Alan Spen is rejoining Fitch Ratings as a senior director in its U.S. public power group after a three-year hiatus, coming back to a group he helped create years ago.
Spen initially joined Fitch in 1989 in the agency’s public finance revenue group. During his tenure, he helped create a separate public power group that focuses on rating municipal electric systems, rural electric cooperatives, and federal power marketing agencies. He also developed rating criteria for municipal power utilities and rural electric cooperatives.
“I am really pleased to see him come back,” said Rich Raphael, group managing director at Fitch. “He has a wealth of experience and knowledge that is really hard to find now and he will bring his perspective and historical context, which goes beyond working at a rating agency.”
For the past three years, Spen was a senior director in the public power group at Public Financial Management, where he was responsible for advising rural electric cooperatives on financial planning, capital market, and rating agency issues.
“I came back to Fitch primarily because I most enjoy being an analyst and have done that most of my life,” Spen said, adding that he went to PFM to “develop the firm’s electric cooperative practice, but analytics is what I most enjoy doing.”
In his new capacity, Spen reports to Dennis Pidherny, head of public power.
“I can’t think of someone who brings such great historical context in terms of his experience, not only as an analyst but as a banker and advisor over many years to the table,” Pidherny said. “There are few people who combine such analytical insight with a breadth of experience.”
Regarding the public power industry, Spen said it has fared better than expected given the high degree of uncertainty in today’s economy. “There were many questions in the last few years regarding people remaining timely on payments of bills and usage patterns of electricity, but financial metrics and ratios continue to be sufficiently solid.”
He added that much of the consumer base in public power is residential and small commercial businesses, who will always need electric power.
The industry has also benefited because there has not been a great need to build new capacity. And while there is more variability in fuel costs, utilities have learned to hedge better and use fuel in more efficient ways. “Natural gas, which looks to be growing, has come down in price, so we think more natural gas has provided a more stable environment than people anticipated,” he said.
Another important consideration is that the public power industry, which has historically been evaluated based primarily on credit factors in the United States or North America, must now take into greater consideration fast-growing countries like China and India. The public power sector is increasingly more globally driven given demand for fuel and commodities, and that change needs to be reflected in the rating agency’s criteria.
“All the factors that were developed by Fitch are still largely true when you look at the economy, rate comparisons, and management decisions,” Spen said. “And while these still matter, it’s important to add global components and the weaker state of the U.S. and world economy into the ratings equation. There needs to be more factors evaluated than we might have included 10 years ago.”
Pidherny said that Fitch reviews rating criteria annually and there are no expected changes now, but it is an evolving framework. “From a credit standpoint, we have a stable outlook on the sector,” he said, adding that the criteria could change with the final passage and implementation of what could be onerous environmental compliance legislation. “That could potentially change our outlook from stable to negative,” he said.
But for the most part, over 90% of the credits in the public power sector have a stable outlook and Pidherny does not expect that to change. As far as new debt issuance is concerned, he expects to see a small resurgence from current low levels due to low interest rates, which are driving additional refundings.
“It’s a good time to work as an analyst,” Spen said. “The loss of bond insurance and third-party guarantees reminds us that each utility credit is only as good as the people that run it.”