Moody's Affirms Ratings for Southern Company Gas and Nicor Gas

Strategic Insights -

Moody's Investors Service has maintained the current ratings for Southern Company Gas Capital Corporation and Northern Illinois Gas Company, citing stable financial profiles and supportive regulatory environments. The ratings affirmation reflects the companies' strong credit profiles, driven by their regulated gas distribution utilities and credit-supportive regulatory jurisdictions. However, Moody's notes that the companies' unregulated businesses, such as gas marketing, can add volatility to their financial profiles.

Key Takeaways:

  • Southern Gas Capital's Baa1 rating reflects the credit strength of its core gas distribution utilities, including the A2-rated Nicor Gas, and the generally supportive regulatory jurisdictions in which they operate.
  • The company's FERC-regulated gas pipelines add stable and predictable contracted cash flow generation and some diversity to the overall business profile.
  • Southern Gas Capital's credit profile is constrained by the higher risk unregulated gas marketing business, which typically accounts for around 7% of EBITDA.
  • Nicor Gas' A2 rating reflects its low-risk business profile as a regulated natural gas local distribution company operating within a historically credit-supportive Illinois regulatory environment.
  • The Illinois rate construct includes credit-supportive provisions such as residential revenue decoupling and purchased gas and bad debt recovery mechanisms.
  • Nicor Gas' 2023 rate case outcome was less supportive than prior rate proceedings, but the company's credit metrics remained supportive of the current rating.

Statistics:

  • Southern Gas Capital's ratio of cash flow from operations pre-working capital changes (CFO pre-W/C) to debt is approximately 16.2% as of 2024.
  • Nicor Gas' ratio of CFO pre-W/C to debt is 23.8% as of 2024.
  • Southern Gas Capital's unregulated gas marketing business accounts for around 7% of EBITDA.
  • Nicor Gas serves nearly 2.3 million customers in the northern part of Illinois, excluding Chicago.
  • The number of customers served by Southern Gas' regulated gas distribution operations is approximately 4.4 million.

Sources:

  • Moody's Ratings Rationale
  • Moody's Ratings: Southern Company Gas Capital Corporation and Northern Illinois Gas Company
  • Moody's August 2024 methodology: Regulated Electric and Gas Utilities