

Additionally the bill opens up transmission lines that should benefit public power companies and cooperatives, to the possible detriment of investor-owned utilities (IOUS), Mr. Spen said.

Historically, IOUs and some for the municipal utilities provided most of their generation from their own facilities. But there is a movement toward non-utility generators (NUGS) to compete with traditional municipal and cooperative-owned utilities," Mr. Spen said.

Essentially, NUGS are privately owned companies set up to provide power to existing utilities. PG&E and Bechtel are doing a joint venture to build units, often more efficiently, because their able to leverage their joint capital bases when borrowing. Mr. Spen added that debt is cheaper than equity and the cost savings should be passed along to customers.

"By the year 2000, 10% of the total generation could be supplied by these companies," Mr. Spen said.

During 1992, Fitch published independent power producer criteria, which should prove helpful to investors.

Demand-side Conservation

A movement is underway in the utility industry to make better use of existing resources, rather then build more facilities. Managing existing generation provides real financial incentives for rate payers to use less energy; and it saves the utilities money.

For example, Mr. Spen noted that the Sacramento Municipal Utility District (SMUD) has found it costs about four cents to conserve a unit of energy, versus about seven cents to build additional capacity to generate the same unit of energy.

"It's a whole change in the mindset of utilities and regulators in h6w they think about how to manage the existing energy more efficiently," Mr. Spen said.

As with any major change, some will adapt more quickly to the new environment. Salt River Project's downsizing of its staff and merging of activities illustrates steps being taken to improve efficiency, while rural electric cooperatives have been largely slow to change.

"The old monopoly mentality, that states provided a defined service area, won't work anymore," Mr. Spen stated. "We're entering a period of competition where California operations can build plants on the East Coast, now."

When asked if public electric utilities will be able to compete, Mr. Spen noted that the lower cost of capital can help these concerns.

But some municipal plants have higher costs and the demand has not picked up the way some issuers have anticipated. "North Carolina Eastern Power has some sizable rate increases and they are making efforts to lower their break-even point," he said.

IOUs are the leaders in trying to lower the cost of producing energy, with Virginia Power effectively using third-party production to avoid having to build more capacity to meet demand.

Utility credits must be reviewed on a case-by-case basis because the next five years will be much different than the previous three years. As a result of these changes, the sector will provide many more opportunities, Mr. Spen predicted.

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