KEY RATING DRIVERS:
--A generally balanced regulatory environment in
--A conservative strategy focused on
--Significantly lower post-2014 capex and improving credit metrics.
Low Risk Profile: The ratings and Stable Rating Outlook reflect WR's relatively predictable earnings and cash flows, management's conservative strategic focus on utility operations in
WR's constructive, integrated business model and balanced regulatory/political environment in
Balanced Regulatory Compact: In recent years, WR has worked with the KCC and policy makers to implement tariff mechanisms designed to recover costs outside of GRCs, reducing regulatory lag. These riders include the following: a fuel adjustment mechanism (adjusted quarterly and trued-up annually); environmental cost recovery rider, FERC formula rate rider; and property tax adjustment.
In addition, deferral mechanisms are deployed for storm damage and other costs, including pension and energy efficiency. Single-issue rate cases are also permissible under state law and capex for major projects may be approved in advance. In Fitch's opinion, these regulatory mechanisms streamline GRC proceedings, reduce risk and potential rate lag and are key factors supporting WR's creditworthiness.
Improving Credit Metrics: WR's large capex program, which includes significant environmental investment, has exerted moderate pressure on the utility's consolidated credit metrics that is expected to continue through 2014. Fitch expects WR's capex to decline in 2015 and 2016, reflecting completion of its large environmental remediation program.
Lower future capex, coupled with anticipated rate relief is expected by Fitch to support strengthening credit metrics in 2015 - 2016. WR is expected to fund its external requirements on a conservative basis and has entered into forward equity agreements to maintain a balanced capital structure.
Capex: WR's capital investment is estimated to approximate
WR's transmission investment is expected to rise sharply from
GRC: WR plans to file its next general rate case (GRC) with the
The GRC is expected to seek recovery of remaining costs related to environmental work at the
An adverse shift in the currently balanced regulatory compact in
A change in management's current strategy and/or higher-than-expected capex could also lead to future adverse credit rating actions.
In addition, an unexpected, prolonged plant outage at a major base load, coal or nuclear plant or change in strategy could lead to lower credit ratings.
Any combination of these or other factors resulting in a FFO-lease adjusted leverage to 5.1x or below on a sustained basis could lead to future credit rating downgrades.
Greater than anticipated debt reduction and/or higher than expected rate increases could result in future positive rating actions.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology: Including short-Term Ratings and Parent Subsidiary Linkage'
--'Recovery Ratings and Notching Criteria for Utilities'
--'Rating U.S. Utilities, Power, and Gas Companies' (
Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)
Recovery Ratings and Notching Criteria for Utilities
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Shalini Mahajan, +1 212-908-0351
Glen Grabelsky, +1 212-908-0577
Source: Fitch Ratings
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