S&P cuts Duke, subsidiaries

S&P said it downgraded Duke Energy Corp. and its rated subsidiaries by a notch to BBB+ from A-.

Concurrently, the agency trimmed Duke’s and Progress Energy Inc.'s senior unsecured debt to BBB from BBB+ and the issue-level rating on the senior unsecured debt at its rated subsidiaries to BBB+ from A-. Also, S&P cut the rating on Duke's hybrid instruments, including its junior subordinated notes and preferred stock, to BBB- from BBB.

The downgrades follow Duke reporting its subsidiaries, Duke Energy Carolinas LLC and Duke Energy Progress LLC, reached a coal ash settlement with the North Carolina Attorney General's Office, the Public Staff of the North Carolina Utilities Commission and the Sierra Club.

“Both DEC and DEP have agreed to not seek recovery of approximately $1 billion (in total) of deferred coal ash costs and will each take a pre-tax charge of approximately $500 million in the fourth quarter of 2020. In our view, the lack of full recovery and the equitable sharing of costs between ratepayers and shareholders are negative for the companies' credit quality because it will potentially set a precedent for the sharing of costs in other areas,” S&P said in a press release.

Before the settlement, S&P did not include Duke’s coal ash asset retirement obligations, which it usually does for the company’s peers. “Because of the material coal ash-related charge, we now assess the company as more in line with its industry peers and have incorporated the full ARO coal ash debt. This change adds about $3 billion to the company's consolidated debt,” the agency said.

The outlook is stable.

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