November 23, 2012

CMP: no negative effects from Iberdrola credit downgrade

11/29/2012 | Reported by Jay Field | The Maine Public Broadcasting Network |

Central Maine Power says its finances – and its customers – will be spared any negative fallout from the recent credit downgrade suffered by Spanish parent company Iberdrola. Standard and Poor’s, one of the three big ratings agencies, lowered Iberdrola’s credit grade late Wednesday to two notches above junk bond status, due to turmoil in Spain’s economy and the company’s ongoing debt struggles. But at the same time, the ratings agency has also affirmed CMP’s credit rating. Jay Field explains.

Officials at Central Maine Power have known for months now that Iberdrola’s credit rating was under review.

“And we’ve actually been taking steps for the past couple of months to make some provisions, so that we would create some separation between CMP and the Iberdrola rating,” says John Carroll, the utility’s spokesman. Carroll says CMP is trying to strengthen a set of financial protections called “ring fencing.”

“We filed with the Public Utilities Commission to enhance some of the protections for our equity,” he says. “What those steps ensure is that the equity in CMP will remain largely in CMP. It really protects us and our rate payers from the potential that Iberdrola would withdraw equity from Central Maine Power.”

The Spanish utility, based in Bilbao, has been beset by debt problems. Just last month, Iberdrola released a strategic plan that mapped out a strategy for reducing its financial obligations. The plan won praise from analysts at Standard and Poor’s. But those same analysts also had some serious concerns.

About 47 percent of Iberdrola’s revenues, for example, come from its Spanish operations. And analysts worry the ongoing turmoil roiling Spain’s economy could cause those revenues to decline. So late Wednesday, Standard and Poor’s downgraded Iberdrola’s credit rating, leaving it just a couple notches above junk bond status.

Matthew O’Neil is an associate at Standard and Poor’s in New York. “Generally, our criteria would call for the ratings of the subsidiaries to go down with the parent,” O’Neil says.

But in this case, says O’Neil, Standard and Poor’s decided to affirm Central Maine Power’s credit rating due to the utility’s moves to protect its equity. The agency did, however, issue a “negative” future outlook on CMP’s rating.

“And we have the negative outlook due to the fact that the parent ratings were lowered and if they don’t put the stronger ring fencing measures in place, then we would lower the rating,” O’Neil says.

Maine’s public advocate, meantime, has been working with CMP officials to make sure the company is able to complete the process of putting these protections in place. Richard Davies says he’s confident that consumers will be protected, should Iberdrola try to extract equity from CMP.

“We’ve seen nothing so far that would suggest that consumers in Maine need to be concerned,” Davies says. “We will be watching it closely. We think those protections are pretty strong.”

CMP, meantime, says its parent’s problems will not hurt its ability to borrow money for short term operating costs, or for long-term capital projects like the $1.5 billion Maine Power Reliability Program, the largest transmission project in state history.

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