A recent report from Fitch Ratings shows transmission and distribution (T&D) utilities in Texas are facing an increasingly difficult regulatory environment. The global financial ratings firm warned that higher expenditures in the future and tougher controls on investor returns could make it difficult for utilities to make money for new projects.
At the same time, the ratings agency added that the regulatory framework for utilities remains “largely supportive.”
CenterPoint and AEP Texas, two major T&D utilities, had “unfavorable” rate cases over the past year, Fitch notes. CenterPoint initially requested a rate hike of $161 million and a boost to its profit margin to 10.4 percent. But the Houston area utility had to settle for a $13 million rate increase in February. Its profit margin was reduced from 10 to 9.4 percent.
“These developments came at an inopportune time, as Texas utilities continued to recover from the negative effects of the 2017 tax reforms and to ramp up capex (capital expenditure) to meet customer growth,” wrote Fitch.
In the second quarter, CenterPoint saw its profits drop to $105 million from $195 million. A big part of the decline was because of the coronavirus pandemic, but the defeat the utility suffered in its rate case also play an important role.