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Utilities brace for Hurricane Matthew; Audit finds deficiencies in MSHA's complaint handling

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

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

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

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


Utilities brace for Hurricane Matthew; Audit finds deficiencies in MSHA's complaint handling

Top News

warned Oct. 6 that up to 2.5 million of its roughly 4.8 million customers couldlose power and sustain damage from Hurricane Matthew. The storm was expected tohit the state late Oct. 6 and hug the coast for most of Oct. 7 before moving upthe Atlantic coast. Based on its recent outage data, theNextEra Energy Inc.utility said the hurricane has affected 653,490 customers. The utility said ithas restored power to 177,200 customers and that 476,300 of its customers are stillwithout power.

Upcomingfederal underground gas storage rules could help smooth over the nation's patchwork ofstandards, but regulators must be careful to avoid unintended consequences,said market participants including a Kinder Morgan Inc. executive.Anders Johnson, vice president of storage at KMI, said he is looking forward tothe U.S. Pipeline and Hazardous Materials Safety Administration rules, slatedto come out later in the year.

TheU.S. Department of the Interior's Office of Inspector General initiated anaudit of the U.S. Mine Safety and Health Administration to follow up on a 2006audit finding that MSHA had not evaluated or responded to a significant numberof hazardouscondition complaints in a timely way. Between January 2012 and December 2015,OIG noted, mine hazards contributed to 151 miner deaths and 30,350 injuries.

Power

*Ontario Power Generation Inc.'srebuild of its 3,512-MW Darlington facility on Lake Ontario will by9.6 million metric tons per year between 2024 and 2055, the report byconsultant Intrinsik Environmental Sciences found.

*Florida Power & LightCo. has reached a settlement agreement with intervening parties inits pending rate case, according to a Form 8-K filing. If approved by Florida regulators, theNextEra Energy Inc.subsidiary's annualized retail base revenues would increase by $400 millionstarting Jan. 1, 2017, $211 million starting Jan. 1, 2018, and $200 millionwhen the Okeechobee CleanEnergy Center achieves commercial operation.

*Talen Energy Corp.stockholders have approved the company's proposed agreement with and intoan affiliate of RiverstoneHoldings LLC. Thetransaction remains on track to close by the end of 2016, subject to approvalfrom FERC and the U.S. NRC.

*Electricity prices in the U.S. are on track to fall for the first time since2002, according to the U.S. Energy Information Administration. For the firsthalf of 2016, American residential consumers paid on average 12.4 cents/kWh, or0.7%, less than the same period in 2015.

*General Electric Co.unit GE Power won a contract to supply software that will allow the toconduct a deep analysis of the health of its generating assets across its 16generating facilities and transmission network, according to a news . The new operationscenter is expected to begin operations in December.

*Bloom Energy Corp.has reportedly fileda "confidential" registration for an IPO, according to an Oct. 6report from The Wall Street Journal.The company, which in 2011 was valued at $2.9 billion, filed with the U.S. SECto go public under the Jumpstart Our Business Startups Act, which allowscompanies with less than $1 billion in revenue to register privately with theSEC.

*NextEra Energy ResourcesLLC has completedits Roswell andChaves Countysolar facilities in New Mexico. The facilities have a total generating capacityof 140 MW and will serve XcelEnergy Inc. customers in New Mexico and Texas under two separatecontracts.

* A21-MW wind farm in Hawaii has been shut down after major turbine parts of thefacility fell off, the PacificBusiness News reports. Auwahi, which holds a long-term power purchaseagreement with Maui Electric Co.Ltd., is jointly owned by subsidiaries of and . In a separate piece, the publicationreports that employment in Hawaii's solar industry has gone down by more than40% since last fall when state regulators ended a popular net metering program.

Natural gas/midstream

* Even though it has struggled with itsdebt situation for a half decade, Chesapeake Energy Corp. said it amassed enough cash onhand to paybondholders through the end of 2018.

*More than 30 groups, including Greenpeace and the Council of Canadians, arepressing British Columbia Premier Christy Clark to reject 's Trans Mountainpipeline expansion project because it fails to assure a "world-leadingoil-spill response," TheCanadian Press reports.

*Williams Cos. Inc.directors Joseph Cleveland, John Hagg and Juanita Hinshaw will not stand forre-election at the Nov. 23 annual meeting. The move was previously described bythe company as a "boardrefreshment."

*Gaz Métro Inc. closeda private placement of C$125 million of 3.28% series T first mortgage bonds dueOct. 9, 2046, according to a news release. The company will lend proceeds toGaz Métro LP, whichplans to use them to repay existing debt and for general corporate purposes.

*Sanchez Production PartnersLP will acquire certain oil and gas assets, including a 50%stake in Carnero Processing LLC, from Sanchez Energy Corp, in a $107 million drop-downtransaction expected to increase the company's liquidity.

Coal

*CNX Coal ResourcesLP's recent acquisition of a larger share of the Pennsylvania MineComplex from its parent company CONSOL Energy Inc. helped boost the partnership's pricetarget ahead of quarterly earnings, according to analysts.

* AU.S. Department of Interior analysis concluded that 's planned 117million-ton expansion of the Spring Creek Mine would have a minor climateimpact, The Associated Press reports.The agency conducted the analysis under a court order.

Commodities

*Although 72% of the total proceeds from the Regional Greenhouse GasInitiative's quarterly auctions was invested in efficiency and renewable energyprograms from 2008 through 2014, more than 20% of the total funds collected wasearmarked for otherpurposes by the participating states.

*After ending the prior session up 0.8 cent at $3.049/MMBtu, November naturalgas futures recoiledovernight ahead of the Friday, Oct. 7, open in profit taking and overridingfundamental pressure implied by steadily building inventories andweather-related demand weakness in store in the near term through the midrange.The contract fell as low as $3.015/MMBtu and was last in shallow positiveterritory, up 0.1 cent at $3.050/MMBtu.

*Power dailies could notchlosses in the week's closing session Friday, Oct. 7, as theanticipation of deflated demand in much of the country coming off the weekendconspires with potential weakness in natural gas. Although a round of latebuying pushed front-month November natural gas futures 0.8 cent higher Oct. 6,the contract was hovering near unchanged at $3.049/MMBtu early Friday ahead ofthe opening bell.

SNL Image

New from RRA

* OnOct. 6, Algonquin Power &Utilities Corp., Empire District Electric Co. and the Kansas CorporationCommission, or KCC, staff announced that they have reached an agreement that wouldresolve the KCC's review of Algonquin's proposed acquisition of Empire (DocketNo. 16-EPDE-410-ACQ).

Quoted

"Essentiallywhat I am doing is writing all the policies for Mr. Trump ... to try to assisthim and hopefully whoever he appoints to be secretary of energy," formerAmerican Nuclear Society President Donald Hoffman .

The day ahead

*Early morning futures indicators pointed to a lower opening for the U.S. equitymarkets. To view more SNL equity market indexes, click here.To view more SNL Energy commodities prices, click here.


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

Highlights

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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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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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:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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

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