Credit quality for the North American regulated utility industry weakened in 2020, which saw downgrades outpace upgrades for the first time in a decade. However, the industry generally performed well throughout the pandemic and S&P expects it will continue to mostly manage through the remaining COVID-19-related risks. Despite a negative 2021 industry outlook, S&P expects a modest improvement to credit quality over the next 12 months.
Speaking to Utility Dive, Gabe Grosberg, Senior Director at S&P Global Ratings, discusses the challenges the sector has faced in the past year, and its prospects moving forward.
Read the full article here.
According to S&P Global Ratings, the long-term investment prospects for U.K. water companies remain adequate despite the forthcoming introduction of AMP7 from April 2020.
While many industry professionals perceived the U.K regulator Ofwat as taking a tougher stance on water companies, director for EMEA Utilities at S&P, Matan Benjamin, recently told Utility Week that the new targets reflect the “requests of society” on environmental, social, and governance (ESG) concerns.
Benjamin says: “This remains a strong industry. On the one hand, things are becoming more challenging for [water] companies because the regulator aims to make them work more efficiently. But that efficiency is good for society.”
Read the full article here.
In a challenge to the traditional power market model, large corporations are increasingly entering long-term contracts to buy power directly from energy producers – rather than from utilities. While these arrangements – known as corporate power purchase agreements (PPAs) – could pose new risks for producers and consumers, these should be largely manageable, says Trevor d’Olier-Lees, S&P Global Ratings’ senior director, Infrastructure North America.
Commenting on the model’s increasing uptake in an interview with Power Technology, D’Olier-Lees says: “Given the strong demand from corporate corporations to buy renewable power, [this model] will continue to grow. And there’s always innovation around mitigation.”
Read the article in Power Technology here.
In an article for The Energy Industry Times, S&P Global Ratings’ Julyana Yokota, senior director and sector lead, Infrastructure and Utilities, Latin America, argues that solid, transparent and predictable regulatory structures are keeping the region’s utilities on track.
Though policy uncertainty remains for some countries, many are mandating minimum renewable energy targets, argues Yokota. And, in turn, autonomous and stable regulatory structures are as vital as ever for the region’s utilities to continue their steady operating performance.
Please click here for the full article.
The presence of new administrations across Latin America has mounted concerns over whether wholesale regulatory and policy reform could fundamentally alter the pace of the region’s energy transition.
But Julyana Yokota, senior director and sector lead, Infrastructure and Utilities, Latin America, S&P Global Ratings, recently wrote for World of Renewables, to highlight that the region’s robust regulatory frameworks will, in fact, likely support the region’s transition to renewable energy.
“Frameworks for the energy sector are becoming more robust, with energy utilities operating under increasingly credit-supportive regulatory frameworks,” Yokota argues. “Coupled with growing political support, we may see promising conditions for the energy transition to take hold.”
To read the full article, please click here.
Following the announcement of Spain’s National Commission on Markets and Competition (CNMC)’s plans for the new regulatory period, S&P Global Ratings’ Massimo Schiavo and Gerardo Leal gave an exclusive comment to Infrastructure Investor on the impact of the update on the credit quality of utilities in the country.
“This is harsher than we were expecting,” said Schiavo of the regulatory review, which could see revenues reduced by up to 22% for gas distribution and transmission companies.
Please click here for the full article (behind paywall).
Last week, U.K. water regulator Ofwat confirmed its plans to sharply reduce the returns available to water companies over the next five years.
S&P Global Ratings’ director Matan Benjamin comments that the proposals will result in a cut in allowed cost of capital in real terms to around 2.2% from 3.4% in the current regulatory period. He continues that the latest announcement from Ofwat “provides another indication that the next regulatory period for water utilities could be challenging”.
Following outreach by Moorgate, the comments were covered by InfraNews (behind paywall) and Environment Analyst (requires subscription).
Regulatory reset risk is high for U.K. utilities, with an updated regulatory framework for water companies coming into effect from April 2020. This will be followed by gas and electricity transmission and gas distribution networks the following April, with a reset for electricity distribution scheduled for 2023.
In its recent report, S&P Global Ratings outlines the outlook for water, gas and electricity transmission and gas distribution, and electricity distribution networks. One key takeaway is that S&P Global Ratings believes that political, competitive and regulatory pressures may gradually undermine the credit quality of some U.K. utilities.
Following outreach by Moorgate, news of the report was covered by WaterBriefing, Environment Analyst, Infrastructure Investor, and Partnerships Bulletin.
Following California’s devastating Camp Fire in late 2018 and PG&E’s resulting filing for bankruptcy some months later, Gabe Grosberg, Senior Director and North America Regulated Utilities Sector Lead at S&P Global Ratings, comments on what could lie ahead for California’s other investment grade-utilities for Utility Dive.
“Pressure on the state’s utilities isn’t over,” warns Grosberg. “In the absence of regulatory change, it’s possible that another electric utility could face trouble during the 2019 wildfire season. And, depending on the magnitude and severity of the repercussions, the boards of other California utilities could file for voluntary bankruptcy before year-end 2019.”
The full article can be found here.
S&P Global Ratings has published a report examining the contributing factors to Pacific Gas & Electric filing for bankruptcy in the aftermath of California’s devastating Camp Fire in late 2018. The report outlines how regulatory uncertainties with the state’s current utility liability legislation can essentially position a utility as the state’s reinsurer against wildfire damage, even if they are not found to have been negligent.
“We don’t believe that an electric utility is large enough, sufficiently diversified, or adequately capitalised to be a reinsurer,” says S&P Global Ratings analyst Gabe Grosberg. Without regulatory reform, S&P Global Ratings has said the ratings on California’s other utilities could fall below investment grade before the 2019 wildfire season begins.
S&P Global Ratings’ analysis was covered by Bloomberg, Governing, Natural Gas Intelligence (requires subscription), Energy Manager Today, Business Insurance and Politico.