Fitch Ratings has affirmed the Issuer Default Rating (IDR) for Xcel
Energy Inc. (Xcel) at 'BBB+'. In addition, Fitch has affirmed the 'A-'
IDRs for Northern States Power Company-Minnesota (NSP-Minnesota),
Northern States Power Company-Wisconsin (NSP-Wisconsin), and Public
Service Company of Colorado (PSCo), and the 'BBB' IDR on Southwestern
Public Service Company (SPS). The debt instrument ratings have also been
affirmed and are listed at the end of this release.
The Rating Outlook for Xcel and each of its subsidiaries is Stable.
KEY RATING DRIVERS FOR XCEL
Conservative Business Model: Xcel's ratings largely reflect the
relatively stable earnings and cash flows of its four regulated utility
subsidiaries: NSP-Minnesota, NSP-Wisconsin, PSCo, and SPS. Xcel's
strategy remains focused on its regulated utility businesses and
securing timely recovery of their capital investments.
Mostly Constructive Regulatory Environment: Xcel benefits from exposure
to regulatory environments that have been mostly constructive. PSCo and
NSP-Wisconsin have received balanced treatment in their recent rate
cases in Colorado and Wisconsin, respectively, and are allowed the use
of riders that provide timely recovery of capital investments.
NSP-Minnesota has also received balanced regulatory treatment, excluding
the recent disallowment of a return on $333 million of cost overruns
associated with the Monticello nuclear plant uprate and life extension
project. However, SPS operates in a challenging regulatory environment
in New Mexico and Texas.
Solid Financial Metrics: For the latest-12-month (LTM) ended Sept. 30,
2015, Funds flow from Operations (FFO) fixed-charge coverage was 5.7x,
FFO-adjusted leverage was 3.7x, and adjusted debt to EBITDAR was 4.3x.
Fitch forecasts credit metrics to remain supportive of credit quality,
with FFO fixed-charge coverage averaging 5.5x, FFO lease-adjusted
leverage averaging 4.3x, and adjusted debt/EBITDAR averaging 4.2x over
2016 - 2018. FFO metrics are bolstered by tax benefits stemming from the
utilization of net operating losses at Xcel.
Elevated Capex: Consolidated capex remains elevated over the forecast
period. Capex over 2016 - 2019 is projected to total approximately $11.6
billion. Management expects about two-thirds to be allocated to
NSP-Minnesota and PSCo, with transmission and generation representing
31% and 23% of consolidated capex, respectively.
The utilities benefit from nonfuel rate riders that facilitate timely
recovery of capital investment costs and support utility credit quality.
Fitch anticipates Xcel will support the sizeable capital spending levels
across the utility subsidiaries through equity infusions. In turn, Fitch
expects Xcel to meet group funding needs through a balanced mix of
external debt and equity financing.
Standard Notching: There is a moderate to strong linkage between the
IDRs of Xcel and each of its subsidiaries. The linkages originate
primarily from strategic drivers. Each subsidiary is important to Xcel,
and the parent financially supports its subsidiaries when warranted via
equity infusions and funding the intercompany money pool. Fitch
considers a one- to two-notch differential between the IDRs of Xcel and
its subsidiaries to be appropriate.
KEY RATING DRIVERS FOR NSP-MINNESOTA
Balanced Regulation: NSP-Minnesota's ratings reflect a relatively
balanced and stable regulatory environment across three states, and
Fitch expects reasonable outcomes to future rate case filings.
Supportive regulatory mechanisms include fuel cost and purchased power
adjustments and capital investment riders for environmental improvement,
renewable generation, and electric transmission.
Minnesota Electric Rate Order: Fitch considers the Minnesota Public
Utilities Commission's (MPUC) rate order earlier this year to have been
slightly punitive with respect to the low authorized return on equity
(ROE) of 9.72% and the Monticello nuclear plant uprate and life
extension project ruling. The MPUC disallowed a return on $333 million
of cost overruns and delayed the project's used-and-useful status until
it was approved by the Nuclear Regulatory Commission.
The electric rate order will somewhat weaken NSP-Minnesota's credit
metrics over the near term. However, Fitch considers the overall
regulatory environment in Minnesota to remain supportive of credit
quality, as evidenced by a balanced rate increase, the authorized 52.5%
equity capital structure, and the implementation of a revenue decoupling
pilot program.
Capex Peaking in 2015: NSP-Minnesota is nearing the end of a large,
multi-year capex program, having spent an average of $1.25 billion per
year over 2011 - 2014. The utility is expected to spend $1.625 billion
in 2015, not including an additional $300 million over 2015 - 2016 on
the 200-MW Courtenay wind project that is pending regulatory approvals.
In 2016, capex is expected to return to more modest levels, averaging
$950 million per year over 2016 - 2019, excluding potential costs in
2016 related to the Courtenay wind project.
Robust Credit Metrics: For the LTM ended Sept. 30, 2015, FFO
fixed-charge coverage stood at 6.7x, FFO-adjusted leverage at 3.2x, and
adjusted debt/EBITDAR at 4.1x. Fitch forecasts FFO fixed-charge coverage
to average 7.0x, FFO-adjusted leverage 3.4x, and adjusted debt/EBITDAR
3.5x over 2016-2018.
KEY RATING DRIVERS FOR NSP-WISCONSIN
Supportive Regulatory Environment: NSP-Wisconsin's ratings reflect the
constructive regulatory framework in Wisconsin. The utility benefits
from a regulatory environment that is supportive of credit quality, with
an above-average authorized ROE, a forward-looking test year, a
purchased gas adjustment clause, and annual filings for fuel and
purchased energy adjustments.
NSP-Wisconsin filed a request with the Public Service Commission of
Wisconsin (PSCW) in May 2015 to increase electric rates $27.4 million,
or 3.9%, and natural gas rates $5.9 million, or 5.0%. The rate filing is
based on a 2016 forecast test year and an authorized ROE of 10.2%. A
PSCW decision is expected in December 2015, with new rates effective on
or about Jan. 1, 2016. NSP-Wisconsin's last electric rate order resulted
in a base rate increase of $14.2 million (69% of the utility's initial
request), effective January 2015 and based on a 10.2% authorized ROE.
Elevated Capex: Fitch's main rating concern relates to the relatively
sizable capital spending program over the forecast period. NSP-Wisconsin
plans to spend $1.44 billion in capex over 2015 - 2019, significantly
higher than historical norms. Capex is primarily earmarked for
transmission spending, including NSP-Wisconsin's share of the CapX2020
transmission project.
Fitch expects NSP-Wisconsin to fund capex in a manner that is consistent
with its authorized regulatory capital structure, from a mix of
internally generated funds, long-term debt issuances, and equity
infusions from Xcel.
Weakening of Credit Metrics: For the LTM ended Sept. 30, 2015, FFO
fixed-charge coverage stood at 7.3x, FFO-adjusted leverage at 2.8x, and
adjusted debt/EBITDAR at 2.9x. Fitch forecasts FFO fixed-charge coverage
to average 6.3x, FFO-adjusted leverage to average 4.1x, and adjusted
debt/EBITDAR to average 3.5x over 2016-2018. The forecasted metrics are
expected to weaken through the forecast period, primarily due to the
larger capex program.
KEY RATING DRIVERS FOR PSCO
Balanced Regulation: The ratings on PSCo reflect a relatively balanced
and stable regulatory environment in Colorado. Supportive regulatory
mechanisms include adjustment clauses for fuel costs and purchased
power, trackers for pension expense and property taxes, and riders for
electric and natural gas transmission investments and cost compliance
related to renewable energy and the Clean Air Clean Jobs Act (CACJA).
Constructive Electric Rate Order: The Colorado Public Utilities
Commission (CPUC) issued its electric rate order in February 2015,
approving a multi-year settlement agreement, which provides regulatory
predictability through 2017. The order was based on a 9.83% ROE, which
is slightly below the nationwide average ROE and a decrease from the
10.0% ROE PSCo was authorized in its 2011 electric rate case. However,
the CPUC maintained the utility's strong 56% authorized equity capital
ratio and remains supportive of PSCo's credit quality.
Pending Gas Rate Case: PSCo filed a revised multi-year rate request in
July 2015 to increase base rates by $40.5 million, or 3.5%, in 2015, and
self-implemented the rate increase effective Oct. 1, 2015. The revised
rate request includes step-up increases of $14.6 million in 2016 and
$16.8 million in 2017. The request is based on an authorized ROE of
10.1% for 2015 and 2016, and 10.3% for 2017.
As part of the filing, PSCo also requested an extension of its pipeline
system integrity adjustment (PSIA) rider through 2020, with incremental
PSIA rider revenues of $14.7 million in 2016 and $21.7 million in 2017.
A final CPUC decision of the multi-year rate request is expected no
later than Jan. 20, 2016.
Elevated Capex: Capex peaked in 2014 at $1.1 billion, yet Fitch expects
capex to remain elevated through 2019, averaging around $900 million per
year, which is higher than historical norms. Key drivers of capex
include investments associated with the CACJA, projects related to gas
pipeline integrity, and distribution system enhancement. Fitch expects
PSCo to finance capex in a manner consistent with its currently
authorized capital structure.
Strong Credit Metrics: For the LTM ended Sept. 30, 2015, FFO
fixed-charge coverage stood at 7.3x, FFO-adjusted leverage at 3.1x, and
adjusted debt/EBITDAR at 3.2x. Fitch forecasts FFO fixed-charge coverage
to average 6.4x, FFO-adjusted leverage 3.8x, and adjusted debt/EBITDAR
3.4x over 2016-2018.
KEY RATING DRIVERS FOR SPS
Challenging Regulatory Environment: SPS operates in Texas and New
Mexico, under the jurisdiction of the Public Utility Commission of Texas
(PUCT) and the New Mexico Public Regulation Commission (NMPRC). Fitch
considers these regulatory regimes to be challenging from a bondholder
perspective, primarily due to low authorized ROEs and other factors in
the rate-setting process that make it difficult for utilities to earn
their authorized ROEs.
Despite the challenging regulatory environment, SPS has done relatively
well in recent rate cases, with balanced outcomes in Texas and New
Mexico. Supportive rate design mechanisms in both states include fuel
and purchased power recovery mechanisms and riders for energy efficiency
program costs. SPS also has riders for distribution costs and
transmission infrastructure improvement in Texas and for renewable
energy program costs in New Mexico.
Pending Texas 2015 Electric Rate Case: In June 2015, SPS revised its
retail electric, non-fuel rate case filing in Texas, seeking an overall
increase in annual revenue of $42.1 million, or 4.4%. The filing was
based on a historic test year ending June 2014, adjusted for known and
measurable changes, and an authorized ROE of 10.2%. As part of the
request, SPS is seeking a waiver to allow for inclusion of $392 million
in additional capital investment for the second half of 2014.
A PUCT decision is expected in December 2015, with rates effective June
11, 2015. A balanced decision is important to maintain SPS's credit
quality, due to the significant amount of regulatory lag and the fact
that 72% of SPS' retail electric operating revenues are derived from
Texas.
Elevated Capex: SPS has a relatively large capital spending program.
Fitch expects capex to total $570 million in 2015, roughly stable since
2013, after having increased significantly from an annual average of
$330 million in 2010 - 2012. Capex is expected to peak at an annual
average of $725 million over 2016 - 2017, and then decline to an average
of $585 million per year over 2018 - 2019. The bulk of capex is for
transmission investments in New Mexico.
Modest Weakening of Credit Metrics: For the LTM ended Sept. 30, 2015,
FFO fixed-charge coverage stood at 5.5x, FFO-adjusted leverage at 3.4x,
and adjusted debt/EBITDAR at 3.9x. Fitch forecasts FFO fixed-charge
coverage to average 5.4x, FFO-adjusted leverage 4.2x, and adjusted
debt/EBITDAR 3.9x over 2016-2018. The metrics are expected to weaken
throughout the forecast period, but remain adequate for existing ratings.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Xcel include:
-- Electric sales growth averaging 1.0 - 1.5% per year for 2016 - 2019;
-- O&M expense growing at ~2% per year for 2016 - 2019;
-- Capex of ~$11.6 billion over 2016 - 2019;
-- Rate case outcomes consistent with historical rate orders.
Fitch's key assumptions within the rating case for NSP-Minnesota include:
-- EBITDA growth averaging 4.5% per year over 2016 - 2019;
-- Capex of ~$4.3 billion over 2016 - 2019;
-- Rate case outcomes consistent with historical rate orders.
Fitch's key assumptions within the rating case for NSP-Wisconsin include:
-- EBITDA growth averaging 8.0% per year over 2016 - 2019;
-- Capex of ~$1.1 billion over 2016 - 2019;
-- Rate case outcomes consistent with historical rate orders.
Fitch's key assumptions within the rating case for PSCo include:
-- EBITDA growth averaging 3.5% per year over 2016 - 2019;
-- Capex of ~$3.6 billion over 2016 - 2019;
-- Rate case outcomes consistent with historical rate orders.
Fitch's key assumptions within the rating case for SPS include:
-- EBITDA growth averaging 7.0% per year over 2016 - 2019;
-- Capex of ~$2.6 billion over 2016 - 2019;
-- Rate case outcomes consistent with historical rate orders.
RATING SENSITIVITIES
XCEL
Positive Rating Action: The negative impacts from the recent Minnesota
rate order and disallowance of costs at the Monticello plant, and
funding of a large multiyear capital investment plan at the utilities
limit the prospects for a positive rating action in the near term.
Negative Rating Action: Developments that may lead to a negative rating
action include a material deterioration of the overall regulatory
environment that results in an inability to adequately recover large
capital investments; adjusted debt/EBITDAR weakening to 4.6x on a
sustained basis; or a reduction in the level of parent support Xcel
provides to its utilities.
NSP-MINNESOTA
Positive Rating Action: Given the disallowance of certain returns on the
Monticello plant, a positive rating action is unlikely in the near term,
but could occur if adjusted debt/EBITDAR were to improve to 3.0x and
FFO-adjusted leverage to 3.2x on a sustained basis.
Negative Rating Action: Future developments that may, individually or
collectively, lead to a negative rating action include a material
deterioration of the regulatory environment in Minnesota; adjusted
debt/EBITDAR weakening to 4.0x on a sustained basis; and a shift in
management strategy that results in weaker financial support from Xcel.
NSP-WISCONSIN
Positive Rating Action: Given the already strong rating and elevated
capex program, a positive rating action is unlikely in the near term.
Negative Rating Action: Future developments that may, individually or
collectively, lead to a negative rating action include: a deterioration
of the Wisconsin regulatory environment; adjusted debt/EBITDAR weakening
to 4.0x on a sustained basis; and a shift in management strategy that
results in weaker financial support from Xcel.
PSCO
Positive Rating Action: Given the sizeable capex program, a positive
rating action is unlikely in the near term, but could occur if adjusted
debt/EBITDAR and FFO-adjusted leverage were to improve to 3.0x and 3.2x,
respectively, on a sustained basis.
Negative Rating Action: Future developments that may, individually or
collectively, lead to a negative rating action include a material
deterioration of the Colorado regulatory environment; adjusted
debt/EBITDAR weakening to 4.0x on a sustained basis; and a shift in
management strategy that results in weaker financial support from Xcel.
SPS
Positive Rating Action: Given SPS's large capex program, a positive
rating action is unlikely, but could occur if regulatory lag were to
improve materially and if FFO-adjusted leverage and adjusted
debt/EBITDAR both were to remain less than 3.5x on a sustained basis.
Negative Rating Action: Future developments that may lead to a negative
rating action include unfavorable regulatory developments that impede
SPS from earning a timely return on its investments; adjusted
debt/EBITDAR deteriorating to greater than 4.5x on a sustained basis;
and a shift in management strategy that results in weaker financial
support from Xcel.
LIQUIDITY
Fitch considers Xcel's liquidity to be adequate. Xcel and its utility
subsidiaries primarily meet their short-term liquidity needs through the
issuance of commercial paper (CP) under an aggregate $2.75 billion
revolving credit facility that expires in October 2019. Xcel and its
utility subsidiaries had $64 million of CP issued and $39 million of
letters of credit drawn at Sept. 30, 2015, leaving an aggregate of
$2.647 billion of availability under this five-year unsecured facility.
Xcel's utilities require modest cash on hand, and Xcel had $404 million
as of Sept. 30, 2015, all of which was unrestricted.
Liquidity is also available to Xcel's utility subsidiaries through
participation in a money pool. Xcel may make investments in the utility
subsidiaries at market-based interest rates, but the utilities are not
permitted to lend to Xcel under the money pool arrangement.
Xcel's holding company-level long-term debt maturities are manageable.
Xcel has $450 million of 0.75% unsecured senior notes due in May 2016
and $254 million of 5.613% unsecured senior notes due April 2017. The
next long-term debt maturity is in May 2020, when $550 million of 4.7%
unsecured senior notes comes due. Xcel's utility subsidiaries also have
a manageable long-term debt maturity schedule.
Fitch expects Xcel and its utility subsidiaries to maintain ready access
to the debt capital markets to fund capex and refinance maturing
long-term debt.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Xcel
-- Long-Term IDR at 'BBB+';
-- Senior unsecured debt at 'BBB+';
-- Short-Term IDR and commercial paper (CP) at 'F2'.
NSP-Minnesota
-- Long-Term IDR at 'A-';
-- Senior secured debt at 'A+';
-- Short-Term IDR and CP at 'F2'.
NSP-Wisconsin
-- Long-Term IDR at 'A-';
-- Senior secured debt at 'A+';
-- Senior unsecured debt at 'A';
-- Short-Term IDR and CP at 'F2'.
La Crosse (WI) (NSP-Wisconsin)
-- Unsecured resource recovery refunding revenue bonds at 'A'.
PSCo
-- Long-Term IDR at 'A-';
-- Senior secured debt at 'A+';
-- Short-Term IDR and CP at 'F2'.
SPS
-- Long-Term IDR at 'BBB';
-- Senior secured debt at 'A-';
-- Senior unsecured debt at 'BBB+';
-- Short-Term IDR and CP at 'F2'.
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=995575
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995575
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
View source version on businesswire.com: http://www.businesswire.com/news/home/20151130006344/en/
Copyright Business Wire 2015
