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Infrastructure Finance
Moody’s Global Rating
Methodology Table of Contents:
Summary 1
About the Rated Univer 2
August 2009 Regulated Electric and Gas
This methodology pertains to regulated electric and gas utilities and excludes regulated electric and gas networks (companies primarily engaged in the transmission and/or distribution of electricity and/or natural gas that do not rve retail customers) and unregulated utilities and power companies, which are covered by parate rating methodologies. Municipal utilities and electric cooperatives are also excluded and covered by parate rating methodologies.iris什么意思
In Appendix A of this methodology, we have included a detailed rating grid for the companies covered by the methodology. For each company, the grid maps each of the key rating factors and shows an indicated alpha-numeric rating bad on the results from the overall combination of the factors (e Appendix B). We note, however, that many companies will not match each dimension of the analytical framework laid out in the rating grid exactly and that from time to time a company’s performance on a particular rating factor may fall outside the expected range for a company at its rating level. The companies are categorized as “outliers” for that rating factor. We discuss some of the reasons for the outliers in this methodology as well as in published credit opinions and other company-specific analysis.
The purpo of the rating grid is to provide a reference tool that can be ud to approximate credit profiles within the regulated electric and gas utility ctor. The grid provides summarized guidance on the factors that are generally most important in assigning ratings to the ctor. While the factors and sub-factors within the grid are designed to capture the fundamental rating drivers for the ctor, this grid does not include every rating consideration and does not fit every business model equally. Therefore, we outline additional considerations that may be appropriate to apply in addition to the four rating factors. Moody’s also asss other rating factors that are common across all industries,
such as event risk, off-balance sheet risk, legal structure, corporate governance, and management experience and credibility. Furthermore, most of our sub-factor mapping us historical financial results to illustrate the grid while our ratings also consider forward looking expectations. As such, the grid-indicated rating is not expected to always match the actual rating of each company. The text of the rating methodology provides insights on the key rating considerations that are not reprented in the grid, as well as the circumstances in which the rating effect for a factor might be significantly different from the weight indicated in the grid.
Readers should also note that this methodology does not attempt to provide an exhaustive list of every factor that can be relevant to a utility’s ratings. For example, our analysis covers factors that are common across all industries (such as coverage metrics, debt leverage, and liquidity) as well as factors that can be meaningful on a company or industry specific basis (such as regulation, capital expenditure needs, or carbon exposure).
This publication includes the following ctions:
About the Rated Univer: An overview of the regulated electric and gas industries
About the Rating Methodology: A description of our rating methodology, including a detailed explana
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tion of each of the key factors that drive ratings
Assumptions and Limitations: Comments on the rating methodology’s assumptions and limitations, including a discussion of other rating considerations that are not included in the grid
In the appendices, we also provide tables that illustrate the application of the methodology grid to 30 reprentative electric and gas utility companies with explanatory comments on some of the more significant differences between the grid-implied rating and our actual rating (Appendix C). We also provide definitions of key ratios (Appendix D), an industry overview (Appendix E) and a discussion of the key issues facing the industry over the intermediate term (Appendix F) and regional considerations (Appendix G).
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About the Rated Univer
The rating methodology covers investor-owned and commercially oriented government owned companies worldwide that are engaged in the production, transmission, distribution and/or sale of electricity and/or natural gas. It covers a wide variety of companies active in the ctor, including vertically integrated utilities, transmission and distribution companies, some U.S. transmission-only companies, and local gas distribution companies (LDCs). For the LDCs, we note that this methodolo
gy is concerned principally with operating utilities regulated by their local jurisdictions and not with gas companies that have significant non-utility
About this Rating Methodology
Moody’s approach to rating companies in the regulated electric and gas utility ctor, as outlined in this rating methodology, incorporates the following steps:
1. Identification of the Key Rating Factors
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小学英语培训心得In general, Moody’s rating committees for the regulated electric and gas utility ctor focus on a number of key rating factors which we identify and quantify in this methodology. A change in one or more of the factors, depending on its weighting, is likely to influence a utility’s overall business and financial risk. We have identified the following four key rating factors and nine sub-factors when assigning ratings to regulated electric and gas utility issuers:
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Rating Factor / Sub-Factor Weighting - Regulated Utilities Broad Rating
Factors
Broad Rating Factor Weighting Rating Sub-Factor Sub-Factor Weighting Regulatory Framework
25% 25% Ability to Recover Costs and Earn Returns
25% 25% 10% Market Position 5%* Diversification
Generation and Fuel Diversity 5%** 40% Liquidity 10%
CFO pre-WC + Interest/ Interest 7.5%
CFO pre-WC / Debt 7.5%
CFO pre-WC – Dividends / Debt 7.5% Financial Strength, Liquidity and Key
Financial Metrics Debt/Capitalization or Debt / Regulated Ast Value
7.5% Total 100%
100% *10% weight for issuers that lack generation; **0% weight for issuers that lack generation
The factors are critical to the analysis of regulated electric and gas utilities and, in most cas, can be benchmarked across the industry. The discussion begins with a review of each factor and an explanation of its importance to the rating.
2. Measurement of the Key Rating Factors
We next explain the elements we consider and the metrics we u to measure relative performance on each of the four factors. Some of the measures are quantitative in nature and can be specifically defined. However, for other factors, qualitative judgment or obrvation is necessary to determine the appropriate rating category. Moody’s ratings are forward looking and attempt to rate through the industry’s characteristic volatility, which can be caud by weather variations, fuel or commodity price changes, cost deferrals, or reasonable delays in regulatory recovery. The rating process also makes extensive u of historic financial statements. Historic results help us understand the pattern of a utility’s financial and operating performance and how a utility compares to its peers. While rating committees and the rating process u both historical and projected financial results, this document makes u only of historic data, and does so solely for illustrative purpos. All financial measures incorporate Moody’s standard adjustments to income statement, cash flow statement, and balance sheet amounts for (among other things) underfunded pension obligations and operating leas.
3. Mapping Factors to Rating Categories
After identifying the measurement criteria for each factor, we match the performance of each factor and sub-factor to one of Moody’s broad rating categories (Aaa, Aa, A, Baa, Ba, and B). In this report,
bolero we provide a
range or description for each of the measurement criteria. For example, we specify what level of CFO pre-WC plus Interest/Interest is generally acceptable for an A credit versus a Baa credit, etc.
4. Mapping Issuers to the Grid and Discussion of Grid Outliers
For each factor and sub-factor, we provide a table showing how a subt of the companies covered by the methodology maps within the specific factors and sub-factors. We recognize that any given company may perform higher or lower on a given factor than its actual rating level will otherwi indicate. The companies are identified as “outliers” for that factor. A company who performance is two or more broad rating categories higher than its rating is deemed a positive outlier for that factor. A company who performance is two or more broad rating categories below is deemed a negative outlier. We also discuss the general reasons for such outliers for each factor.
5. Discussion of Assumptions, Limitations and Other Rating
Considerations
This ction discuss limitations in the u of the grid to map against actual ratings as well as limita
tions and key assumptions that pertain to the overall rating methodology.
6. Determining the Overall Grid-Indicated Rating
To determine the overall rating, each of the factors and sub-factors is converted into a numeric value bad on the following scale:
Ratings Scale
Aaa Aa A Baa Ba B
1 3 6 9 1
2 15
Each sub-factor’s numeric value is multiplied by an assigned weight and then summed to produce a composite weighted-average score. The total sum of the factors is then mapped to the ranges specified in the table below, and the indicated alpha-numeric rating is determined bad on where the total score falls within the ranges.
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Factor Numerics
Composite Rating
Indicated Rating Aggregate Weighted Factor Score
1.5
Aaa <
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Aa1 1.5 < 2.5
Aa2 2.5 < 3.5
Aa3 3.5 < 4.5
A1 4.5 < 5.5
A2 5.5 < 6.5
A3 6.5 < 7.5
Baa1 7.5 < 8.5
Baa2 8.5 < 9.5
Baa3 9.5 < 10.5
Ba1 10.5 < 11.5
Ba2 11.5 < 12.5
Ba3 12.5 < 13.5
B1 13.5 < 14.5
B2 14.5 < 15.5
B3 15.5 < 16.5
