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19 Jan 2010
Approximately $12 Billion of Debt Securities Affected
New York, January 19, 2010 -- Moody's Investors Service placed the long-term ratings of
FPL Group, Inc. (A2 Issuer Rating); Florida Power &
Light Company (A1 Issuer Rating), and FPL Group Capital Inc.
(A2 senior unsecured) on review for possible downgrade. Moody's
also placed FPL Group Capital's Prime-1 short-term
rating for commercial paper on review for possible downgrade. Florida
Power & Light Company's Prime-1 short-term rating
for commercial paper is not on review, as Moody's anticipates
that the review will not result in more than a one notch downgrade of
the ratings of Florida Power & Light Company. The review of
the ratings of FPL Group and FPL Group Capital could result in a multi-notch
"The review for downgrade of the ratings of FPL Group and its subsidiaries
is prompted by the heightened risk to investors caused by a decline in
the political and regulatory environment for investor owned utilities
operating in Florida, which led to last week's rate case decision,
and continued challenging economic conditions throughout the state"
said Michael G. Haggarty, Vice President and Senior Credit
Officer. FPL Group's regulated utility subsidiary Florida
Power & Light Company was granted minimal rate relief in the first
rate case decided by a newly constituted Florida Public Service Commission
at a time when the utility planned substantial investments for transmission
and distribution improvements and new generation.
The FPSC overruled its staff recommendations in several respects,
including return on equity and storm fund accruals, and cut back
the utility's rate request in a number of areas, including
compensation and several operating expense categories. Moody's
views the FPSC's decision as somewhat understandable given the difficult
Florida economy and commissioners' sensitivity to increasing customer
bills in this environment. Moody's notes that several commissioners
made comments regarding their willingness to grant more meaningful rate
relief once the Florida economy improves.
The rate case was plagued by delays and controversy caused by political
intervention in regulatory process, which was unprecedented in the
state of Florida, with the Governor vocally opposing the utility's
request for rate relief and interfering in independence of the regulatory
process. The appointment of two new commissioners in the late stages
of the rate case, after testimony had been completed, significantly
increased the level of uncertainty regarding the rate case outcome,
an outcome that was ultimately detrimental to the credit quality of the
Florida Power & Light Company. As a result of these developments,
Moody's now views the Florida utility regulatory environment as
substantially less constructive and predictable than it has been historically,
increasing the level of risk to investors going forward.
The review for downgrade of the ratings of FPL Group Capital primarily
reflects the review for downgrade of FPL Group, which unconditionally
guarantees all of the debt and contractual obligations of FPL Group Capital,
and the higher risk characterizing the consolidated organization partly
caused by the regulatory, political, and financial challenges
now facing the utility. The review for downgrade of FPL Group and
FPL Group Capital also reflects the lower consolidated cash flow coverage
ratios experienced by FPL Group in recent years and the higher debt incurred
in over the last two years at both FPL Group Capital and NextEra Energy
Resources to finance wind project development and other capital expenditures.
Moody's expects NextEra's large capital expenditure program
to continue to require substantial additional debt financing over the
next several years, increasing the proportion of debt at FPL Group's
unregulated subsidiaries compared to the utility.
The review will focus on the impact that both the rate case decision will
have on the financial condition and cash flow coverage metrics of both
the utility and the consolidated FPL Group organization; the measures
the utility can take to offset the negative impact of the rate case decision,
including deferrals or cutbacks in capital expenditure plans (some already
announced); and the company's debt, dividend and operating
expense plans going forward. The review will also consider the
company's growth plans at NextEra, their anticipated method
of financing this growth, and the financial and operating performance
of the company's unregulated generating portfolio, particularly
considering the recently weak performance of its Texas merchant generating
assets and lower than expected wind resource. Finally, the
review will consider economic conditions in the state of Florida and the
prospects for an economic recovery over the near to intermediate term.
The last rating actions on FPL Group, Florida Power & Light
Company, and FPL Group Capital were on October 31, 2006,
when their rating outlooks were changed to stable from negative.
The principal methodology used in rating these issuers was Regulated Electric
and Gas Utilities, which can be found at www.moodys.com
in the Credit Policy and Methodologies directory, in the Rating
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating these issuers can also
be found in the Credit Policy & Methodologies directory.
Ratings under review include:
FPL Group, Inc.'s A2 Issuer Rating;
Florida Power & Light Company's Aa2 senior secured; A1
FPL Group Capital's A2 senior unsecured; A3 junior subordinated;
and Prime-1 short-term rating for commercial paper;
and the A3 trust preferred rating of FPL Group Capital Trust I.
FPL Group, Inc. is a parent holding company for regulated
utility Florida Power & Light Company and unregulated subsidiaries
FPL Group Capital Inc and NextEra Energy Resources, LLC (unrated)
and is headquartered in June Beach, Florida.
Michael G. Haggarty
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service
Moody's Places FPL Group and Subsidiaries on Review for Downgrade
William L. Hess
Infrastructure Finance Group
Moody's Investors Service
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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