Standard & Poor's Corp. affirmed its A-minus rating on $508.1 million of Piedmont Municipal Power Agency revenue bonds, but revised the outlook to negative from stable.

The revision occurred because of concerns about the utility's competitiveness given electric rate increases needed to absorb excess power capacity from the Catawba Project, a nuclear power plant, the agency said.

Standard & Poor's said it worried about "sharp declines in PMPA's power sell-back arrangement with Duke Power Co. in 1995 and 1996, which will lead to greater Catawba fixed costs.

"As a result, significant annual wholesale rate increases of 6% are forecasted over the net 10 years," the rating agency said. "Retail rates of PMPA's member cities will be pressured to absorb projected wholesale power costs of 84.94 mills per kilowatt-hour in 2003, up from the current level of 50.52 mills."

The cost projections are based on annual growth rate in participants' energy requirement of 2.6%, down from earlier estimates of 3.2%.

Standard & Poor's said that the PMPA's rate projections rely on the "aggressive" assumption that its operation at Catawba and its other nuclear unit, the McGuire project, will reach 80% of annual capacity.

"The credit rating of the agency and the participants may be lowered within three years if the financial performance or rate competitiveness erodes," the rating agency said.

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