Fitch: New York Utility Regulation is Stable But Moderately Restrictive

Fitch Ratings views New York utility regulation as largely stable. NY electric and gas utilities enjoy several provisions that Fitch considers to be credit supportive, such as a forward test year, revenue decoupling and commodity cost pass-through trackers. However, below average authorized returns on equity (ROE) and an increasing use of deferrals in rate case settlements has constrained Fitch's view on the NY's regulatory compact. Fitch rated NY electric and gas utilities have a strong investment grade Issuer Default Rating (IDR), however, the median IDR of 'BBB+' is two notches lower than where it was a decade ago.

The authorized ROEs for NY utilities have trailed the national median. For the recently approved joint settlements for a number of NY electric and gas utilities, the authorized ROE has been 9%, below the national median ROE of 10%. Fitch expects the NY utilities to continue to incur elevated capex spending to improve safety and reliability of distribution networks, contingent planning for a nuclear power plant retirement, and energy related investment. Fitch estimates that combined capex for the Fitch rated NY utilities will be approximately $10 billion over the next three years.

The regulatory construct in NY could likely change with the implementation of a multi-year regulatory initiative, 'Reforming Energy Visions (REV)'. Through REV, the NY Public Service Commission is looking to promote and integrate distributed energy resources to meet system needs, reduce peak demand and improve system efficiency, and as a result achieve the state's policy objectives of affordable electricity, enhanced system reliability and low carbon emissions. The REV proceedings will also look at ratemaking reforms and explore the possibility of moving away from cost-of-service-based rates to performance-based metrics in tariff design. Fitch believes these changes will take time to take effect. In the near term, Fitch does not see any material changes in the utilities' creditworthiness, given the regulatory framework is currently under development and the contemplated performance and outcome-based tariff design may not be implemented until the completion of multiple credit review cycles.

For more information, please see Fitch's report published today, 'US Utility Regulation: Spotlight on New York', available on www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

U.S. Utilities: Spotlight on New York Regulation (The Current and Proposed Regulatory Paradigm)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867687

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