Moody's on June 26 lowered its outlook for CenterPoint Energy Houston Electric LLC to negative from stable, citing impacts from the federal tax overhaul.
Moody's affirmed CenterPoint Energy Houston's senior unsecured and issuer rating at A3 and senior secured rating at A1.
"The negative cash flow implications of tax reform, along with higher debt incurred to fund its elevated capital investment plan, are expected to weaken CenterPoint Energy Houston Electric's key financial metrics more than we had projected when tax reform was passed," said Robert Petrosino, Moody's vice president and senior analyst.
Moody's expects the utility's working capital-to-debt ratio will be 15% to 17%, compared with historical levels closer to 20%. The rating agency said CenterPoint Energy Houston's pending rate case will also be key to determining the utility's financial strength.
In April, the CenterPoint Energy Inc. subsidiary filed a rate case request with the Public Utility Commission of Texas seeking an increase of about $161 million in base rate revenues, based on a 10.4% return on equity.
As of June 13, several interveners, including the commission staff, have filed testimony supporting a lower ROE and lower equity layer than the utility originally requested. If the commission approves an ROE materially lower than the utility's current 10% and an equity layer lower than its current 45%, it "may further pressure credit measures," Moody's wrote.