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Utility Bonds Upgraded to Highest Level

by Chris Mulick, Herald staff writer
Tri-City Herald, March 23, 2004

Energy Northwest bonds used to build the Columbia Generating Station and two of its unfinished nuclear power plants have been upgraded by Moody's Investor Services to its highest level.

The upgrade covers $5.9 billion in bonds backed by the federal government to build the 1,150-megawatt Columbia plus Plant No. 1 at Hanford and No. 3 at Satsop west of Olympia.

Energy Northwest, a consortium of 18 public utilities, hopes the upgrade will help it get better interest rates as it refinances bonds worth as much as $650 million sometime this spring.

The upgrade may only lower rates incrementally, "but this is big money," said Energy Northwest spokesman Gary Miller.

The new rating is rooted in the strength of the legal arrangements between Energy Northwest and the Bonneville Power Administration, said Moody's analyst Dan Aschenbach.

Under those arrangements, BPA backs the bonds, buys most of Energy Northwest's power and essentially pays its bills, including annual debt payments.

"We believe there's an implicit support by the federal government for the bonds," Aschenbach said.

Further, BPA has improved its standing by weathering the West Coast energy crisis that began in 2001 by raising its wholesale electric rates and maintaining reserves.

"BPA has a well-established record of full cost recovery," Aschenbach said.

That largely justifies Bonneville's decision to implement giant rate increases in October 2001, said agency spokesman Ed Mosey.

"We've always felt we did the right thing," he said. "Ultimately, that will work to the benefit of the customers even though customers are paying more now."

Moody's also mentioned the legal arrangement's survival following the $2.25 billion default on bonds for two other Energy Northwest plants. Plant Nos. 4 at Hanford and 5 at Satsop were abandoned in 1982 and never finished.

Other factors included the growing value of the cheap hydropower BPA sells from the federal hydroelectric dams on the Snake and Columbia rivers, the low likelihood the agency will be privatized and its line of credit with the U.S. Treasury.

Two other credit rating companies -- Fitch Ratings and Standard and Poor's -- rate the bonds at the third-highest level. Standard and Poor's reaffirmed its rating in February while upgrading its credit outlook to stable.

Energy Northwest plans to ask Fitch to update its rating on the bonds before it proceeds with its refinancing plans, Miller said.

Chris Mulick
Utility Bonds Upgraded to Highest Level
Tri-City Herald, March 23, 2004

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