Moody's Affirms Wisconsin Gas LLC's Ratings, Changes Outlook to Negative

Strategic Insights -

Moody's Investors Service has affirmed the ratings of Wisconsin Gas LLC, including its A3 senior unsecured rating and P-2 short-term rating for commercial paper. However, the rating agency has changed the outlook for the utility to negative from stable due to a rate case delay incorporated into a multi-party settlement agreement. This delay will expose Wisconsin Gas' cash flows to material regulatory lag until at least 2023 and weaken its credit metrics over the next 12 to 18 months.

Key Takeaways:

  • Moody's has affirmed Wisconsin Gas LLC's A3 senior unsecured rating and P-2 short-term rating for commercial paper.
  • The rating agency has changed the outlook for the utility to negative from stable, driven by a rate case delay incorporated into a multi-party settlement agreement.
  • The delay will expose Wisconsin Gas' cash flows to material regulatory lag until at least 2023, weakening its credit metrics over the next 12 to 18 months.
  • The utility's credit metrics in 2022 will be tempered by the incremental debt associated with capital expenditures, including the construction of a liquefied natural gas (LNG) storage facility.
  • Wisconsin Gas' ratio of CFO before changes in working capital (CFO pre-W/C) to debt is expected to range between 15-16% in 2022, similar to the ratio at year-end 2020 and 2019.
  • A recovery in financial metrics will be highly dependent on a supportive outcome of the rate case the utility expects to file in 2022.
  • Wisconsin Gas' A3 rating reflects the low risk business profile of its regulated natural gas local distribution operations and the regulatory environment in Wisconsin, which remains credit supportive despite the lack of automatic cost recovery provisions.
  • Factors that could lead to an upgrade include a stabilization of the outlook if the utility's 2022 rate case decision is supportive of Wisconsin Gas' credit quality.
  • Factors that could lead to a downgrade include a deterioration in the credit supportiveness of the regulatory environment in Wisconsin or a rate case outcome that does not result in a sustained, material increase in credit metrics.

Statistics:

  • Wisconsin Gas LLC serves around 630,000 natural gas customers throughout Wisconsin.
  • The utility's direct parent holding company is WEC Energy Group, Inc. (WEC; Baa1 stable).
  • Wisconsin Gas' direct sister companies include the Wisconsin utility companies Wisconsin Electric Power Company (A2 stable; WEPCO) and Wisconsin Public Service Corporation (WPSC; A2 stable).
  • The outstanding balance of regulated assets aggregated approximately $100 million at year-end 2020.
  • Wisconsin Gas' ratio of CFO before changes in working capital (CFO pre-W/C) to debt is expected to range between 15-16% in 2022.

Sources:

  • Moody's Investors Service, "Wisconsin Gas LLC: Rating Action" (2021)
  • Moody's Investors Service, "Regulated Electric and Gas Utilities" (June 2017)
  • Wisconsin Gas LLC, "About Us" (no date provided)