Energy companies with substantial nonregulated entities continued their “long, downward slope” through the second quarter of 2003, but now appear to be riding out the storm, according to the latest Standard & Poor’s (S&Ps) Industry Report Card on U.S. electric, natural gas and water companies.

The trend, said analysts, can be traced principally to the difficult pricing environment that investments, mainly in merchant generation facilities and related energy marketing and trading activities, continue to face.

“Because merchant assets were typically financed substantially with debt, consolidated financial profiles of utility holding companies with merchant exposure have suffered significantly,” the report found. “However, the immediacy of what could have been a severe liquidity crunch that has bedeviled this sector eased when Reliant Resources Inc., Dynegy Inc., CMS Energy Corp., Allegheny Energy Inc., Aquila Inc. and Xcel Energy Inc., successfully refinanced their bank facilities.”

When considered together with the companies’ decisions to unwind their nonregulated strategies, “the easing of concern over stressed companies’ ability to access the capital and bank markets appears to be supporting a steady restoration of shattered investor confidence.”

However, S&P noted it is “not seeing much improvement in the companies, which are still carrying significant leverage, facing an illiquid power market, overcapacity and uncertain asset valuations.” S&P analysts noted that, “the strategy of both borrower and lender appears to be to ride out this difficult period and wait for the energy markets to improve.”

The complete 29-page report, which details the ratings for U.S. companies, may be found on S&P’s RatingsDirect web site at www.standardandpoors.com.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.