ATLANTA - Standard & Poor's Corp. on Friday placed the debt of the Municipal Electric Authority of Georgia on CreditWatch with negative implications, citing the utility's inability to control the costs of its investment in generating plants.
The rating action, which does not involve any downgrades, comes as the power authority prepares this week to issue $442.5 million of revenue bonds in order to advance-refund $402.4 million of existing debt. The CreditWatch review covers both the upcoming issue and $4.35 billion of outstanding bonds.
"Several of MEAG's participants currently have significant excess baseload capacity and as a result, decreasingly competitive rates," Standard & Poor's said in a statement. "Attempts by MEAG to reallocate this excess on a long-term basis among the other members, relieving cost pressure, are meeting resistance from nine of the 48 participants, including two of the largest.
"Maintenance of the current ratings depends on the ability of the participants to remain competitive in the retail markets despite the excess capacity and the ability of the members to work together to achieve this objective," Standard & Poor's said.
"We don't see this as a dire situation, but it is something that we felt it necessary to keep an eye on," said Jane Eddy, a Standard & Poor's director.
This week's deal is divided into three series, each of which was given an AA minus rating: $279 million of Series CC power revenue bonds; $108 million of 1993D Series general power revenue bonds; and $55.5 million of Sixth Crossover Series project one special obligation bonds.
The outstanding debt, which remains at its current rating but with a negative CreditWatch, comprises: $2.4 billion of power revenue project 1 senior bonds- rated AA minus; $228 million if project one subordinate bonds, rated A plus/A-1; $628 million of project one special obligation bonds, rated AA minus; $917 million of general power projects 2, 3 & 4 senior bonds rated AA minus; $128 million of projects 2, 3 & 4 subordinated bonds, rated A plus/A-1; and $47 million of project 2, 3 & 4 special obligation bonds, rated AA minus.
Standard & Poor's said that many of the 48 local governments that have entered into contracts to use the authority's baseload generating capacity have sold less power to their customers than had been expected.
The rating agency said that an effort to set up an agreement among members to distribute the excess power capacity has run into problems, with the second largest member, Albany, refusing to join, and the largest participant, Marietta, undecided.
"The ability to successfully conclude this or another arrangement with the same result and maintain a strong relationship among the members is critical to the short-term outlook for the rating," Standard & Poor's said in the report.
Officials at the authority were unavailable for comment Friday afternoon.