FRI Public Utility Symposium Sept. 25, 2019
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Authors from Moody’s Investors Service

Excerpt from “Drag on Strong Regulated Electric and Gas Fundamentals” by Jim Hempstead and Jillian Cardona:

“Another growing risk for the regulated utility sector is cybersecurity. This is evidenced by recent U.S. Department of Homeland Security reports that highlight a series of (alleged) attacks on industrial-control systems.

In our credit analysis, we treat cyber risk as an event risk, where the occurrence is unexpected, but the severity could be sizeable. For now, we look at the financial impacts of major weather events as the best comparison to what a successful cyberattack might trigger a sharp decline in a company’s fundamental creditworthiness.

While the extent and duration of any outage that results will ultimately determine financial impact, we think the critical nature of the utility’s operations will likely result in extraordinary governmental intervention, to help keep the utility operational and solvent.

Both climate change and cybersecurity risks are rising at a time when utilities are exhibiting less financial flexibility due to tax reform – the primary driver of Moody’s negative sector outlook. The financial condition of U.S. utilities has been hurt by the cash-flow leakage associated with tax reform, because of lower revenue requirements, lower cash inflow from deferred taxes and large deferred tax balances that need to be returned to customers, given lower statutory rates.

These tax changes reduce cash flows by roughly four percent, resulting in sector average ratio of cash flow-to-debt declining by roughly eight percent.”

Read the full article here.


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Steve Mitnick, Editor-in-Chief, Public Utilities Fortnightly, and President, Lines Up, Inc.
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