Rating agencies defend U.S. utility ratings
By Dena Aubin
NEW YORK, April 12 (Reuters) - The three major U.S. credit rating agencies said that they did not manipulate ratings of Illinois and Missouri utilities to help bolster the power companies' case for higher electric rates.
The Illinois attorney general's office has been investigating the relationships between the agencies and the state's major utilities to determine if they are working together to influence rate decisions.
The controversy spread to Missouri on Friday when two members of that state's Public Service Commission issued a subpoena to Ameren Corp.'s (AEE.N) utility unit AmerenUE seeking copies of its communications with rating agencies.
"We never put out reports to influence rate cases," said Fitch Ratings spokesman James Jockle. "Our research is directed toward investors, not utility regulators."
Moody's spokeswoman Fran Laserson also said that agency's rating decisions are made independently.
"Moody's commonly monitors the regulatory and legislative developments that could have an impact on the credit quality of electric utilities," Laserson said. "It is not uncommon for us to take a rating action if the environment changes materially."
TIMING OF RATINGS QUESTIONED
Standard & Poor's also denied charges of collaboration.
"Because the regulatory environment in any state can have a significant impact on credit quality of utilities, we have a responsibility to publish reports in anticipation of any potential regulatory development," said S&P spokesman Chris Atkins.
The utilities' credit ratings have come under scrutiny as lawmakers and regulators try to rein in rate increases following expiration of a rate freeze on the power companies. Utilities are trying to recover more of their power costs through higher rates charged to consumers.
Steve Gaw, a member of the Missouri Public Service Commission, said utilities are increasingly using rating downgrades to justify their rate requests.
"These releases from rating agencies are timed so that they appear to have the potential to influence decisions," Gaw said. "Whether that's the case or not is not clear, but if it is the case, it's troubling."
Gaw's fellow commissioner Robert Clayton said the most recent concerns arose when Ameren's ratings were lowered on March 12, the same day that hearings started in Missouri on the company's request for a rate increase.
"The concern is that there is an inappropriate level of communications that is leading to either manipulation of ratings, or perhaps that the various entities involved are not operating at arm's length," Clayton said. "We haven't alleged wrongdoing. All we're doing is asking questions at this point."
INVESTIGATION TO BE EXPANDED
Ameren spokesman Tim Fox confirmed that the utility has received a subpoena from the Missouri commissioners and intends to cooperate fully with the investigation. He declined further comment.
Both Ameren and Commonwealth Edison's parent Exelon Corp. (EXC.N) have said that their utilities could be forced into bankruptcy if they are not allowed to recoup their electricity costs from customers. Moody's, S&P and Fitch have repeatedly warned that the regulatory environment is posing risks to the utilities' bondholders.
Gaw and Clayton said their investigation will be extended to Missouri's other major utilities.
Rating agencies had been criticized for being slow to act when California's deregulation of the energy market led to the bankruptcy of PG&E Corp.'s (PCG.N) Pacific Gas & Electric Corp. in 2001.
"From a bondholder's perspective, the agencies would be negligent if they didn't downgrade the utilities' ratings," said Philip Adams, analyst for independent research service Gimme Credit.
If lawmakers deny the utilities the right to recover their energy costs, margins will suffer, and "losing money is pretty clearly an indication of a weakening credit profile," he said.
