Investment-grade

When Électricité de France stepped in to buy Constellation Energy’s nuclear assets and help the company avoid bankruptcy, the Maryland Public Service Commission conditioned the sale on a set of ring-fencing provisions. The industry has been using such structures to protect ratepayers in complex and high-risk M&A transactions since the 1990s. The protection isn’t foolproof, however—and it can bring problematic regulatory trade-offs.

According to Fitch Investors Service, the absence of long-term power purchase agreements, coupled with the increased price volatility associated with short-term energy sales, likely will result in noninvestment grade ratings for most merchant projects.

In its new report, Power Projects in a Less Regulated World, Fitch examines power plants and how to evaluate this riskier class of projects. Now, the company would rate a good merchant power project in the 'BB' category.