Moody’s Investors Service warned yesterday that some municipalelectric utilities face a dangerous possibility of having to buymore power than expected on the spot market because of very lowhydroelectric supplies.

“While thus far California municipal electric utilities have notbeen severely impacted by the current power crisis, cost pressuresdue to power plant outages have affected utilities from Seattle toNebraska,” Moody’s said.

Seattle City Light, one of the nation’s lowest cost utilitiesdue to the low cost structure of its predominant hydroelectricgeneration, is facing an abnormally low water year. This situationhas required the city-owned utility to have to purchase power fromthe wholesale market at unprecedented prices, causing significantliquidity problems. Moody’s recently changed the utility’s Aa2credit outlook to negative.

Nebraska Public Power District faced a similar problem when itsCooper Nuclear Station had an outage that lasted 42 days longerthan expected and its Gentlemen Station, one of the nation’s bestperforming coal-fired plants, had a longer outage and reducedoutput due to an environmental improvement capital project. NPPDhad to purchase replacement power at substantially higher coststhan their own generation costs. NPPD has managed this situationwell with small rate changes. Moody’s rates NPPD’s revenue bondsA1.

Sacramento Municipal Utility District hedged its power purchasesearly last year, expecting a low-hydro year, and has avoided thespot market. California municipal electric utilities generally havediverse supply resources. However, the unexpected outage of a majorgenerating unit or a contracted power source could presentfinancial pressures if purchases have to be made from the highpriced wholesale marketplace. Moody’s believes this credit pressurerepresents a heightened risk for many municipal electric utilities.

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