S&P

THE FERC TAKES SUGGESTIONS ON THE FUTURE OF THE GAS INDUSTRY.

Earlier this year, the Federal Energy Regulatory Commission opened a discussion of issues facing the natural gas industry. Its aim? To set "regulatory goals and priorities" for the era following from Order 636, issued in 1992. %n1%n

To gather input, the FERC scheduled a two-day public conference. It asked for comments on a myriad of topics, ranging from cost-of-service rates to hourly gas pricing and services.

Standard & Poor's has revised its business profile scale for public power agencies to give investors more details to figure out each rated utility's ability to compete in a deregulated market.

It expanded its five-point scale to a 10-point scale, similar to the rating system used for investor-owned utilities. A "1" rating is the "most capable of competing," so that investors can better gauge a public power's ability to meet competitive challenges and market developments, such as separation of generation and transmission facilities.

PacifiCorp has made a cash offer for The Energy Group PLC, a diversified energy company in the U.K., Australia, and U.S. The boards of directors of both companies unanimously approved the transaction, valued at $9.6 billion in debt and equity.

PacifiCorp Holdings Inc., a wholly owned subsidiary of PacifiCorp, is offering $11.35 per share for The Energy Group. PacifiCorp will assume The Energy Group's $3.8 billion of debt in the transaction.

Connecticut's proposed electric restructuring legislation, H.B. 6774, died after being dropped unexpectedly by the state Senate. Backers of restructuring legislation plan to reintroduce the bill next year when the new session begins in February 1998.

The bill would have opened markets to competition Jan. 1, 2000, coupled with a 10-percent rate cut. Under the bill, utilities would have recovered up to 65 percent of stranded costs for above-market nuclear investments and 100 percent for regulatory assets. The bill would have allowed securitization of those costs.

Each assumes a vertical breakup, but watch out for securitization.

It can prove difficult to detect any overt difference of opinion among financial credit rating agencies. That appears to be the case in today's electric utility industry, where Moody's, Duff & Phelps, and Standard & Poor's each predicts that a breakup of the vertically integrated utility is now virtually inevitable. The result, they say, will leave us with an industry made up of disaggregated high-risk power generators, and lower-risk companies engaged in transmission, distribution, and other related services.

Which matters most: Cost? Price? Sales? Regulation?

Many investors no longer think of electric utility stocks primarily as dividend-rich, income-oriented investments. Instead, they have begun to consider new criteria in evaluating utility stocks (em criteria that might help explain some of the variations in equity price performance now seen among various utility companies.

AT&T and U S WEST scored points with investors, but PacTel's AirTouch deal failed to move the market.ell before the Telecommunications Act of 1996 was signed, it had become abundantly clear to telephone companies that they would need to change their organizational or corporate structures to keep pace with the changing business and regulatory climate.

The question, however, was how to make that structural change pay off on Wall Street (em how to use the reorganizati

According to Standard & Poor's (S&P), the recently reauthorized federal Safe Drinking Water Act should have a favorable, long-term credit impact on investor-owned water utilities.

The new act requires the Environmental Protection Agency to give states the flexibility to modify testing and monitoring requirements based on a local water system's actual health-risk exposure. The act will also form a state revolving fund program, which will assist small water systems in complying with regulations and in conducting other drinking water projects.

Ohio Edison Company and Centerior Energy Corp. announced an agreement September 17 on a tax-free, stock-for-stock merger to form a new holding company, FirstEnergy Corp., worth about $4.8 billion, based on stock prices that closed several days earlier.

The news came a month after two other merger deals were announced in mid-August: 1) Atlantic Energy, Inc. and Delmarva Power & Light Co. ($2.2 billion), and 2) Houston Industries Inc. and NorAm Energy Corp. ($3.8 billion). NorAm is the nation's third-largest U.S. natural gas utility.

Some shareholders do find bottom-line value

in a "marriage of convenience."

With six merger and acquisition (M&A) deals announced between May 1995 and January 1996, and three more so far this year, the long-predicted consolidation of the electric utility industry is taking hold. At least 23 utilities, with business-combination transactions pending, are part of the frenetic domestic M&A activity that has swept the industry.