Moody's affirms ratings of SSE with negative outlook

Energy utility SSE’s credit ratings have been reaffirmed by Moody’s, albeit with a negative outlook.

In a note to clients, the ratings agency said it has affirmed the A3 issuer rating of SSE, and the Baa2 rating of its hybrid notes. Concurrently, Moody's has affirmed SSE's P-2 short-term rating and the A3 issuer ratings of subsidiaries SSE Energy Supply Ltd, SSE Generation Ltd, Scottish Hydro Electric Power Distribution, Scottish Hydro Electric Transmission and Southern Electric Power Distribution

The outlook for all of the ratings remains negative. “The assigned rating reflects SSE's well-balanced, vertically integrated business profile, which includes a strong and growing contribution from regulated networks,” Moody’s said.

The agency acknowledges that SSE will be negatively affected by the recent sharp drop in gas and electricity prices, but notes the diversification of its business model and the relatively low exposure to these commodities. Power prices in the UK have declined by 11% in the past three months, reflecting a 17% decline in gas prices over the same period.

Moody's expects that pressure from weak commodity prices will be offset by continued growth in SSE's regulated electricity transmission and distribution activities, which provided over 40% of operating profit in 2014-15, and in its gas distribution joint venture.

Yet, the negative outlook reflects “continuing downward pressure on commodity prices, the increasingly competitive market for retail energy supply”, and the uncertain impact of the Competition and Markets Authority's investigation of the energy market, which is expected to result in provisional remedies in March 2016, the agency concluded.