Fitch Publishes U.S. Competitive Generators Handbook

MUMBAI, India--(BUSINESS WIRE)-- Fitch Ratings has published the second edition of its U.S. Competitive Generators Handbook, which provides an overview of the deregulated power markets in the U.S. and profiles of the generation companies (gencos) in Fitch's rated universe. Each company report in this handbook includes rating rationales and rating drivers, along with debt structures and financial summary information.

The genco sector comprises both affiliates of regulated utilities (affiliated gencos) and independent power producers (IPPs). The affiliated gencos typically operate within a larger holding company structure and generally boast strong investment-grade credit metrics, such as PSEG Power LLC ('BBB+'), Southern Power Co. ('BBB+'), and Exelon Generation Co. LLC ('BBB'). IPPs such as Calpine Corporation ('B+') are viewed as riskier and typically rated below investment grade.

Fitch continues to have a negative outlook for the competitive generation sector, reflecting poor fundamentals including weak demand, robust reserve margins in most deregulated markets and low power prices. In addition, the rapid expansion of renewables, driven by state mandates and federal policy initiatives, will intensify pressure on heat rates and power prices in many regions. Given the continued weakness in power prices and no material recovery in sight, Fitch's primary concerns revolve around the commodity exposure for gencos once the current above-market hedges expire. Robust new-builds and bleak outlook for peak demand growth are suppressing both energy and capacity prices in most deregulated markets. Ownership of a competitive retail business (which is typically countercyclical to wholesale generation), a track record of long-term bilateral contracts and visibility on capacity revenues can provide favorable offsets.

With the forward EBITDA outlook largely uncertain, and most gencos operating above their targeted leverage metrics, there is limited headroom to withstand a deepening cyclical trough. This is a particular concern for the independent power producers, which have typically demonstrated aggressive, shareholder-focused capital allocation policies and/or used leveraged M&A to gain scale. On the positive side, FCF and liquidity are robust and debt maturities are largely manageable.

Nonregulated power plants continue to change hands at a vigorous pace. Fitch attributes the robust activity to strategic opportunities driven by the weak power price environment, the availability of relatively inexpensive debt financing and a strategic shift by hybrid utilities leading to their exit from merchant generation. In addition to gencos, financial investors have been active participants. Recent consolidation among independent gencos has added scale and diversity, and acquisition of retail platforms has mitigated sensitivity to wholesale price volatility. Fitch considers both these trends to be credit positive.

The report is available on the Fitch Ratings website at 'www.fitchratings.com' or by clicking on the link.

Additional information is available on www.fitchratings.com

Related Research

U.S. Competitive Generators Handbook (A Detailed Review of Competitive Generation Companies — Second Edition)

https://www.fitchratings.com/site/re/888985

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Source: Fitch Ratings

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