Energy bill favorable to coal, will boost clean-coal investment

Energy bill favorable to coal, will boost clean-coal investment

Washington (Platts)--9Aug2005

Fitch Ratings and Standard & Poor's said that, while the energy bill that
President Bush signed into law Monday was generally favorable to industries
like coal, nuclear and renewables, it will not have sweeping implications for
credit quality.

In S&P's analysis of the energy bill, Long-Awaited Energy Act Has Marginal
Credit Implications for US Utility and Oil and Gas Companies, released Aug 1,
analysts said, "New tax write-offs favor credit quality of electric utilities
with material coal-fired generation." 

The report is referring to tax provisions in the bill that "allow companies to
write off (over seven years) pollution-control facilities in service after
April 2005 and in connection with primarily coal-fired generation. Only
pollution-control facilities in service before January 1976 were previously
eligible for this write-off." 

S&P said that "exposure to large, future coal-related environmental capital
expenditures heightens business risk for these utilities, but the accelerated
depreciation lessens this risk somewhat."

Fitch's report, Energy Policy Act of 2005, released Aug 2, offers the same
outlook as S&P's. Fitch expects tax credits, grants and other financial
incentives in the energy bill to increase capital investment in clean-coal
technologies, nuclear plant development, gas storage and pipeline facilities.

According to Fitch, the energy bill provides meaningful incentives for the
construction of advanced coal-fired generation facilities using clean-coal
technologies, including, but not limited to, integrated gas combined-cycle.

Fitch sees the bill's provisions spurring development of a handful of new
coal-based and nuclear facilities "as an effective way to lessen the risks
relating to commercialization of new technologies."  Fitch says that
commercial demonstration of successful advanced technology "will likely reduce
investment costs, shorten the construction cycle for subsequent plants and
avoid the need for extraordinary subsidies for follow-on facilities. Thus,
these incentives could have far reaching consequences in the 2015?2020
periods, despite few immediate investment effects."

"Taken as a whole, the Energy Policy Act is a small positive step for the
utility and energy industries. Some participants may benefit more than others,
such as ethanol and renewable developers. Many [companies and utilities] will
experience tax benefits that will translate into modest increases in cash
flows," the S&P report said.

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