LOS ANGELES -- After battling the effects of a devastating earthquake at the start of 1994, the Los Angeles Department of Water and Power will march into the new year with another fight on its hands -- this one, over its credit standing.

Department officials have said that last month's controversial $109 million transfer of surplus funds to the city's general fund will not jeopardize the creditworthiness of the utility's $3.3 billion of debt outstanding.

But while Moody's Investors Service remains optimistic about the department's finances, Standard & Poor's Corp. continues to cast a skeptical eye on the nation's largest public utility.

"We are probably going to let the rest of this calendar year go by and then sometime early next year reassess what's going on," said William Cox, the primary utilities analyst with Standard & Poor's in New York. "The revenue transfer is just one element that has contributed to our negative outlook."

The other significant factor, Cox said, is the deregulation of the utilities industry, which will allow private power companies to compete with municipally owned providers.

With these two factors in mind, Standard & Poor's assigned a negative outlook to the department's $2.64 billion of outstanding electric system revenue bonds.

The February action included a confirmation of the bonds' AA rating. But by putting the utility on "negative outlook," Standard & Poor's was indicating a likely rating action within one to three years, Cox said.

Phyllis Currie, the utility's chief financial officer, said she is hoping to set up a meeting with Standard & Poor's next month, and she doesn't believe the fund transfer will have credit implications.

"We don't think it should," Currie said. "I know there would be concerns if this becomes an ongoing practice, but we are not planning to do this on an ongoing basis."

Currie said the transfer was necessary to address the city's financial problems. But she noted that most of the money above the department's traditional 5% transfer was taken from asset sales and customer penalty fees, both of which are not typically included in the utility's financial planning.

As for deregulation, Currie said the department is bracing itself to deal with the new competition.

Among other actions, the utility has announced plans to eliminate 1,000 jobs by next summer, and another 1,900 by the year 2000. Officials hope to achieve the downsizing through attrition, but may resort to layoffs.

"We think our plans are such that we will be able to bring stability to our operations," Currie said. "We hope they [the rating agencies] will look at it that way."

The department is no stranger to difficult circumstances. After the Jan. 17 Northridge earthquake, utility workers had to cope with an estimated $110 million in damages to water and power systems.

Through it all, department officials estimate they lost only 1% in revenues. Most of that loss was the result of temporary service interruptions and the destruction of some customers' homes and businesses.

These and other factors have contributed to Moody's confidence in the department's finances. Unlike Standard & Poor's, Moody's has maintained a stable reading on the utility's Aa bonds.

"You have to look at their total budget, which is in the billions," said Barbara Flickinger, an assistant director and manager of Moody's public finance department in New York. "They've done some recent cost cutting ... and right now, we think the outlook is stable."

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