...Regulatory and Cash Flow Diversity: Southwestern Electric Power Co. (SWEPCO) operates in three utility jurisdictions -- Arkansas, Louisiana and Texas -- providing cash flow diversity. A balanced regulatory environment, which includes fuel cost adjustment clauses and cost riders to recover environmental regulation-related expenses, is a key driver of SWEPCO's credit profile. Rising Environmental Compliance Costs: Approximately 55% of SWEPCO's generation capacity is coal- and lignite-fired, leaving the utility exposed to potentially higher environmental expenditures. While SWEPCO has an environmental clause allowing for recovery of mandated expenditures in Louisiana, Arkansas and Texas, regulations require it to file general rate case applications to cover these costs, creating a recovery lag for the investment. Furthermore, the retail electricity rates would rise, reducing flexibility for SWEPCO to earn an attractive ROE and potentially inviting political scrutiny. Resilient Credit Protection...
