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Moody's Investors Service examines key credit considerations in the evolving independent power production industry in a new report. The report predicts greater polarity in ratings of such companies.

The Haves and the Have-Nots: Access to Capital, Diversified Portfolios says the IPP industry will become dominated by "first-tier" companies that exhibit financial flexibility needed to survive in an increasingly uncertain environment. Such companies will possess diversified assets and ability to generate cash. Moody's said industry consolidation will continue as companies able to develop sound projects and acquisitions acquire organizations without those abilities.

Also, expect IPPs to focus on overseas markets until "the dust settles on the nation's electric restructurings," said William Barry, Moody's vice president and senior credit officer.

Over time, the distinction between the surviving independent power producers and the investor-owned utilities will become "all but irrelevant," according to Moody's. The generating assets of domestic utilities likely will separate from the wires business, creating a new class of generating company competing head-on with today's IPPs.

While many new entities will benefit from a larger base of generation assets, where the capital costs have been recovered from captive ratepayers, "it remains to be seen whether or not these newly created generated companies will be able to duplicate the bottom-line, entrepreneurial focus of the IPPs."

Edison Mission Energy (Baa1) enjoys the highest Moody's rating among IPPs. The main factor is the number and size of projects in Mission's portfolio, which is well diversified regarding location and technology. Based on generation owned, Mission would rank among the 50 largest utilities in the U.S. When Southern California Edison divests its generating assets, Mission will become the principal electric generation operation of Edison International. (em LB

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