By Anton Caputo
San Antonio News-Express

Moody's Investor Service, which rates the credit-worthiness of large borrowers, has lowered CPS Energy's outlook to negative from stable.

The change is not a downgrade of the utility's rating, but it is a warning that it must manage its risk and debt if it wants to keep its stellar credit rating, said Moody's analyst Dan Aschenbach.

"They're the highest quality, strongest publicly owned utility in the United States," he said. "They've made some good decisions in the past. The hard part now is will that be the same going forward.""

The move comes as the utility is pushing a multibillion-dollar nuclear project and negotiating with main contractor Toshiba Inc. over the cost of the two proposed reactors. But CPS Chief Financial Officer Paula Gold-Williams said that the project is only one factor in the rating agency's warning.

"We are here because we are in the middle of a big capital plan when the economy is pretty stressed," she said. "We will be really working toward what we can do to get back to a stable outlook."

That capital plan calls for about $8 billion in investment in the next decade, Gold-Williams said. The utility's projected investment in the nuclear project is $2.6 billion, but that's if it sells more than half of its ownership. The rest of the utility's capital plan includes finishing a coal plant scheduled to open next year, building four natural gas peaking units, performing environmental upgrades to its existing coal plants and work on its transmission and distribution grid.

If CPS' bond rating were to be downgraded by Moody's or other rating agencies, it would increase the cost of borrowing.

Aschenbach said the agency would be keeping an eye on San Antonio City Council's willingness to raise rates to keep CPS' books solid as it pursues the projects.

He said the rating agency considers the expansion of the nuclear South Texas Project among the strongest nuclear projects proposed in the country but still expects the "ultimate cost will be much higher."

CPS' estimate of $13 billion became a sticky political and financial issue for City Council on Tuesday when it was revealed that Toshiba had raised its cost estimate by as much as $4 billion. City Council was set to approve a $400 million bond issue today to fund the nuclear project's ongoing planning and engineering, but postponed the action until at least January to give the utility time to negotiate with Toshiba.

Moody's negative outlook statement was not triggered by Tuesday's delay.

The last-minute postponement of the bond issue isn't a shock, given the negotiations, Achenbach said.

"Because this is a municipal utility, everything is public and these commercial-type decisions are not necessarily as private as in the business world," he said. "The city is doing the appropriate job of pushing back."

The delay caused Fitch Ratings on Wednesday to withdraw its AA+ rating for the pending bond issue, but a company spokesman said that was standard procedure when a bond issue is postponed.