Moody’s Investors Service has upgraded the senior unsecured and issuer ratings of Pinnacle West Capital Corp. (NYSE:PNW) to A3 from Baa1 and the senior unsecured and issuer ratings of utility subsidiary Arizona Public Service (APS) to A2 from A3.
Moody’s also upgraded APS’ commercial paper rating to P-1 from P-2 and affirmed Pinnacle’s P-2 commercial paper rating. The rating outlooks for Pinnacle and APS are stable, Moody’s said in a June 2 news release.
“The upgrade of Pinnacle and APS’ ratings is driven by a strong financial profile that we expect to continue under a constructive and credit supportive Arizona regulatory environment,” said Moody’s Assistant Vice President Jeffrey Cassella.
Pinnacle’s A3 rating is one-notch lower than the rating of APS to reflect the structural subordination of the parent’s obligations to creditors at the utility level, the ratings service said.
The Arizona Corporation Commission (ACC) has made significant progress in developing a credit supportive framework for the state’s investor-owned regulated utilities. Actions taken by the ACC have included: 1) shortening the time taken to finalize rate case orders; 2) providing a strong suite of rate recovery mechanisms; and 3) tackling the difficult cost-shift issue associated with distributed generation, Moody’s said.
On November 14, 2013, the ACC voted to impose a charge of 70 cents per kilowatt (kW) system per month on residential rooftop solar customers that installed panels after December 31, 2013. The fee equates to about $4.90 per month on the 7-kW system that homeowners in Arizona typically install.
On April 2, 2015, APS asked the ACC to increase its monthly grid access charge to $3.00 per kW, which equates to about a $21 monthly charge for a typical residential solar customer. Under the proposal, solar customers will also have the option to enroll in an existing rate plan that includes time of use rates and a demand charge. APS is requesting an effective date of August 1, 2015 for the new rates. The application with the ACC on the increased surcharge is pending.
While the surcharge does not have a material financial impact on APS’ financial metrics since the fixed charge imposed on future rooftop solar customers does not increase the utilities’ revenues, but it does reduce the impact of the revenue cost-shift on non-rooftop solar customers. An increase in the surcharge would support our view that the ACC is proactive in monitoring the cost-shift issue that arises with rooftop solar distributed generation.