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Rating Action:

MOODY'S CONTINUES TO REVIEW DEBT RATINGS OF SEVERAL UK REGIONAL ELECTRIC COMPANIES AND MULTI-UTILITIES FOR POSSIBLE DOWNGRADE FOLLOWING REGULATOR'S FINAL PRICE DETERMINATIONS

02 Dec 1999
MOODY'S CONTINUES TO REVIEW DEBT RATINGS OF SEVERAL UK REGIONAL ELECTRIC COMPANIES AND MULTI-UTILITIES FOR POSSIBLE DOWNGRADE FOLLOWING REGULATOR'S FINAL PRICE DETERMINATIONS London, December 02, 1999 -- Moody's Investors Service announced that it is continuing to review several debt ratings of UK Regional Electricity Companies (REC's) and multi-utilities for possible downgrade following the UK electricity regulator's final pricing determinations. Earlier today, the regulator OFGEM, announced the final price cuts for distribution and supply which are broadly in line with expectations. Each company must now decide whether to agree to the price cuts the regulator is demanding or reject them and face being referred to the Competition Commission authorities who will consider whether they are abusing their monopoly powers. Moody's does not anticipate finalising its review until the companies have made this decision which must be informed to OFGEM by the 20th December, 1999 at the latest.

OFGEM announced their revised tariffs for the next five years which will take effect from April 2000. Each company in England and Wales is expected to make a one-off cut to their distribution tariffs in the range of 19% to 33% before allowing for the regulators assessment of internal cost re-allocation from distribution to supply. The companies will then be expected to reduce tariffs by a further 3% each year thereafter. In addition the regulator has also recommended price cuts to the supply businesses in the range of 2.2% to 8.7%. Recommendations for smaller cuts have also been made for the two companies who operate in Scotland. If accepted, these price cuts will lead to a significant loss of revenue for each company. Many of the companies have already announced proposed cost cutting measures focussing on staff reductions. However, Moody's believes that the proposed revenue cuts may well lead to further corporate activity in the sector as there are material cost savings to be achieved from mergers or the formation of joint ventures which can eliminate duplicated fixed costs.

Moody's review of the ratings of the REC's will concentrate on a number of factors which vary from company to company. Each company is reviewed separately depending upon its unique circumstances. Once the decision on whether the REC's will accept OFGEM's recommendations are known the reviews will focus on the companies ability to cut costs and its proposed dividend policy. It is important to note that even when the debt levels within an operating company are quite modest the regulated utilities are often the only cash generating activity within a group structure which contains debt elsewhere. Moody's reviews will focus on the requirements of the REC's to service both its own and group debt which its cashflow supports. One of OFGEM's principal objectives is to ensure stability of electricity supply and as part of this they require each regulated entity to maintain at least an investment grade rating - a minimum of Baa3.

The multi-utilities (Hyder, United Utilities and Scottish Power) are exposed to both the electricity and water pricing reviews, and their ratings have had a negative outlook since November 1998. The Aa3 ratings of Scottish Power UK plc remain on review for possible downgrade in connection with the acquisition of US utility Pacificorp, announced in December 1998.

The ratings of National Power plc (A2/Prime-1) were placed on review for possible downgrade following the announcement of the result of a wide-ranging strategic review which will lead to the company splitting into two separate companies, selling UK generation assets and returning GBP600 million of equity to its shareholders. National Power plc owns the supply business for the Midlands Electricity region.

The ratings on Midlands Electricity plc (Baa1) and its UK parent Avon Energy Partners Holdings (Baa2) have been confirmed at their existing level.

The ratings of Eastern Electricity plc (A3/Prime-2) and together with TXU Europe Group plc (formerly Eastern Group plc) (Baa1), TXU Europe Ltd (formerly TXU Eastern Holdings Limited) and guaranteed debt of TXU Eastern Funding Company and Energy Group Overseas BV (all Baa1) have been confirmed at their existing levels.

London Electricity was upgraded from Baa2/Prime-2 to A2/Prime-1 following its purchase by Electricite de France. EDF London Capital LP preferred debt was upgraded to "a3".

Current status of REC and multi-utility ratings:

These ratings remain on review for possible downgrade:

United Utilities PLC rated A2 / Prime-1

NORWEB plc rated A1

North West Water Limited (and guaranteed debt of North West Water Finance plc) rated A1

Hyder plc rated Baa1

South Wales Electricity plc rated A3

Dwr Cymru Cyfyngedig and guaranteed debt of Welsh Water Utilities Finance plc rated A2

SEEBOARD plc rated A3

CSW Investments rated Baa1

Yorkshire Electricity Group plc rated Baa1

Yorkshire Power Finance Limited guaranteed by Yorkshire Power Group Limited rated Baa2

Yorkshire Capital Trust I rated "baa2"

Northern Electric Finance plc rated A3

CE Electric UK Funding Company rated Baa1

Southern Investments UK plc rated Baa1

Southern Investments UK Capital Trust I rated "baa2"

Scottish Power UK plc rated Aa3


The following ratings have already been confirmed:

PowerGen UK plc rated A2 / Prime 1

PowerGen (East Midlands) Investments rated A2

East Midlands Electricity plc rated A1 / Prime-1

Southern Electricity plc rated Aa3 / Prime-1

Scottish and Southern Energy plc rated Aa3 / Prime-1

Prime-1 ratings of NORWEB plc, North West Water Limited

Prime-2 ratings of SEEBOARD plc, South Western Electricity plc, Yorkshire Electricity Group plc and Northern Electric plc
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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