Credit Suisse First Boston (CSFB) has released a revised three-tiered rating methodology to “provide greater clarity for investors.” In the process, analyst Curt Launer apparently has downgraded several major energy companies including American Electric Power (to Underperform from Hold), CMS Energy (to Underperform from Hold), Dynegy (to Neutral from Strong Buy), National Fuel (to Underperform from Hold), Questar (to Underperform from Hold), Atmos Energy (to Underperform from Hold) and WGL Holdings (to Underperform from Hold).

The new methodology calls for a three-tiered rating system that puts companies in any of the following categories: Underperform, Neutral or Outperform. Launer said the distribution of energy companies in the two subsectors (Natural Gas & Power and Local Distribution) formed a “bell-shaped curve with about 20% of our coverage Outperform, 60% Neutral and 20% Underperform.”

“[T]he mechanics of implementation of the new equity research rating system have allowed us to rethink our overall thesis and rework our valuation criteria,” he said.

“With this report we introduce new ratings of Neutral for Dynegy and Williams. Our opinion remains that both will survive and recover from their current issues albeit with significant volatility in share prices surrounding liquidity questions, debt maturities, asset sales and other events,” he said. “…At AEP we see low visibility of earnings from acquisitions and regulatory risks. CMS still requires significant balance sheet actions and dilution and faces regulatory scrutiny. [National Fuel and Questar] have had recent upticks related to higher commodity prices. We consider growth difficult to maintain.”

Launer also said that both Atmos and Washington Gas parent WGL Holdings face regulatory risk, potential equity needs and slowing of utility growth.

He rates Dominion Resources, El Paso Corp., El Paso Energy Partners, Kinder Morgan Energy Partners, Kinder Morgan Management and Kinder Morgan Inc. “Outperform,” the highest rating.

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