Fitch Rates New York State Electric & Gas' PCRRBs and PCRBs 'A-'.
Fitch has also assigned an 'A-' rating to the New York State Energy Research and Development Authority's $100 million 2004 series C unsecured pollution control revenue bonds (PCRBs) (New York State Electric & Gas Corporation Project). The PCRBs have a mandatory tender date of July 3, 2023 and will mature April 1, 2034.
New York State Electric & Gas Corporation (NYSEG) is the obligor for all of the aforementioned bonds. The 1994 series D PCRRBs and the 2004 series C PCRBs rank pari passu with NYSEG's senior unsecured debt.
The Rating Outlook on NYSEG's 'BBB+' Long-Term Issuer Default Rating (IDR) is Stable.
KEY RATING DRIVERS
Low-Risk Business Profile: NYSEG's regulated electric T&D and natural gas distribution operations have a low-risk business profile. The utility has no commodity exposure, and full revenue decoupling eliminates the impact of weather and usage patterns, providing better predictability to earnings and cash flow.
Moderately Restrictive Regulatory Environment: Fitch considers the regulatory environment in New York State to be moderately restrictive. ROEs authorized by the New York Public Service Commission (NYPSC) are among the lowest in the U.S. However, ratemaking features such as revenue decoupling, a commodity pass-through mechanism and use of a forward-looking test year support NYSEG's stable financial profile.
2016 Multiyear Rate Case Settlement: The NYPSC adopted a settlement agreement authorizing a three-year rate plan for NYSEG's electric and gas operations on June 15, 2016. NYSEG received levelized electric and gas rate increases effective May 1 each year over 2016-2018. The three-year increase totals $89.8 million for electric rates and
$41.8 million for gas rates, based on a 9% authorized ROE and a 48% equity capital structure. Fitch considers the rate plan to be balanced and supportive of credit quality, providing NYSEG with rate certainty through April 2019.
Solid Financial Metrics: NYSEG's financial metrics should remain supportive of the ratings, with a modest revenue increase provided by the three-year rate plan that became effective May 1, 2016. Fitch expects adjusted debt/EBITDAR and FFO-adjusted leverage to average 3.2x-3.5x and 3.4x-3.7x, respectively, and FFO fixed-charge coverage to average 6.0x-6.5x through 2019.
Supportive Ring-Fencing Measures: NYSEG's ratings consider ring-fencing measures established by the NYPSC through regulatory orders in September 2008 and November 2013. These provisions enhance NYSEG's credit profile by adding a layer of protection from AVANGRID, AVANGRID's nonregulated renewable energy business and ultimate parent Iberdrola.
NYSEG is well positioned at its 'BBB+' Long-Term IDR. NYSEG has low-risk regulated electric T&D and natural gas distribution operations that are similar to those of its New York peers, Rochester Gas and Electric Corporation (RGE; BBB+/Stable), Central Hudson Gas & Electric Corporation (CHG&E; BBB+/Stable) and Consolidated Edison Company of New York, Inc. (CECONY; BBB+/Stable). Fitch considers the New York regulatory construct to be moderately restrictive, with below-average authorized ROEs, somewhat balanced by credit positive regulatory mechanisms, such as revenue decoupling. NYSEG's scale of operations is similar to that of RGE and CHG&E, but materially smaller than that of CECONY. RGE's service territory is more rural than that of NYSEG and CHG&E, and the local economy in those three service territories is weaker than that of CECONY. NYSEG's financial profile is slightly weaker than that of RGE and slightly stronger than that of CECONY. Adjusted debt/EBITDAR and FFO-adjusted leverage for RGE were 3.7x and 2.6x, respectively, in 2017, compared with 3.7x and 3.3x at CHG&E and 3.8x and 4.1x at CECONY.
Fitch's key assumptions within the rating case for NYSEG include:
--Capex totaling $1.14 billion over 2017-2019;
Future Developments That May, Individually or Collectively, Lead to Positive Rating Action
--A positive rating action could occur if Fitch were to expect adjusted debt/EBITDAR to decrease to less than 3.3x, FFO-adjusted leverage to remain less than 3.7x and FFO fixed-charge coverage to remain above 5.5x on a sustained basis.
Future Developments That May, Individually or Collectively, Lead to Negative Rating Action
--A negative rating action could occur if Fitch were to expect adjusted debt/EBITDAR and FFO-adjusted leverage to exceed 4.0x and 4.5x, respectively, on a sustained basis;
--An adverse regulatory decision that meaningfully reduces the stability and predictability of earnings and cash flow could also result in a negative rating action.
Fitch considers NYSEG's liquidity to be adequate.
NYSEG funds its short-term liquidity needs through a revolving credit facility (RCF), a bilateral intercompany credit agreement with AVANGRID and a virtual money pool (VMP) with NYSEG's sister utilities -- The Berkshire Gas Company (BGC; A-/Stable); Central Maine Power Company (CMP; BBB+/Stable); Connecticut Natural Gas Corporation (CNG; A-/Stable); RGE; The Southern Connecticut Gas Company (SCG; BBB+/Positive); and The United Illuminating Company (UI; BBB+/Positive).
NYSEG, AVANGRID and NYSEG's sister utilities participate in a joint $1.5 billion RCF, which matures on April 5, 2021. The RCF supports AVANGRID's $1 billion CP program. The RCF contains maximum sublimits of $1 billion for AVANGRID at the parent level, $250 million for each of CMP, NYSEG, RGE and UI, $150 million for each of CNG and SCG, and $25 million for BGC. There were $631 million of CP outstanding and no additional RCF borrowings as of
March 31, 2018, leaving $869 million of availability under the RCF. NYSEG had no RCF borrowings as of
March 31, 2018.
AVANGRID uses its CP program as a source of funding to provide its utility subsidiaries with loans under the bilateral intercompany credit agreement. CMP, NYSEG, RGE and UI each can borrow up to $500 million under the agreement, CNG and SCG each can borrow up to $250 million and BGC can borrow up to $50 million. NYSEG had $308.5 million of borrowings under the bilateral intercompany credit agreement as of March 31, 2018.
The VMP allows AVANGRID's investment grade-rated, regulated utility subsidiaries to lend to or borrow from each other, enabling AVANGRID to efficiently manage the cash at its regulated utilities. CMP, CNG, NYSEG, RGE, SCG and UI each have a lending/borrowing limit of $100 million and BGC has a lending/borrowing limit of $15 million. NYSEG had
no VMP borrowings as of March 31, 2018.
Long-term debt maturities over the next five years are manageable. NYSEG has $200 million of unsecured pollution control notes maturing May 1, 2020 and $75 million of 3.24% senior unsecured notes maturing Sept. 13, 2022.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Sep 25, 2018|
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