NEW YORK - Moody's Investors Service said it has assigned a Baa1 underlying credit rating to Piedmont Municipal Power Agency's (PMPA) $38 million electric revenue bonds, consisting of $13 million Series 2012A, $20.4 million refunding Series 2012B, and $4.6 million refunding Series 2012C (federally taxable). Concurrently, Moody's has affirmed PMPA's Baa1 underlying rating on approximately $1.1 billion of outstanding parity rated debt. The rating outlook has been changed to negative from stable.

The Baa1 rating reflects the participant's A3 weighted average credit quality; the combination of full requirements and strong court-tested take-or-pay power sales agreements with the participant's electric utility systems, which secure the bonds; PMPA's solid liquidity position; and the relatively uncompetitive rates of PMPA's participants that may lose competitiveness as larger near-term rate increases are implemented.

The rating also incorporates PMPA's concentrated nuclear power mix profile that may experience higher costs related to potential new regulation post the Japan disaster. The rating further reflects PMPA's consistent lack of annual full cost recovery from current rates, which is expected to continue as PMPA's debt service costs significantly increase over the next couple of years. This notable rise in annual fixed costs requires the timely implementation of large annual rate increases, as well as the use of the rate stabilization funds.

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