The PSC commissioner Ellen Nowak’s term out in March could lead to three Democrats on the commission and a less-constructive regulatory environment in Wisconsin, the analyst said.
About 68% of LNT’s planned rate base growth between 2023-2026 takes place in their Wisconsin jurisdiction, making any change in this regulatory environment a concern for the growth outlook, added the analyst.
Given the regulatory uncertainty surrounding the name in its most critical jurisdiction, the analyst no longer believes the name should trade at a group premium.
The analyst has seen regulators across the country, even in historically constructive jurisdictions such as Wisconsin and Michigan, begin to scrutinize rate increases as they now place a stronger emphasis on affordability as opposed to sustainability.
The analyst sees this as a concern as WPL enters a crucial rate case later this year.
In a December settlement hearing for WEC, ROEs were cut for all three utilities to 9.8%, down from 10.0% for WEPCO and WPS and 10.2% for Wisconsin Gas, the analyst said.
This fact, combined with the increased scrutiny being placed on traditionally routine regulatory matters in Wisconsin and across the country, leads the analyst to believe a greater emphasis will be placed on affordability in 2023.
The analyst said that Wisconsin is critical for the growth of LNT, as it is where the majority of their rate base growth is slated to occur in the coming years.
The analyst is concerned that with the recent scrutiny of the WEC settlement agreement in December and turnover on the Public Service Commission (PSC), the regulatory environment in this state is becoming less constructive.
This change ahead of the WPL rate case expected to be filed this year gives the analyst the reason for concern, prompting the downgrade.
Price Action: LNT shares are trading lower by 0.12% at $55.28 on the last check Monday.
