Moody’s Investors Service dropped Hawaiian Electric Co.’s credit rating one level Wednesday after the state rejected the utility’s merger with a much larger mainland energy company last month.
Moody’s downgraded HECO bonds to Baa2 from Baa1. The new rating is just two notches above junk bond status.
The credit rating company said the move was due in part to an “unpredictable and highly political regulatory environment” in Hawaii.
On July 15 the state Public Utilities Commission rejected Florida-based NextEra Energy Inc.’s proposal to buy HECO parent Hawaiian Electric Industries Inc. for $4.3 billion. Gov. David Ige, who appoints PUC commissioners, said he was opposed to the sale, as did almost all of the official intervenors in the PUC case.
“We do not have any comment on the Moody’s report,” said Cliff Chen, HEI treasurer ad interim, in an email.
Moody’s also pointed to the difficulty of meeting the state’s goal of generating 100 percent of its electric power from renewable sources by 2045.
“The ratings downgrade is prompted by our concern that HECO will continue to face significant challenges in transforming its generation base to 100 percent renewable sources in an unpredictable and highly political regulatory environment,” said Toby Shea, Moody’s vice president and senior credit officer, in a news release. “We believe that the regulatory environment could become contentious as this transformation is executed.”
“The rating downgrade reflects the strained relationship with its regulators and intervenors as it strives to replace its fossil-based generation with renewable sources,” Moody’s said. “These demands would be challenging for any utility in the U.S. but only more so for a company the size of HECO, which only has about 460,000 customers.”
Moody’s added that HECO’s rating “could be considerably higher if not for its large underfunded pension obligations.”
Moody’s listed the outlook for HECO as stable, saying that “reflects our expectation that Hawaii’s strong existing regulatory provisions and legislative support will be sufficient to counterbalance HECO’s execution challenges as it transforms its generation base to all renewables.”
