MOODY'S UPGRADES LONG-TERM SECURITIES RATINGS OF PORTLAND GENERAL ELECTRIC COMPANY (SR. SEC. TO A3) AND PORTLAND GENERAL CORP. (SR. UNSEC. TO Baa2)
New York, 05-08-95 -- Moody's upgraded the senior secured debt ratings of Portland General Electric Company (PGE) to A3 from Baa1 and the senior unsecured debt rating of its parent, Portland General Corporation (PGC), to Baa2 from Baa3. The upgrades largely reflect resolution of regulatory uncertainties surrounding the Trojan nuclear plant and the strong likelihood that PGE can maintain its favorable competitive position. The outlook for the upgraded ratings is stable.
Ratings upgraded are:
Portland General Electric Company -- first mortgage bonds and secured medium-term notes to A3 from Baa1; shelf registration for senior secured debt to (P)A3 from (P)Baa1; unsecured pollution control revenue bonds and counterparty rating to Baa1 from Baa2; and preferred stock to "baa1" from "baa2".
Portland General Corporation -- Unsecured medium-term notes to Baa2 from Baa3.
Portland General Electric's short-term debt rating for commercial paper is unchanged at Prime-2.
A recent decision by the Oregon Public Utility Commission to approve 87% recovery of and return on PGE's $342 million net investment in the Trojan plant and full recovery of related decommissioning and transition costs removes the regulatory uncertainties that previously clouded the utility's rating outlook. A $37 million Trojan-related charge and external financing necessary to complete construction of a 220-megawatt gas fired cogeneration project at Coyote Springs, Oregon will moderately impact PGE's financial results in 1995. However, Moody's expects steady improvement in earnings and cash flow coverage of fixed obligations beginning in 1996, with excess cash available for PGE to further strengthen its balance sheet.
PGE has already achieved many of its cost reduction goals and other efficiencies since it permanently closed the Trojan plant. This progress bodes well for PGE to maintain its sound competitive position within the California arena. Based on Moody's analysis of investor-owned utilities in that competitive arena, PGE ranks fifth lowest in terms of break-even cost after adjusting for purchased power.
Notwithstanding these positive prospects, PGE faces the challenge of recovering sizable deferred costs on its balance sheet, including Trojan related charges, income taxes, and costs relating to debt refinancing and energy conservation programs. Complete recovery of these assets may not be feasible in a more competitive market. However, because the company's cost structure is quite competitive, the increase in rates over time needed to recover these assets would be unlikely to disadvantage the company in any meaningful way. PGE faces the uncertainties that go with being among the first group of investor-owned utilities to proceed with decommissioning a commercially-operated nuclear plant. And, a firming of the regional power market, although not likely to occur in the near term, could increase PGE's costs for secondary-market power purchases to replace a portion of that previously provided by Trojan. Depending on the extent of this firming, PGE might consider construction of additional gas-fired generation, which could slow the pace of expected improvement in debt-protection measurements.
PGE's parent company, PGC, derives its credit strength primarily from the cash flow support of the electric utility, which accounts for essentially all of PGC's assets, revenues, and net income, the rating agency noted.
Portland General Electric Company, headquartered in Portland, Oregon, provides electric energy through generation, purchase, transmission, and distribution within the state of Oregon. Portland General Corporation is an electric utility holding company, headquartered in Portland, Oregon.
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