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Voters reject most state energy initiatives, including anti-drilling, carbon fee

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

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Voters reject most state energy initiatives, including anti-drilling, carbon fee

In a dramatic 2018 midterm election, voters gave Democrats control of the U.S. House of Representatives and rejected high-profile state ballot measures that would have limited oil and gas drilling in Colorado and created a fee on carbon dioxide emissions in Washington state.

On the federal level, Democrats won the majority of seats in the House, meaning they will control that chamber for the first time since the 111th Congress that ended in early January 2011.

A Democrat-controlled House could bring heavy oversight of the Trump administration's efforts to roll back air and water quality rules and other regulations affecting the energy sector. Democrats may also pursue an infrastructure bill that includes energy-related provisions, although lawmakers will be challenged to agree on how to fund the legislation.

But Republicans held onto control of the U.S. Senate and even expanded their majority in that chamber. Continued leadership of the Senate will allow the GOP to more easily confirm Republican nominee Bernard McNamee to the Federal Energy Regulatory Commission, which is currently split between two Republican and two Democratic members.

The midterms displaced some key members of Congress on energy and climate change policy. U.S. Rep. Carlos Curbelo, R-Fla., the Republican co-founder of the House Climate Solutions Caucus, was defeated by Democratic challenger Debbie Mucarsel-Powell in the race for Florida's 26th congressional district near Miami. In the Senate, Heidi Heitkamp lost her re-election bid to Rep. Kevin Cramer, R-N.D., an early supporter of President Donald Trump and, like Heitkamp, an advocate for the state's coal industry.

But other energy-focused lawmakers held onto their seats in Congress. Sen. Joe Manchin, D-W.Va., fended off a challenge for his Senate seat from West Virginia Attorney General Patrick Morrisey. And in the House, Republican Rep. Fred Upton of Michigan, who chairs the Energy and Commerce Committee's energy subcommittee, won a tight re-election race, while hydropower champion and high-ranking Republican Cathy McMorris Rodgers kept Washington's 5th congressional district.

State ballot measures

The Nov. 6 elections included some crucial energy-related ballot measures.

Washington state voters rejected by a 56.3% to 43.7% vote a ballot initiative that would have established the first direct tax on carbon in the country.

Supported by Gov. Jay Inslee, a Democrat, and various environmental groups, Initiative 1631 would have levied a $15-per-metric ton fee starting in 2020. But Energy companies Andeavor, BP PLC, Chevron Corp. and Phillips 66 were lined up against the initiative, collectively pouring millions into the "No on 1631" campaign sponsored by the Western States Petroleum Association.

Turning to Nevada, voters rejected an initiative to amend the state's constitution to establish an energy market in place of NV Energy Inc.'s near-statewide monopoly on electric power supplies. But 59.5% of the state's voters approved a measure that will require half of Nevada's electric power to come from renewable resources by 2030. Nevada voters, however, will need to approve that constitutional amendment a second time two years from now in order for it to take effect.

Despite Nevada's support for a higher renewable portfolio standard, Arizona voted against a similar measure that would have required investor-owned utilities and cooperatives in the state to obtain 50% of their power from renewable energy by 2030. The proposal was vociferously opposed by Pinnacle West Capital Corp. subsidiary Arizona Public Service Co., which spent more than $22 million to defeat the initiative.

In Colorado, voters rejected Proposition 112, which would have barred new oil and gas exploration and production within 2,500 feet of occupied buildings in the state.

Advocates said the measure was needed to ensure public safety. But opponents of Proposition 112, who spent more than $30 million to defeat it, said the proposal would have closed off as much as 85% of the state's nonfederal land to future oil and gas production.

Alaskans on Nov. 6 defeated a ballot measure that would have increased protections for the state's salmon habitat. The law sought to define activities that have "significant adverse effect" on the habitat of anadromous fish, which swim from the sea up freshwater water bodies to spawn; potentially broadened the definition of that habitat to include nearly every waterway in the state; and altered the process for securing permits for projects that may affect that habitat.

Companies including BP, ConocoPhillips, Donlin Gold LLC and Hecla Mining Co. contributed millions to a campaign that spent more than $10.5 million opposing the measure, an amount greater than five and a half times what proponents of the measure spent, and argued the law's tightening of project permitting requirements would have led to project delays and increased costs.

Outcome of key state races

In Colorado, U.S. Rep. Jared Polis, a Democrat who represents the state's 2nd congressional district, defeated Republican Walker Stapleton, the state's treasurer, in the race to replace outgoing Gov. John Hickenlooper.

Polis made reaching a goal of 100% renewable energy by 2040 a key part of his campaign. Moving away from fossil fuels, Polis argued, will save consumers money, create jobs and limit climate change. Polis' victory also may mean continued support for limiting the oil and gas sectors' methane releases; in his campaign, he prioritized policies aimed at combating climate change.

In Ohio, state Attorney General Mike DeWine, a Republican, will serve as the state's next governor after defeating Democratic candidate Richard Cordray in the contest to succeed Republican John Kasich. DeWine did not offer a specific energy plan, but his economic plan included eliminating "burdensome regulations" to encourage job growth. As attorney general, DeWine has challenged Obama-era environmental regulations, including the Clean Power Plan.

During the campaign, Cordray proposed to double Ohio's renewable energy and energy efficiency targets by 2025 and do away with wind setback regulations, set in 2014, that are seen as slowing wind farm development in the state.

In Pennsylvania, Democratic incumbent Gov. Tom Wolf won reelection and likely will continue the state's focus on limiting methane emissions from oil and gas drillers. Wolf has said he sees the state as "uniquely positioned" to lead the nation on climate change issues, and Pennsylvania's Department of Environmental Protection under his leadership set up general permits in June for shale gas wells and compression, processing and transmission facilities aimed at controlling methane emissions.

A similar trend could play out in New Mexico, where Democratic U.S. Rep. Michelle Lujan Grisham's victory in the state's gubernatorial election could mean oil and gas producers there face tighter scrutiny of their methane emissions. Lujan Grisham has a history of supporting methane oversight and has emphasized her stance that methane emissions standards can help protect public health, fight climate change and prevent natural resource waste.

In Maine's four-way race to succeed outgoing Republican Gov. Paul LePage, Democratic state Attorney General Janet Mills defeated the other top contender, Republican businessman Shawn Moody.

Renewable developers are anxious to see the end of LePage's administration and its unfriendly policies towards renewables. Mills, who vocally supported offshore wind development during her campaign, said she would rescind LePage's January moratorium on new onshore wind developments in the western and coastal areas of the state. Mills also supports continuing to subsidize biomass power plants in an effort to save Maine's uneconomic logging industry.

In Vermont, incumbent Republican Gov. Phil Scott won his re-election bid by defeating Democratic opponent Christine Hallquist, who served as CEO of Vermont Electric Cooperative Inc. for 12 years. Had she been elected, Hallquist would have been the first transgender governor in the United States.

Scott's and Hallquist's energy platforms converged somewhat, with each opposing large-scale wind development on ridgelines within Vermont. Both candidates also endorsed achieving the state's goal of procuring 90% of its electricity from renewables by 2050 through a mix of solar energy, out-of-state wind generation and Canadian hydropower imports. Notably, Scott came out against a carbon tax, while Hallquist said she would not take a position on the issue before studying its impacts on low-income Vermonters.

Also at the state level, a former Deloitte executive and solar entrepreneur running as a Democrat forced a runoff against a two-term incumbent Republican on the Georgia Public Service Commission. Democrat Lindy Miller fielded a strong challenge against GOP Commissioner Chuck Eaton, and Peach State voters will go to the polls again in December to decide who will serve on the regulatory body.

If ultimately elected, Miller would break up Republicans' 11-year total control of the PSC and disrupt Georgia Power Co.'s reliable regulatory support. Although she has not called for abandoning the troubled Vogtle nuclear plant expansion, which the PSC oversees, Miller has pledged to take a more skeptical approach to the Southern Co. subsidiary.

Kelly Andrejasich, Colby Bermel, Amanda Luhavalja, Mark Passwaters, Andrew Coffman Smith, Sarah Smith, Jeff Stanfield and Everett Wheeler contributed to this article.

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Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot


The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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