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19 Sep 2002
MOODY'S PLACES OGE ENERGY AND ENOGEX UNDER REVIEW FOR POSSIBLE DOWNGRADE; REVISES OKLAHOMA GAS & ELECTRIC'S OUTLOOK TO NEGATIVE; ASSIGNS OKLAHOMA GAS & ELECTRIC COMPANY COMMERCIAL PAPER RATING OF PRIME-1
New York, September 19, 2002 -- Moody's Investors Service placed the ratings of OGE Energy, Corp.
(senior unsecured A3) and Enogex, Inc. (senior unsecured
Baa2) under review for possible downgrade. OGE Energy's Prime-2
commercial paper rating is confirmed.
Moody's also assigned a commercial paper rating of Prime-1 to Oklahoma
Gas & Electric Company, and revised the rating outlook for Oklahoma
Gas & Electric Company to negative from stable.
OGE Energy, Corp. was placed under review for possible downgrade
due to continued weak operating and financial performance at subsidiary
Enogex, Inc. (senior unsecured Baa2), and high consolidated
leverage for OGE Energy, Corp.
Enogex was placed under review for possible downgrade due to continued
weaker than expected results from Enogex's diversification program,
and its high level of sensitivity to commodity prices in its processing
and gas production businesses. Enogex's results have been weakened
by low frac spreads for natural gas liquids in its gathering and processing
business. Furthermore, its ability to respond to low frac
spreads is limited by the long tenors of many of its keep-whole
gas processing contracts that obligate Enogex to process gas at a loss.
Although Enogex has negotiated some fee arrangements to reduce negative
margins, its results have still suffered when frac spreads are low
($1.50 per mmbtu 10-year historic average vs.
$.87 monthly average during the first half of 2002).
Moody's review will consider Enogex's progress in mitigating its price
exposure and improving its profitability and cash flows. A downgrade
may result if Enogex's improvement efforts fail to sufficiently bolster
its earnings and cash flow.
The rating outlook for Oklahoma Gas and Electric Company was changed to
negative based on uncertainties surrounding its current rate case filing.
OG&E has sought approval to increase rates by $26.2
million annually to improve system reliability and to help cover the costs
of the record ice storm that damaged much of the company's electric system
in January 2002, with an estimated cost of approximately $92
million. However, the Attorney General's Office and an industrial
energy users group responded to the company's request by calling instead
for rate reductions of more than $100 million while Oklahoma Corporation
Commission staff have recommended a $39.1 million rate reduction.
Sensitivity analyses show that cash coverages could be significantly impacted
and may potentially place pressure on the rating if compared to similarly
rated peers. Final regulatory decisions are awaited but could go
on for another several months.
Moody's has also assigned a commercial paper rating of Prime-1
to Oklahoma Gas and Electric Company. The company has a $100
million syndicated bank agreement which has a material adverse change
provision, which Moody's views as weakening the liquidity support
provided by this facility.
Ratings under review include:
OGE Energy - A3 Senior Unsecured, Baa1 Subordinated Debt
Enogex - Baa2 Senior Unsecured
Transok - Baa2 Senior Unsecured, Baa2 Issuer Rating
OGE Energy Capital Trust I - Baa1 Trust Preferred
OGE Energy is headquartered in Oklahoma City along with its operating
subsidiaries OG&E Electric Services and Enogex. OG&E is
one of two large investor-owned electric utilities serving Oklahoma.
OG&E also serves a small part of Arkansas. Enogex Inc.
is an intrastate natural pipeline company, which through its subsidiaries
also engages in natural gas gathering, processing, and transmission;
natural gas and power marketing; and oil and gas development and
Moody's Investors Service
Vice President - Senior Analyst
Moody's Investors Service
No Related Data.
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