Moody’s views Duke Kentucky negatively

Moody’s Investors Service said it revised its outlook for Duke Energy Kentucky Inc. to negative from stable and affirmed its Baa1 ratings on the company and its 6.2% debentures due 2036.

Concurrently, the agency affirmed its ratings on Duke Energy Corp. and its other subsidiaries. The outlook for them is stable.

Duke Energy Kentucky’s negative outlook reflects a record of weak credit metrics, including a cash flow excluding changes in working capital (CFO pre-WC) to debt ratio averaging 15.2% in recent years, consistently below the agency’s minimum expectation of 17% for its Baa1 rating, Moody’s said.

“These weak metrics may persist depending on the outcome of its currently pending electric rate case. Although Duke Energy Kentucky benefits from several cost recovery mechanisms, including recovery of fuel, purchased power, and environmental compliance costs and the use of a forward test year in rate cases, the company's cash flow has been flat since 2018 relative to a compound annual growth rate in debt of about 10%.

“In its electric rate case, Duke Energy Kentucky has requested a revenue increase of $75 million based on a 10.35% return on equity and a 52.51% equity layer. A final decision is expected by the end of the second quarter of 2023 and will be important to our assessment of the company's Baa1 credit rating,” Moody’s said in a press release.

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