Moody's Maintains Utility Credit Ratings, Despite Soaring Restoration Costs
Lower ratings could make it more expensive for utilities to borrow money, a cost ultimately passed on to ratepayers.
The worst storm ever to hit New Jersey has caused enormous headaches for its two biggest electric utilities, as well as millions of their customers, but will not result in lower credit ratings, according to Moody’s Investors Service.
In a, Moody's said that despite the devastation, it will not downgrade the utilities’ credit ratings. The agency made its call even though restoration costs are likely to reach into the billions of dollars when two other utilities in New York and Connecticut are factored in.
The assessment is important because reducing the credit ratings could increase borrowing costs for the utilities, an event that would eventually lead toalready saddled with some of the highest energy bills in the country.
“The full cost of Hurricane Sandy will not be clear for a few months, as utilities rush to connect their remaining customers still in the dark and cold,’’ according to the Moody’s report.
“Revenues will be moderately lower because of reduced electricity sales caused by the outage, while costs will be higher to pay for restoration,’’ the report predicted.
Nonetheless, Moody’s said the utilities -- Public Service Electric & Gas, Jersey Central Power & Light, Consolidated Edison, and Connecticut Light & Power -- are able to “absorb the extraordinary costs and operational stress of the storm because of their sound financial position and adequate liquidity.’’
At Sandy's peak, more than 2.76 million customers were without power in New Jersey. That includes 1.7 million for PSE&G, the state’s largest utility, and 1 million more for JCP&L, the state’s second-largest electric company.
While PSE&G’s territory does not include the hardest-hit areas along the Jersey Shore, Moody’s noted that Sandy’s unprecedented storm surge flooded communities along the Hudson, Raritan, Passaic, and Hackensack estuaries -- along with substantial transmission, distribution, and generating assets.
No company estimates are available for Sandy’s impact, Moody’s said. “Even assuming it is four times Hurricane Irene, the cost appears to be manageable for the company,’’ according to Moody’s.
Earlier this week, Bonnie Shepphard, a PSE&G spokeswoman, said the utility expects the storm costs of Sandy to exceed those of Hurricane Irene and of a rare October snowstorm, which followed, but said the company had no numbers to release at this point.
Moody’s suggested, however, that PSE&G’s regulatory environment was the best among New Jersey utilities ,“as it has been the most adept at aligning itself with state policy.’’
"We're pleased that Moody's recognized our strong financial position that will enable us to meet the needs of this storm without putting pressure on any of our balance sheet financial ratios,'' said Karen Johnson, another spokeswoman for PSE&G.
The same could not be said for JCP&L, which has come under intense criticism for its performance in past storms, so much so that the state Division of Rate Counsel convinced the New Jersey Board of Public Utilities to convene a proceeding to determine if the utility was earning too much above its regulated rate of return.
According to Moody’s, FirstEnergy Company, the owner of JCP&L, also has yet to estimate Sandy’s financial impact. The expected restoration costs relative to the size of the overall company and an expectation “around ultimate cost recovery should be sufficient to prevent a rating downgrade,’’ Moody’s said.
Paul Patterson, an energy analyst at Glenrock Associates, said he does not expect the utilities to have a difficult time in recovering restoration costs.
“It doesn’t behoove regulators to punish utilities as a means of dealing with a storm response,’’ Patterson said. “If you want higher reliability, generally speaking then you had to pay for it.’’
In response to last year’s storms, the Christie administration and legislators are moving tofor utilities that fail to respond quickly to storm outages. The bill has yet to win final approval from lawmakers.