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Moody's: Sandy May Impact Utilities but Not U.S. Debt

WASHINGTON — The nearly $30 billion in economic damages caused by Hurricane Sandy will not have a detrimental effect on the creditworthiness of U.S. debt, but it is likely to have negative consequences for mid-Atlantic electric utility companies, according to a new credit outlook by Moody's Investors Service.

The rating agency released the 45-page outlook Monday analyzing the credit implications from Hurricane Sandy. Moody's said approximately half of the estimated $30 billion cleanup-bill will be covered by insurance companies but nearly $10 billion will still need to be covered by the federal government.

There is approximately $7.5 billion of spending authority for the Federal Emergency Management Agency in the federal budget, Moody's said. However, in the context of larger federal budget spending, the amounts are too minor to have a major impact on the financial profile of the U.S., which is currently rated Aaa negative by Moody's.

"Past natural disasters show there are rarely any discernible or long-lasting macroeconomic implications," wrote Matt Robinson, director of sovereign research at Moody's. "Nor do natural disasters diminish the U.S. government's capacity or willingness to service its outstanding debt."

Moody's predicts that despite the historic scale and impact on the East Coast, it does not expect storm-related damage and recovery will affect the nation's economic strength, government financial strength or susceptibility to event risk and will not affect the creditworthiness of U.S. debt.

Meanwhile, the storm-related power outages have triggered a host of problems for mid-Atlantic-based utilities, which are still struggling to restore power to millions of people.

There were approximately 1.9 million homes and businesses still without power in the Northeast as of Sunday, the U.S. Department of Energy said. At its peak, some 8.5 million homes and businesses were left in the dark due to the super storm that swept across the eastern seaboard just over one week ago.

Moody's expects the utility companies will fail to meet expectations of timely post-hurricane service restoration and may likely face political intervention.

Disallowances in storm costs, significant delays in cost recovery and lower allowed returns are all negative credit outcomes for utility companies, Moody's said.

Specifically, Consolidated Edison Company of New York, Jersey Central Power & Light Co., Public Service Electric & Gas Co., and Connecticut Light & Power Co., all face negative credit outcomes, the report said.

Governors in several of the hardest hit states including New Jersey, New York and Connecticut have been warning utility companies about speedy restoration.

New York Gov. Andrew Cuomo threatened that if the utility companies failed to provide timely responses to power outages, they could potentially have their certificates of public convenience and necessity revoked by the state.

Moody's also said that the significant railroad service disruptions with Norfolk Southern Corp. and CSX Corp. are credit negative.

Both railroads have told shippers to expect delays of up to 72 hours for all rail traffic on their Northeast networks due to Sandy-related shutdowns.

The two railroad companies generate approximately $10 million per day and if these operators were to lose one week of freight revenue, Moody's estimates that it would translate into a 1% to 2% drop in total freight revenue from third-quarter levels and as much as a 1% decrease in operating margins.

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