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Credit Implications for T&D Utility Activities. GRIDSCHOOL 2010 MARCH 12, 2010 RICHMOND, VIRGINIA INSTITUTE OF PUBLIC UTILITIES ARGONNE NATIONAL LABORATORY Jim Hempstead Senior Vice President Moody’s Investors Service james.hempstead@moodys.com ■ 212.553.4318
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Credit Implications for T&D Utility Activities GRIDSCHOOL 2010 MARCH 12, 2010 RICHMOND, VIRGINIA INSTITUTE OF PUBLIC UTILITIES ARGONNE NATIONAL LABORATORY Jim Hempstead Senior Vice President Moody’s Investors Service james.hempstead@moodys.com ■ 212.553.4318 Do not cite or distribute without permission MICHIGAN STATE UNIVERSITY
Introduction • Moody’s Rating Methodology • Sector Mapping • Factor 1 – Regulatory Framework • Factor 2 – Returns and Cost Recovery • Factor 3 – Diversification • Factor 4 – Financial Strength • Financial profile • Current trends and developments • Financial projections
Sector Mapping Moody’s Rating Methodology Many corporate / industrial sectors have a much higher percentage of Quantitative factors in Rating Methodologies: • Oil & Gas - 92% • Chemicals - 91% • Coal – 83%
Moody’s Rating Methodology • Sector Mapping
Moody’s Rating Methodology Factor 1 – Regulatory Supportiveness Draft – as of 2/18/10 – subject to change
Factor 1 – Regulatory Framework (T&D’s) Moody’s Rating Methodology
Factor 1 – Regulatory Framework (Integrated) Moody’s Rating Methodology
Moody’s Rating Methodology Factor 2 – Cost Recovery Draft – as of 2/18/10 – subject to change
Moody’s Rating Methodology Factor 2 – Cost Recovery (T&D’s)
Moody’s Rating Methodology Factor 2 – Cost Recovery (Integrated)
Moody’s Rating Methodology Factor 3 – Diversification (T&D’s) For T&D’s, all 10% of Factor 3 is allocated to T&D Market Position due to the lack of owned generation
Moody’s Rating Methodology Factor 3 – Diversification (Integrated)
Moody’s Rating Methodology Factor 4 – Financial Strength (T&D’s)
Moody’s Rating Methodology Factor 4 – Financial Strength (Integrated)
Financial Profile Income Statement (3 year average, 2006-2008)
Financial Profile Balance Sheet (3 year average, 2006-2008)
Financial Profile Cash Flow Statement (3 year average, 2006-2008)
Credit Trends and Developments Numerous considerations with credit implications over the long-term horizon; few risks evident over near-term Does NOT absolve sector from proactively strengthening balance sheet and bolstering liquidity reserves on front-end of cycle
Financial Projections • T&D Cash Flows / Debt
Financial Projections • Integrated Cash Flows / Debt
Financial Projections • 2006-2008 AverageT&D Metrics CFO pre-WC / Debt CFO pre-WC / Interest