Standard & Poor?s quarterly ratings for utilities and merchant generators saw a few firms? fortunes go up but just as many go down. According to the credit-rating agency?s January 4 report, the energy industry is, however, basically stable. Favorable issues for California businesses include ?a low-interest-rate regimen and attractive debt capital markets that allow many issuers to refinance at favorable rates,? stated Andrew Watt, S&P analyst. Highlights of the report card include the following:<ul><li><b>AES<\/b> could be upgraded from <i>B+<\/i> to <i>BB?<\/i> in the next year, but its California holdings pale compared to the weight of its international portfolio.<\/li> <li><b>Calpine<\/b> remains at a <i>B<\/i> rating with a negative outlook as its ?liquidity remains a credit concern.? S&P noted its volatile cash flow and high debt leverage. Calpine is a frequent refinancer, regularly going to the capital markets to retire debt while gaining new obligations. S&P also noted that Calpine sold off its gas assets for cash, making it more vulnerable to buying gas in a volatile market.<\/li> <li><b>Constellation?s<\/b> energy supply business expansion bodes well for its liquidity, says S&P, which pegs the company at <i>BBB+<\/i>.<\/li> <li><b>Duke<\/b> was the poster child for new management stabilization. S&P revised Duke?s outlook to ?positive,? with a <i>BBB<\/i> rating, recognizing debt reduction and ?improved credit measures? last year. Duke Energy Trading is also <i>BBB<\/i>, but only ?stable? as the riskier part of the company continues to try to sell off its business.<\/li> <li><b>Dynegy?s<\/b> outlook is negative with a <i>B<\/i> rating, although S&P notes it is trying to redefine itself. The rating agency remains concerned about the company?s merchant power business. Dynegy?s long-term contracts with the Department of Water Resources (with partner NRG) expired at the end of last year.<\/li> <li><b>El Paso Corp.?s<\/b> outlook was negative, despite its selling assets last year. S&P gave it a <i>B?<\/i> rating with notes on its lack of future gas production. The outlook could be stable were there accelerated debt reductions, according to S&P.<\/li> <li><b>FPL<\/b> has a negative outlook despite its <i>A<\/i> rating. What concerns S&P is not its California wind holdings but its Florida business, which suffered from last year?s hurricanes.<\/li> <li><b>NRG<\/b> maintained a stable outlook and a <i>B+<\/i> rating due, in part, to its now-expired DWR contracts with partner Dynegy.<\/li> <li><b>Pacific Gas & Electric?s<\/b> postbankruptcy rating is <i>BBB<\/i> with a stable outlook. When the dedicated rate component refinancing is completed S&P will review the utility. The rating agency is also watching the California Public Utilities Commission to see whether bondholders? interests are protected ?by providing for timely recovery of any unbudgeted fuel and electricity procurement expenses.?<\/li> <li><b>PPL<\/b> got some points for improved revenues but lost a little confidence as its contracts exposed it to ?load shaping risks.? Thus, the company came out with a stable outlook and a <i>BBB<\/i> rating.<\/li> <li><b>Reliant?s<\/b> exposure to legal and regulatory risk as a result of the California energy crisis was, in part, the reason for a <i>B+<\/i> but stable rating. Refinancing and asset sales helped, but the company remains highly leveraged. In related news, Fitch raised Reliant?s rating from <i>B<\/i> to <i>B+<\/i> on December 22.<\/li> <li><b>Sempra?s<\/b> cash flow from its utilities San Diego Gas & Electric and Southern California Gas was a positive note for S&P, which rates the parent company <i>BBB+<\/i> with a stable outlook. Sempra LNG is in line with the agency?s expectations. Continued litigation over alleged price fixing was not factored in but could affect Sempra?s outlook or ratings.<\/li> <li><b>Southern California Edison?s<\/b> resumption of dividend payments reflected well on its parent company, Edison International. However, International?s unregulated businesses, such as Mission Energy and Mission Marketing & Trading, pull the parent down to a ?stable? <i>BB<\/i> rating. Mission?s long-term assets are ?highly leveraged cash flow in an overbuilt, illiquid power market,? according to S&P; Marketing & Trading suffers from reduced access to credit. S&P is watching the CPUC to see whether bondholders? interests are protected ?by providing for timely recovery of any unbudgeted fuel and electricity procurement expenses.?<\/li><\/ul>The full report is available from S&P?s Ratings Direct at email@example.com.