S&P Report Examines How Western U.S. Drought

S&P Report Examines How Western U.S. Drought Affects Electric Utilities

NEW YORK (Standard & Poor's) Aug. 5, 2004

Some Western U.S. utilities may experience a moderate amount of financial pressure in 2004 due to suppressed levels of hydro generation, according to a report published today by Standard & Poor's Ratings Services.

This year is shaping up to be the fifth consecutive one of below-average hydroelectric generation in the western U.S. Every major river basin is experiencing below-average water conditions. For three of these basins, the past five-year period represents the driest on record. Reduced hydroelectric generation can create difficult challenges for those utilities that heavily depend on hydroelectric resources, given their typically low production costs.

Several utilities are facing especially challenging production years, which could reduce cash flow coverage and liquidity this year. The cost estimates range from several million to tens of millions of dollars. However, in nearly all cases, there are mitigating factors to offset the related costs. As a result, any weakening of credit quality is expected to be modest.

The report explores the universe of hydroelectric production in the western U.S., investigates the effect of recent declines in generation, and discusses several ways in which utilities rated by Standard & Poor's have responded.

The report, titled "Western U.S. Hydroelectric Production Takes a Dive, and Utilities Adjust," is available on RatingsDirect, Standard & Poor's Web-based credit research and analysis system. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com. Members of the media may request a copy by contacting Gregg Stein at (1) 212-438-1730 or by e-mail at gregg_stein@standardandpoors.com.

Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 5,000 employees located in 20 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com.

Media Contact: Gregg Stein, (1) 212.438.1730, gregg_stein@standardandpoors.com

Credit Analyst: Leo Carrillo, San Francisco (1) 415-371-5077

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