Moody's Raises Xcel Energy (XEL) to 'A3'; Cites Supportive Regulatory Environment
Moody's Investors Service upgraded the ratings of Xcel Energy Inc. (NYSE: XEL) and its subsidiaries, including Xcel's Issuer Rating to A3 from Baa1; its subsidiary Northern States Power Company (Minnesota) (NSP-Minnesota)'s Issuer Rating to A2 from A3; Northern States Power Company (Wisconsin) (NSP-Wisconsin)'s senior unsecured rating to A2 from A3; Public Service Company of Colorado (PSCo)'s Issuer Rating to A3 from Baa1; and Southwestern Public Service Company (SPS)'s senior unsecured rating to Baa1 from Baa2. Moody's also upgraded NSP-Minnesota and NSP-Wisconsin's commercial paper ratings to Prime-1 from Prime-2. These rating actions complete our review of Xcel, NSP-Minnesota, NSP-Wisconsin, PSCo, and SPS initiated on November 8, 2013. The outlooks for all of these companies are stable.
RATING RATIONALE
The primary driver of today's rating action was Moody's more favorable view of the relative credit supportiveness of the US regulatory environment, as detailed in our September 2013 Request for Comment titled "Proposed Refinements to the Regulated Utilities Rating Methodology and our Evolving View of US Utility Regulation."
"Xcel's rating reflects its straightforward, low business risk profile as a sizable owner of rate-regulated utilities," said Moody's senior vice president Mihoko Manabe.
Xcel has de minimis non-utility activity that makes many of its peers riskier. Its primary credit driver, therefore, is the regulatory risk from a constant round of rate cases as it seeks to recover costs from a sustained capital spending cycle. The financial stability of Xcel's utilities, together with its conservative management strategy, contribute to very steady credit metrics. Xcel remains committed to financing its capital program in a prudent manner, using a reasonable mix of debt and equity and managing its dividend payout ratios. The Xcel holding company's rating also reflects its debt's structural subordination to a significant but manageable amount of subsidiary debt.
Moody's has historically considered NSP-Minnesota's regulatory treatment as above-average in Minnesota but anticipates some unpredictability over the near-term. The company faced some disappointments in its 2013 electric rate case and is pursuing yet another large electric case in 2014, as NSP-Minnesota readdresses some items that were not resolved in the prior proceeding. From a credit perspective, however, Moody's notes that the 2013 decision resulted in a minor increase in cash flow for the company. Furthermore, NSP-Minnesota has been granted a suite of trackers and other adjustment mechanisms that has promoted strong credit ratios that have varied little over the years.
Moody's continues to view NSP-Wisconsin's regulatory relationships as above-average among US state regulated utilities. While the Wisconsin jurisdiction is not inclined to grant trackers and other adjustment mechanisms, it provides NSP-Wisconsin with sufficient, timely rate relief through bi-annual rate cases and the use of a forward test year that help the utility to maintain its solid credit metrics.
At PSCo, a large, protracted capital program according to Colorado's Clean Air Clean Jobs Act has necessitated a rate case every year or two. The company however has been granted a majority of what it has requested in expeditious rate settlements. PSCo also has access to alternative rate making mechanisms, riders to recover pipeline replacement and certain other investments outside of a base rate case, and a forward test year, although the latter was recently denied in its recent gas case. The company plans another electric rate case in 2014, but these serial rate filings should ease after the capital expenditures related to the Clean Air Clean Jobs Act peaks this year.
Historically the small laggard within the Xcel family, SPS will become a growth area over the next five years, as that subsidiary spends about 1.5 times its current rate base to serve the frenetic activity in the local oil patch. The rate treatment in Texas and New Mexico, which has relied on rate cases based on historical test years, has resulted in regulatory lag, as indicated by SPS's cash flow metrics being lowest among the Xcel utilities. In recent years, however, both states have passed legislation that will provide greater support of credit quality, for example, forward test years in New Mexico and riders for transmission and distribution costs. These laws are being implemented in current rate cases in those states.
WHAT COULD CHANGE RATING -- UP
Longer term, Xcel's and the subsidiaries' ratings could be upgraded on their individual merits if the companies demonstrate improved financial performance, for example, CFO pre-W/C to debt above 22% on a sustainable basis. Since regulated utility activities represent an overwhelming majority of Xcel's operations, this scenario would be unlikely without more supportive regulatory outcomes for several of its subsidiaries.
WHAT COULD CHANGE RATING -- DOWN
The ratings or outlook could be revised downward if Xcel's financial performance deteriorates, for example, CFO pre-W/C to debt falling to below 17% for an extended period. Factors that could contribute to this deterioration include adverse regulatory rulings, significant operating difficulties, a more aggressive capital program, or a change to a riskier management strategy.
The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Headquartered in Minneapolis, Minnesota, Xcel Energy Inc. is a utility holding company.
Actions Taken:
Xcel Energy Inc. :
LT Issuer Rating to A3 from Baa1
Senior Unsecured Rating to A3 from Baa1
Senior Unsecured Bank Credit Facility to A3 from Baa1
Senior Unsecured Shelf to (P)A3 from (P)Baa1
Subordinate Shelf to (P)Baa1 from (P)Baa2
Junior Subordinate Shelf to (P)Baa1 from (P)Baa2
Preferred Shelf to (P)Baa2 from (P)Baa3
Outlook to Stable from Under Review for Upgrade
Northern States Power Company (Minnesota):
Long Term Issuer Rating to A2 from A3
Senior Unsecured Bank Credit Facility to A2 from A3
First Mortgage Bonds to Aa3 from A1
Senior Secured Shelf to (P)Aa3 from (P)A1
Senior Unsecured Shelf to (P)A2 from (P)A3
Commercial Paper to P-1 from P-2
Outlook to Stable from Under Review for Upgrade
Northern States Power Company (Wisconsin):
Senior Unsecured Bank Credit Facility to A2 from A3
First Mortgage Bonds to Aa3 from A1
Senior Secured Shelf to (P)Aa3 from (P)A1
Senior Unsecured Shelf to (P)A2 from (P)A3
Commercial Paper to P-1 from P-2
Public Service Company of Colorado:
Long Term Issuer Rating to A3 from Baa1
Senior Unsecured Bank Credit Facility to A3 from Baa1
First Mortgage Bonds to A1 from A2
Senior Secured MTN to (P)A1 from (P)A2
Outlook to Stable from Under Review for Upgrade
Southwestern Public Service Company:
Long Term Issuer Rating to Baa1 from Baa2
Senior Unsecured Rating to Baa1 from Baa2
Senior Unsecured Bank Credit Facility to Baa1 from Baa2
First Mortgage Bonds to A2 from A3
Senior Secured Shelf to (P)A2 from (P)A3
Senior Unsecured Shelf to (P)Baa1 from (P)Baa2
Outlook to Stable from Under Review for Upgrade
RATING RATIONALE
The primary driver of today's rating action was Moody's more favorable view of the relative credit supportiveness of the US regulatory environment, as detailed in our September 2013 Request for Comment titled "Proposed Refinements to the Regulated Utilities Rating Methodology and our Evolving View of US Utility Regulation."
"Xcel's rating reflects its straightforward, low business risk profile as a sizable owner of rate-regulated utilities," said Moody's senior vice president Mihoko Manabe.
Xcel has de minimis non-utility activity that makes many of its peers riskier. Its primary credit driver, therefore, is the regulatory risk from a constant round of rate cases as it seeks to recover costs from a sustained capital spending cycle. The financial stability of Xcel's utilities, together with its conservative management strategy, contribute to very steady credit metrics. Xcel remains committed to financing its capital program in a prudent manner, using a reasonable mix of debt and equity and managing its dividend payout ratios. The Xcel holding company's rating also reflects its debt's structural subordination to a significant but manageable amount of subsidiary debt.
Moody's has historically considered NSP-Minnesota's regulatory treatment as above-average in Minnesota but anticipates some unpredictability over the near-term. The company faced some disappointments in its 2013 electric rate case and is pursuing yet another large electric case in 2014, as NSP-Minnesota readdresses some items that were not resolved in the prior proceeding. From a credit perspective, however, Moody's notes that the 2013 decision resulted in a minor increase in cash flow for the company. Furthermore, NSP-Minnesota has been granted a suite of trackers and other adjustment mechanisms that has promoted strong credit ratios that have varied little over the years.
Moody's continues to view NSP-Wisconsin's regulatory relationships as above-average among US state regulated utilities. While the Wisconsin jurisdiction is not inclined to grant trackers and other adjustment mechanisms, it provides NSP-Wisconsin with sufficient, timely rate relief through bi-annual rate cases and the use of a forward test year that help the utility to maintain its solid credit metrics.
At PSCo, a large, protracted capital program according to Colorado's Clean Air Clean Jobs Act has necessitated a rate case every year or two. The company however has been granted a majority of what it has requested in expeditious rate settlements. PSCo also has access to alternative rate making mechanisms, riders to recover pipeline replacement and certain other investments outside of a base rate case, and a forward test year, although the latter was recently denied in its recent gas case. The company plans another electric rate case in 2014, but these serial rate filings should ease after the capital expenditures related to the Clean Air Clean Jobs Act peaks this year.
Historically the small laggard within the Xcel family, SPS will become a growth area over the next five years, as that subsidiary spends about 1.5 times its current rate base to serve the frenetic activity in the local oil patch. The rate treatment in Texas and New Mexico, which has relied on rate cases based on historical test years, has resulted in regulatory lag, as indicated by SPS's cash flow metrics being lowest among the Xcel utilities. In recent years, however, both states have passed legislation that will provide greater support of credit quality, for example, forward test years in New Mexico and riders for transmission and distribution costs. These laws are being implemented in current rate cases in those states.
WHAT COULD CHANGE RATING -- UP
Longer term, Xcel's and the subsidiaries' ratings could be upgraded on their individual merits if the companies demonstrate improved financial performance, for example, CFO pre-W/C to debt above 22% on a sustainable basis. Since regulated utility activities represent an overwhelming majority of Xcel's operations, this scenario would be unlikely without more supportive regulatory outcomes for several of its subsidiaries.
WHAT COULD CHANGE RATING -- DOWN
The ratings or outlook could be revised downward if Xcel's financial performance deteriorates, for example, CFO pre-W/C to debt falling to below 17% for an extended period. Factors that could contribute to this deterioration include adverse regulatory rulings, significant operating difficulties, a more aggressive capital program, or a change to a riskier management strategy.
The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Headquartered in Minneapolis, Minnesota, Xcel Energy Inc. is a utility holding company.
Actions Taken:
Xcel Energy Inc. :
LT Issuer Rating to A3 from Baa1
Senior Unsecured Rating to A3 from Baa1
Senior Unsecured Bank Credit Facility to A3 from Baa1
Senior Unsecured Shelf to (P)A3 from (P)Baa1
Subordinate Shelf to (P)Baa1 from (P)Baa2
Junior Subordinate Shelf to (P)Baa1 from (P)Baa2
Preferred Shelf to (P)Baa2 from (P)Baa3
Outlook to Stable from Under Review for Upgrade
Northern States Power Company (Minnesota):
Long Term Issuer Rating to A2 from A3
Senior Unsecured Bank Credit Facility to A2 from A3
First Mortgage Bonds to Aa3 from A1
Senior Secured Shelf to (P)Aa3 from (P)A1
Senior Unsecured Shelf to (P)A2 from (P)A3
Commercial Paper to P-1 from P-2
Outlook to Stable from Under Review for Upgrade
Northern States Power Company (Wisconsin):
Senior Unsecured Bank Credit Facility to A2 from A3
First Mortgage Bonds to Aa3 from A1
Senior Secured Shelf to (P)Aa3 from (P)A1
Senior Unsecured Shelf to (P)A2 from (P)A3
Commercial Paper to P-1 from P-2
Public Service Company of Colorado:
Long Term Issuer Rating to A3 from Baa1
Senior Unsecured Bank Credit Facility to A3 from Baa1
First Mortgage Bonds to A1 from A2
Senior Secured MTN to (P)A1 from (P)A2
Outlook to Stable from Under Review for Upgrade
Southwestern Public Service Company:
Long Term Issuer Rating to Baa1 from Baa2
Senior Unsecured Rating to Baa1 from Baa2
Senior Unsecured Bank Credit Facility to Baa1 from Baa2
First Mortgage Bonds to A2 from A3
Senior Secured Shelf to (P)A2 from (P)A3
Senior Unsecured Shelf to (P)Baa1 from (P)Baa2
Outlook to Stable from Under Review for Upgrade