Moody’s Investors Service on Tuesday upgraded PJM’s and PJM Settlement’s issuer ratings to Aa2 from their previous Aa3.
Moody’s said the upgrades were prompted by PJM’s financial performance, which has been stronger than the other regional transmission operators it rated. Moody’s also said it considered PJM’s breadth, depth, and essential nature of its function, as the operator of one of the oldest and largest electric systems in the country.
“I think the stability of our membership and their agreement with PJM’s commitment to repay debt as quickly as possible are key factors in this step higher in the investment grade credit ratings,” said Suzanne Daugherty, senior vice president, chief financial officer and treasurer. “The rating also takes into account our risk management guidelines, which provide collateral protection for the members’ transactions on the system.”
The rating reflects the robust and predictable nature of cash flows that are generated via tariff rates approved by the Federal Energy Regulatory Commission. That cash flow provides timely cost recovery as well as the funding of PJM’s financial reserve.
For the past few years, the analysis pointed out, PJM has demonstrated cash flow credit metrics that are stronger than its RTO peers.
PJM’s current tariff structure has been in effect since 2006 and includes a separate component for cost recovery associated with its advanced second control center (AC2) which, in 2015, brought its total service fees to about 33 cents per megawatt hour. The AC2 rider is scheduled to expire in 2018.
PJM’s Finance Committee and Members Committee are currently working on a future rate proposal that is projected to provide PJM the resources to serve its members’ needs and is equitable for members. The committees expect to bring it to the September Members Committee meeting for a vote.
As a result, during the fourth quarter of 2016, PJM expects to file with the FERC to amend its tariff structure to combine recovery of ongoing AC2 operating costs into its base tariff rates and to provide for future cost increases.
Moody’s cited the anticipated revised tariff’s ability to support the maintenance of an operating reserve and credit metrics at or above their current levels as another reason for the upgrade.