Muni joint power agencies in Carolinas see outlook improved to stable on deregulation slowdown

New York, March 4, 2002 — Major municipal joint power agencies in the Carolinas have been assigned an improvement in credit outlook to stable for the next two years, matching their expected two-year reprieve from deregulation pressures currently abated by fallout from California and Enron, Moody’s Investors Service said in soon-to-be-published report.

Moody’s outlook revision affects about $6.5 billion of debt from Baa3-rated North Carolina Eastern Municipal Power Agency ($3.1 billion), Baa1-rated North Carolina Municipal Power Agency No.1 ($2.1 billion), and Baa3-rated South Carolina-based Piedmont Municipal Power Agency ($1.3 billion).

“Despite the more stable credit ratings outlook over the next two years, Moody’s believes that the assigned credit ratings reflect their significant leverage and resulting high comparative cost structure given that electricity markets remain closed and electricity retail rates are set locally,” says analyst Dan Aschenbach, author of the Special Comment.

Moody’s says that clearly, in the next two years, only federal intervention would cause North and South Carolina state decision makers to proceed with electricity market restructuring.

“Recent events including the failure of the California deregulation plan and the demise of Enron complicate policy discussions about whether or not to proceed with allowing customers choice of electricity supplier,” says Aschenbach. Another complication is continued regional resistance to a southeast regional transmission organization, which the Federal Energy Regulatory Commission (FERC) says is a market structure needed to create more wholesale competition.

Overall, “Moody’s believes that, given the current circumstances, it appears the agencies will have more time to lower their cost structure and position their operations for future competitive markets,” Aschenbach concludes.

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