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Research Announcement:

Moody's: As cyber threat intensifies for US utilities, government support remains key to credit profiles

20 September 2018

New York, September 20, 2018 -- Cyber attacks on the energy sector are on the rise, but US utilities benefit from the likelihood of government intervention in the case of a severe breach or power outage, according to a new report from Moody's Investors Service. Ultimately, the extent of an attack and its financial impact would determine the credit outcome.

"An extended outage could bring serious social consequences," says Lesley Ritter, an associate vice president at Moody's and the lead author of the report. "Therefore, governments would support critical infrastructure assets, such as a utility, with its recovery efforts."

Absent a suitable cyber comparison, Moody's uses extreme weather events as a proxy for estimating how cyber risk might translate into financial impacts for utilities. Any credit impact would depend on the utility's ability to recover and restore operations. For example, in 2005 Hurricane Katrina caused approximately $630 million worth of damages to Entergy New Orleans, LLC. (Ba1 stable), which quickly filed for bankruptcy. However, a combination of federal grants and phased-in rate increases granted by the city council helped bring the utility back to financial health without any ultimate losses for creditors.

In July, the Department of Homeland Security released information about a series of recent cyber attacks on US utilities. Over the past six months, hackers have accessed sensitive information, gained control of one power plant's operational technology and obtained remote access to Supervisory Control and Data Acquisition systems.

Modern control systems are increasingly digitized and interconnected, making power production, transmission and distribution operations more vulnerable to cybersecurity threats and breaches. While defenses against theft of corporate information technology have evolved relatively quickly, cyber defense for industrial control systems remains vulnerable.

Existing federal cybersecurity compliance standards serve as a good baseline for utilities, but are not sufficient to fully mitigate cyber risk, and may trigger a "culture of compliance," in which utilities are lulled into a false sense of security. Moody's does not view compliance with these standards as a fail-safe, but acknowledges that compliance improves the likelihood that regulators will help a utility recover its costs through rates in the case of a successful attack.

"Cybersecurity is an enterprise-wide risk that requires thorough governance measures," says Ritter. "We believe that c-suite executives and the board of directors must be at the center of managing an issuer's cybersecurity risk."

The report serves as an update to "US Regulated and Public Power Utilities - In a Major Cyber Attack, the Likelihood of Government Relief Is High," published in October 2015, in light of recent cyber incidents, as well as updated industry standards and a new SEC cybersecurity disclosure guidance.

Subscribers can access the report, "Regulated electric and gas utilities – US: Cyber risk is on the rise, but the likelihood of government relief is high," at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1137820.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Lesley Ritter
AVP-Analyst
PPIF
Moody's Investors Service, Inc.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jim Hempstead
MD-Utilities
PPIF
Moody's Investors Service, Inc.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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U.S.A.
JOURNALISTS: 1 212 553 0376
SUBSCRIBERS: 1 212 553 1653

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