On July 5, 2019, Standard and Poor’s, the global credit rating agency, published their decision to change their rating outlook for Ellevio AB to negative on both the Class A debt (BBB) and Class B debt (BB+) issued by the company, while affirming the company’s ratings.
The change in outlook follow the regulator (Energimarknadsinspektionen’s (Ei)) decision on June 24, 2019, regarding the income framework for four regulated electricity distribution companies in Sweden for the period 2020-2023 (RP3). In these decisions, the income framework is based on a capital compensation element (WACC) of 2.16%. This is a material reduction in capital compensation compared to the level in current regulatory framework for 2016-2019, where the income framework is based on a WACC of 5.85%.
Although Ellevio has not received its formal decision from Ei on income framework for RP3, it is likely, subject to no further changes in the ordinance from the government to Ei, that the decision will be based on the same WACC parameters as for the decisions that has now been processed by Ei.
Additionally, in the research update, S&P Global Ratings states, “our current strong assessment of the Swedish regulatory framework reflects our view of the framework as predictable and stable, with an independent regulator and tariff-setting process. In our opinion, politicians' recent involvement in setting the level of remuneration by issuing decrees could result in our re-assessment of the Swedish regulatory framework.”
Jan Seveborg, Senior Vice President Treasury, comments S&P’s decision, “Ellevio has full confidence in the Swedish legal system, and we are convinced that the industry, also this time, will successfully appeal Ei’s decision. Ellevio is committed to maintaining an Investment grade rating and we will take appropriate actions to mitigate the credit impact of a potentially lower WACC. This may include revised Capex and Opex levels but also lower level of shareholder distributions.”
“Ellevio do not believe the framework for the coming regulation period will support the long-term target to secure the continued high reliability of the network and to enable the transition to a climate-smart society. We risk finding ourselves in a situation where the power grids, in terms of ability to integrate larger volumes of renewables, capacity to enable growing cities, efficiency and smartness, will stop us from reaching the climate targets,” Jan Seveborg concludes.
The full research update is available on ellevio.se
For further information
Jan Seveborg, Senior Vice President Treasury,
Ellevio AB (publ) is one of Sweden’s largest distribution network operators. Ellevio invest in, develop and maintain the company’s power grids in order to ensure a reliable electricity supply to the 957,000 customers. Our customers are spread across Mid-Sweden, the West Coast and the Stockholm area. By investing in a long-term sustainable power grid Ellevio works to improve the quality of life for its customers as well as to enable the ongoing energy transformation and the continued digitization of the society. Ellevio, which has its head office in Stockholm, is owned by the Third National Pension fund, Folksam, the First National Pension fund and OMERS Infrastructure. Learn more about our company on ellevio.se/en/English