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22 Jan 2001
MOODY'S ASSIGNS NEGATIVE OUTLOOKS TO CINERGY, CINCINNATI GAS & ELECTRIC, PSI ENERGY AND UNION LIGHT, HEAT & POWER
New York, January 22, 2001 -- Moody's has assigned negative outlooks to the debt and preferred stock securities of Cinergy Corp. and all of its subsidiaries. Moody's has taken this action in response to (1) Cinergy's recent announcement that it will purchase two peaking plants from Enron; (2) its recent announcement that it and its two principal operating companies, The Cincinnati Gas & Electric Company and PSI Energy, Inc., reached an agreement in principal with the U.S. Environmental Protection Agency; and (3) the continuing uncertainty surrounding CG&E's post-deregulation corporate and financial structure.
Affected are Cinergy's Baa2 issuer and unsecured ratings; CG&E's A3 senior secured, Baa1 issuer and unsecured, Baa2 junior subordinate and "baa1" preferred stock ratings; PSI's A3 senior secured, Baa1 issuer and unsecured and "baa1" preferred stock ratings; and CG&E subsidiary Union Light, Heat & Power Company's Baa1 unsecured rating. Moody's had previously assigned a stable outlook to each of these ratings, with the exception of UHL&P, to which Moody's had assigned a positive outlook.
Moody's action does not affect its Prime-2 ratings for Cinergy's, CG&E's or PSI's commercial paper, or its ratings for CG&E's, PSI's or Cinergy Global Resources Inc.'s securities insured or backed by third parties.
In December Cinergy announced it will purchase two gas-fired merchant plants in Tennessee and Mississippi from Enron. Moody's acknowledges the generating assets' fit within Cinergy's hedged supply strategy. However, to the extent Cinergy debt finances the Enron acquisition at the corporate level, such debt financing could pressure Cinergy's rating.
In December Cinergy also announced an agreement with the EPA and others to resolve Clean Air Act claims and other matters. The claims were brought against coal-fired plants owned and operated by CG&E and PSI. Cinergy estimates its costs of carrying out the agreement will total $1.4 billion through 2013. Cinergy had previously announced $700 million of environmental capital expenditures which are included in the $1.4 billion. Most of the remaining $700 million is scheduled to be incurred between 2008 and 2013. In return for Cinergy's commitment, the EPA and other plaintiffs will drop their challenges and Cinergy's plants will not be subjected to new federal permitting requirements.
Moody's acknowledges the benefits to Cinergy, CG&E and PSI of entering into the agreement. However, the companies must still incur significant capital expenditures over the coming years. CG&E reached its electric deregulation compact with Ohio in May 2000. Under the compact, CG&E cannot specifically recover any of its costs of carrying out its EPA commitment, except to the extent such costs are covered by the price of power CG&E can sell at market rates. PSI is based in Indiana, which has not passed electric deregulation legislation. Moody's believes it likely PSI will recover from ratepayers its own costs of carrying out the EPA settlement. However, Moody's rating for PSI has been somewhat supported by PSI's affiliation with CG&E.
In assigning the negative outlooks, Moody's also considered the uncertainty surrounding CG&E until Cinergy determines CG&E's post-deregulation corporate and financial structure.
Cinergy Corp., The Cincinnati Gas & Electric Company and The Union Light, Heat and Power Company are headquartered in Cincinnati, Ohio. PSI Energy, Inc. is headquartered in Plainfield, Indiana.
No Related Data.
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