Key Takeaways

Since our last report in September 2024, we have revised our assessments of two utility regulatory jurisdictions, Connecticut and Mississippi, and examined notable developments in numerous North American utility regulatory jurisdictions. We are also monitoring several changes across North America that, at some point, could help or hinder the business risk of various utility companies.

S&P Global Ratings has been monitoring recent developments in various U.S. and Canadian utility regulatory jurisdictions in which the utilities we rate operate. Since our last report, published September 2024, we have completed a review of Connecticut and changed our assessment to "credit supportive" from "more credit supportive". We also revised our assessment of Mississippi to "highly credit supportive" from "very credit supportive".

In other jurisdictions, we have noted the uncertainties of rate recovery on both completed and proposed capital spending, wildfire litigation, recovery of storm restoration costs through securitizations, and the rising use of multiyear rate plans. We are also seeing data centers beginning to be added in utilities' service territories, which has led to considerations such as additional generation construction, cost sharing, and stranded assets that state regulators will need to address.

Our periodic assessments of regulatory jurisdictions provide a reference for determining a utility's regulatory advantage or risk. Regulatory advantage is incorporated into our analysis of a regulated utility's business risk profile. Our analysis covers quantitative and qualitative factors, focusing on regulatory stability, tariff-setting procedures and design, financial stability, and regulatory independence and insulation. (See Sector-Specific Corporate Methodology (Section 29), published April 4, 2024, for more details on each category.)

Utility Regulatory Jurisdiction Assessment

• S&P Global Ratings periodically assesses every regulatory jurisdiction in the U.S. and Canada with a rated utility or where a rated entity operates. Our last full assessment was in September 2024, in which we examined developments in numerous jurisdictions.
• These assessments, with categories from credit supportive to most credit supportive, provide a reference when determining the regulatory risk of a regulated utility or a holding company with more than one utility.
• We base our jurisdictional analyses on quantitative and qualitative factors, focusing on regulatory stability, tariff-setting procedures and design, financial stability, and regulatory independence and insulation.
• Utility regulation, no matter where on the continuum of our assessments, strengthens a utility's business risk profile, and generally underpins our ratings.

U.S. And Canadian Regulatory Utility Jurisdiction Developments

We group jurisdictions by quantitative and qualitative factors that comprise the regulatory advantage determinations we make in rating committees for approximately 220 U.S. and 30 Canadian utilities we rate.

The categories are an important starting point for assessing utility regulation and its effects on ratings. They are all credit-supportive to one degree or another because all utility regulation tends to sustain credit quality. We believe the presence of regulation, regardless of where it falls on the credit-supportive spectrum, reduces business risk and generally supports utility ratings. We therefore designate all these jurisdictions on a continuum from credit supportive to most credit supportive. These descriptions vary only in degree.

The following is a current snapshot of our assessment of each regulatory jurisdiction.

Table 1

For jurisdictions assessed in Charts 1 and 2, colors delineate our assessment of credit supportiveness. We do not have assessments for Canadian provinces where we do not have utility ratings. The charts depict scale and offer some detail regarding our assessment of the rules and implementation of regulation. Often, our assessments designate a stable jurisdiction slightly better or worse than its closest peers in credit quality.

Chart 1

Chart 2

Recent Regulatory Assessment Revisions

Connecticut

We revised our regulatory assessment of Connecticut's regulatory construct downward to "credit supportive" after a recent pattern of adverse regulatory developments that occurred toward investor-owned utilities. Associated with this action were the downgrades of five investor-owned utilities. (For more details, see Related Research section.)

Eversource Energy and Avangrid Inc. both recently filed cease-and-desist letters and then filed a lawsuit against the Connecticut Public Utilities Regulatory Authority (PURA) earlier this year alleging that the PURA undertook procedures that reduced decision-making power from all three of its commissioners to just one commissioner. The PURA initiated an inquiry following the cease-and-desist letters into its practices and procedures in conducting proceedings, including the designation of a presiding officer and the issuance of motion rulings. Both Eversource and Avangrid have since filed a formal lawsuit in the Connecticut Superior Court in Hartford, CT, related to this matter. We will continue monitor the regulatory environment in the state.

Mississippi

We revised our assessment of Mississippi's regulatory environment to "highly credit supportive" from "very credit supportive" due to timely cost recovery through formulaic rates--including performance evaluation plans (PEP)--that supports our view of the tariff-setting construct. Our assessment also reflects the regulatory support provided by the recently passed legislation, Mississippi Senate Bill (SB2001), which specifically supports investments for data centers in the state. Under SB2001, the Mississippi Public Service Commission (MPSC) will not need to preapprove investments related to data centers. However, the rate recovery of these specific investments will be part of company's future formula rate plans being reviewed by the MPSC.

We believe this bill supports the elevated investments required by Entergy Mississippi LLC to support data center growth within its operating jurisdiction. Moreover, the jurisdiction's continued support toward regular cost recovery as well as support to build storm reserves, resulting in lower cash flow volatility and regulatory lag, supports our strengthened assessment of the jurisdiction.

No Revised Assessments, But Notable Developments

Alberta

In November 2024, the Alberta Utilities Commission (AUC) set the return on equity (ROE) for 2025 at 8.97%, following a formulaic approach approved in October 2023. This represents a modest decline from the 9.28% ROE approved for 2024. Alberta's ROE formula is based on a 9% baseline, adjusted for movements in the 30-year Government of Canada bond yield and the 'A'-rated Canadian utility bond yield. While the formulaic approach provides consistency in ROE determination, we believe future ROEs could trend lower if the Government of Canada bond yields revert to historical norms.

Arizona

Recent regulatory outcomes appear to be constructive for credit quality. In 2024, the Arizona Corporation Commission (ACC) voted to adopt a policy statement that would allow regulated utilities operating within the state a path to utilize formula rate plans, which we expect would reduce regulatory lag. Currently, utilities in Arizona operate under traditional ratemaking using historical test years. In addition, the ACC implemented a system reliability benefit mechanism that would allow for the recovery of costs between rate cases for new generation resources. Moreover, recent rate case outcomes have been generally constructive, and authorized equity returns have improved. We continue to monitor the jurisdiction.

Colorado

In recent months, the Public Utilities Commission (PUC) of Colorado authorized Xcel Energy Inc.'s subsidiary Public Service Co. of Colorado (PSCo) a $115 million natural gas rate increase, or about 67% of the company's $171 million rate increase request. As part of the rate proceeding, the PUC staff had recommended a 7.71% return on equity (ROE; significantly below national levels) for PSCo's investments associated with new natural gas business and capacity expansion projects. However, the PUC's final order, while based on a historical average rate base for a test year ended Dec. 31, 2023, reflected an ROE in the range 9.2%-9.5%, which is more in line with our base-case expectations.

In addition to the rate increase, the PUC ordered PSCo to file a proceeding within nine months of the recent order to allow stakeholders to examine its gas system expansion policies. This follows PSCo's elevated capital spending amid the commission's expectation of lower volumetric sales due to electrification. Overall, we believe this demonstrates the challenges investor-owned natural gas utilities will continue to face when seeking rate recovery for nonsafety or regulatory-related spending.

District of Columbia

As a response to the Public Service Commission of the District of Columbia rejecting Washington Gas Light Co.'s (WGLC) proposed accelerated pipe replacement plan, the utility refiled its plan at a lower capital spending amount in October 2024. The initial rejection from the commission cited misalignment between the replacement program and the city's climate goals, because the city is primarily focused on minimizing its carbon footprint by limiting the growth of the gas distribution business.

Separately, while Potomac Electric Power Co.'s recently authorized rate increase of about $123 million was constructive for credit quality, we will be monitoring the lessons-learned proceeding that was established during the rate case. The commission created the lessons-learned proceeding to increase transparency and resolve issues around reconciliation, both related to multiyear rate proceedings. The commission has cited it will refrain from authorizing further multiyear rate plans until the lessons-learned proceeding is completed. We will continue to monitor electric and natural gas proceedings to determine if a material weakening of the jurisdiction's regulatory framework occurs.

Florida

A recent regulatory outcome appears to be constructive for credit quality for Tampa Electric Co. (TEC). In February 2025, the Florida Public Service Commission (FPSC) authorized TEC a $280 million multiyear base rate increase for the 2025-2027 period. The increase is based on a midpoint 10.5% ROE that we view as supportive of the company's credit quality because the ROE is higher than industry average. The multiyear rate increase is about 60% of what the company requested.

In addition, we are monitoring Florida Power & Light Co.'s (FPL) pending multiyear rate case. FPL has indicated it will seek a rate increase of about $1.55 billion for the 2026-2027 period based on a midpoint ROE of 11.9% (the company's current ROE is 10.6%). The utility expects to make its formal filing at the end of February 2025.

Georgia

On Jan. 23, 2025, the Georgia Public Service Commission (GPSC) approved a new rule that governs how Georgia Power Co. (GPC) will charge large-load customers. The new rule addresses two key aspects including minimum billing requirements and longer contract terms for customers using more than 100 megawatts (MW) of energy, or large-load customers. It allows GPC to charge large-load customers, including data centers, using terms and conditions beyond those used for standard customers to address risks associated with users and protect residential and other commercial or industrial customers from cost shifting. In addition to site specific costs during construction, these customers would pay for costs incurred by upstream generation, transmission and distribution. Moreover, the GPSC approved longer contract terms for such large customers to minimize the risk associated with them shutting down and leaving, resulting in potentially stranded costs for GPC.

We view this new rule as credit supportive because it protects GPC from the risk of stranded costs in the future, and it protects residential and other commercial or industrial customers from having to bear additional costs associated with adding these large-load customers to the grid.

Hawaii

In January 2025, Senate Bill 514 was introduced in the Hawaii state legislature. The bill proposes establishing the Hawaii Wildfire Relief Fund and the Hawaii Wildfire Relief Fund Corporation, to provide compensation for property damage resulting from wildfires. Several entities, including the state of Hawaii, electric utilities, other governmental entities, and landowners may contribute to the wildfire relief fund. To enhance oversight and fund management, the bill proposes regular legislative reporting. A similar bill was introduced in 2024 but failed to pass.

Given the wildfire risk in the state and the potential for wildfire events to lead to elevated liabilities, we view legislative efforts aimed at mitigating such risk as supportive of credit quality. By May 2025, we expect to know whether the bill is enacted into law. We will continue to monitor related developments.

Illinois

In late 2024, the Illinois Commerce Commission (ICC) approved modified grid plans that had been filed by Commonwealth Edison Co. (ComEd; a subsidiary of Exelon Corp.) and Ameren Illinois Co. (a subsidiary of Ameren Corp.). As part of the approved grid plans, the ICC authorized ComEd a $605 million rate increase over the 2024-2027 period based on a 8.905% ROE. For Ameren Illinois, the ICC authorized a $310 million rate increase over the 2024-2027 period based on a 8.715% ROE.

Overall, the approved grid plans and associated rate increases are constructive for the utilities' credit quality, bolstering visibility in cash flows for the period. Electric utilities benefit from multiyear rate plans and the use of a future test period, minimizing regulatory lag and increasing predictability of cash flows.

Indiana

Rate cases:  The Indiana Utility Regulatory Commission (IURC) has recently approved several key rate cases and is reviewing a multiyear rate case for NiSource Inc. subsidiary, Northern Indiana Public Service Co. LLC (NIPSCO); furthermore, the company recently filed a settlement with the IURC for $257 million, net of adjustments. NIPSCO had requested a multiyear electric base rate increase of approximately $425 million that primarily reflects anticipated additional investments toward new solar generation.

Separately, on Jan. 29, 2025, the IURC approved a two-step $295.7 million base rate increase for Duke Energy Corp. subsidiary, Duke Energy Indiana Inc. This increase was premised on a 9.75% ROE. The utility originally requested a $491.5 million base rate increase based on an ROE of 10.50%. The increase primarily reflected the impact of costs associated with the removal and impoundment of coal combustion residual (CCR).

Additionally, on Feb. 3, 2025, the IURC authorized CenterPoint Energy Inc. subsidiary, Southern Indiana Gas and Electric Co. (SIGECO) an $80 million two-step electric base rate increase, premised upon an ROE of 9.8% and equity layer of 48.28%. The increase reflects the utility's future infrastructure investments (including for SIGECO's new gas combustion turbine and Posey solar projects) and increasing operating costs.

Overall, we view these rate increases as supportive to credit quality. We view Indiana as a highly credit supportive regulatory jurisdiction, and we believe the approved rate cases will provide more timely cost recovery as capital spending remains elevated for the utilities.

Data centers:  Data centers are spurring significant load growth opportunities for regulated utilities, and Indiana is among the key states attracting these large load customers due to long-term tax incentives. NiSource Inc. recently established NIPSCO Generation LLC to support this expected growth and submitted a proposal to the IURC that would limit the commission's jurisdiction over the development of NIPSCO Generation's assets, including generating facilities. The company expects this arrangement would allow NIPSCO Generation to expedite the build of additional generation resources to meet the large loads data centers require.

In addition, the company expects the arrangement will separate the assets and obligations of NIPSCO Generation from NiSource and other entities within the group, and reduce risk to NIPSCO's existing customers. The generation company would sell electricity directly to NiSource's subsidiary, Northern Indiana Public Service Co. (NIPSCO) to support data center customer demand. NIPSCO Generation expects it would sell surplus electricity to the wholesale market; however, this would need to be approved by the Federal Energy Regulatory Commission. NIPSCO Generation would not have retail customers, nor does it expect to own any transmission lines. We expect an IURC order in the third quarter of 2025.

Louisiana

Meta Platforms Inc. announced plans in December 2024 to build a $10 billion data center in Richland Parish, Louisiana, as it continues to invest in artificial intelligence and augmented reality. The four million square foot facility will be its largest data center in the world. Entergy Corp. subsidiary, Entergy Louisiana LLC, filed with the Louisiana Public Service Commission (LPSC) to build three combined-cycle combustion turbines with a combined capacity of 2,260 megawatts to support the significant load growth. Pending regulatory approval, we expect the units will come online between 2028 and 2029.

The companies have also committed to using renewable energy sources and are also exploring nuclear energy as a future power supply option. This effort includes researching conventional nuclear technologies, supporting small modular reactors, and potential upgrades to enhance the output of existing nuclear plants in Southeast Louisiana. We will continue to monitor any developments around the project and the regulatory process.

Minnesota

We continue to surveil regulatory developments associated with ALLETE Inc.'s July 2024 request with the Minnesota Public Utilities Commission (PUC) to be acquired by two infrastructure funds (Canada Pension Plan Investment Board and Global Infrastructure Partners). ALLETE Inc. (doing business as Minnesota Power) serves roughly 150,000 electric customers in Minnesota, and state statute mandates PUC approval for such transactions. While state statute does not establish a time frame for the PUC to decide on such transactions, the company has requested an order by July 2025. S&P Global Ratings revised its outlook on ALLETE Inc. to negative from stable in May 2024 due to the possibility for higher leverage and weaker financial measures because of the transaction.

Montana

In early January 2025, the Montana Public Service Commission (PSC) denied NorthWestern Corp.'s (NWC) motion for reconsideration of the PSC's interim rate decision where the utility was authorized about 45% of its interim request. In the motion for reconsideration, the company argued that the PSC denied the utility's opportunity to earn a fair return on its electric investments. We will continue to monitor the regulatory proceedings and expect a final decision on the rate case from PSC by April 2025.

Separately, Montana-Dakota Utilities Co. recently received 100% of its interim rate increase after it had been previously denied by the PSC.

Nevada

Nevada Power Co. and Sierra Pacific Power Co. jointly filed a proposal with the Public Utilities Commission of Nevada to establish a $500 million self-insurance policy to address potential wildfire liabilities. The policy would be 90% funded by rate payers and 10% funded by utilities over a 10-year period. This policy would be in addition to the approximately $500 million of commercial insurance that the companies currently have. If approved, we would view such measures as supportive of credit quality given the risk posed by wildfires.

Newfoundland

On Jan. 16, 2025, the Public Utilities Board of Newfoundland and Labrador (PUB) rejected a proposal from Newfoundland Power Inc.'s (NF Power) 2025-2026 general rate application to increase customer rates by 10.6%, and instead required NF Power to focus on reducing operating costs by $2 million in 2025 and 2026. The PUB also approved an ROE of 8.6% and a common equity ratio not exceeding 45%.

Despite these events, we continue to assess the regulatory environment in Newfoundland and Labrador as highly credit supportive. In December 2024, the PUB approved NF Power's 2023 average rate base amount and approved the utility's 2025 requested capital budget of about $128 million.

New York

The New York Public Service Commission's (NYPSC) recently approved New York State Electric & Gas Corp.'s (NYSEG) and Rochester Gas & Electric Corp.'s (RG&E) requests to securitize deferred storm costs. The securitization will result in about $785 million in proceeds for both utilities combined. S&P Global Ratings views the NYPSC's securitization approval as a credit-positive development for Avangrid Inc.'s New York utilities. This securitization will facilitate immediate access to funds while simultaneously lowering costs for ratepayers. Specifically, NYSEG plans to issue about $710 million in securitization bonds, while RG&E is set to issue approximately $75 million.

Ohio

Ohio Power Co. (OPC) and certain intervenors filed a settlement with the Public Utilities Commission of Ohio (PUCO) regarding the tariff to be used for datacenters operating in Ohio Power's service territory. In the same proceeding, Amazon Data Services Inc., Google LLC, Microsoft Corp., and an affiliate of Meta Platforms Inc. submitted their own settlement to the PUCO. While we expect increased electricity demand from data centers will be generally supportive of regulated utilities' credit quality, we also believe it will introduce new risks. These risks are notably related to funding and pressures on billing, which will have to be structured to protect existing customers from cost increases related to data center growth. We will continue to monitor this proceeding and what it may mean for the credit quality of electric utilities in Ohio.

Oregon

Wildfire cost recovery:  In PacifiCorp's first rate case decision in Oregon since receiving jury verdicts in Jeanyne James et al. vs. PacifiCorp et. al., the Oregon Public Utility Commission (OPUC) allowed the company to recover half of its deferred restoration costs related to wildfires that occurred in its service territory in 2020. The OPUC determined the remaining deferred costs are subject to a future determination regarding prudence, given PacifiCorp's ongoing litigation. In addition, the OPUC allowed the company to recover 90% of its forecast excess liability premiums and said that future wildfire restoration cost recovery requests for investor-owned utilities in the state must be done through separate proceedings. Overall, we view these developments as somewhat favorable for the credit quality of electric utilities within the state because they lessen the uncertainty associated with these items' cost recovery and the process by which utilities will seek recovery in the future.

Multiyear rate plans:  In further regulatory developments, the OPUC directed its staff to submit and present a report on multiyear rate plans at a public meeting later this year given the growing costs and administrative burdens associated with annual rate case filings. We will continue to monitor related developments and what it may mean for utilities in the state.

Environmental rules:  Lastly, Oregon's Environmental Quality Commission readopted the state's Climate Protection Program (CPP) about a year after the Oregon Court of Appeals invalidated the initial iteration of the CPP due to inadequate disclosures. The CPP will impose decreasing caps on greenhouse gas emissions for fossil fuel suppliers, including gas distribution companies, with a goal of reducing the state's greenhouse gas emissions by 50% in 2035 and 90% by 2050. Utilities that are unable to meet emissions reduction goals may then purchase credits from the state while being able to store and trade unused credits for future use. We will monitor how gas distribution companies in the state are able to mitigate cost increases related to the CPP as well as potential associated bill and credit metrics effects.

Texas

Rate case:  CenterPoint Energy Houston Electric LLC (CEHE) reached a settlement with intervenors in its base rate case pending with the Public Utilities Commission of Texas (PUCT). The settlement incorporates a roughly $46 million rate reduction, which is slightly higher than the $28 million rate reduction recommended by the PUCT staff. However, the settlement also incorporates higher capital structure parameters, including an ROE of 9.65% (up from 9.40% currently) and an equity layer of 43.25% (up from 42.50%). We expect a rate order from the PUCT in the coming months.

Commissioners:  We are also following developments related to the departure of two members of the PUCT at the end of 2024. Both were appointed to the PUCT in 2021 as part of the restructuring of the commission that expanded membership to five from three commissioners. The recent resignations mean that once replacements are seated, four of the five commissioners will have less than two years of experience. A new chairman began in January 2024 and a new commissioner began in June 2024, and both have been serving pending confirmation in the 2025 legislative session. These resignations are occurring at a time when the PUCT has an active agenda that includes: the review of several investor-owned utilities' system reliability plans, CEHE's rate case settlement, CEHE's November 2024 $450 million securitization filing, and CEHE's $1.1 billion-$1.2 billion anticipated securitization filing (expected to be filed during the first half of 2025). While our base case assumes ratemaking will continue without any delays, any significant delays could weaken our view of the PUCT's regulatory stability.

Washington

We believe the regulatory environment in Washington has improved since the passing of Senate Bill (SB) 5295. The law established the multiyear rate framework for the state's electric and natural gas utilities. In recent months, Washington's two largest investor-owned integrated utilities-- Puget Sound Energy Inc. and Avista Corp.--received their second consecutive forward-looking rate orders that we viewed as constructive. We believe the Washington Utilities and Transportation Commission's (WUTC) consistent application of the ratemaking framework in recent years has led to a more stable regulatory environment that is more attractive to long-term investor capital. We believe these highly constructive trends are favorable for the state's investor-owned regulated utilities and support our regulatory assessment of very credit supportive for the state.

Related Research

• Eversource Energy Issuer Credit Rating Lowered To 'BBB+' From 'A-'; Subsidiaries Ratings Also Lowered; Outlooks Stable, Dec. 9, 2024
• Connecticut Water Service Inc. and Subsidiary Ratings Affirmed Despite Increased Regulatory Risks; Outlook Negative, Dec. 9, 2024
• Connecticut Natural Gas Corp. And Southern Connecticut Gas Co. Downgraded To 'BBB+' On Final Rate Orders, Outlook Stable, Dec. 6, 2024