ETSA Utilities Finance Pty Ltd.

The stable outlook on ETSA (and its parent SA Power Networks) reflects our expectation that ETSA will operate with a ratio of FFO to debt of about 13% over the next one to two years (against a FFO to debt target of greater than 10%). We do not anticipate any explicit increase in debt that will dilute the metric to target levels. Earnings visibility is high for the next four years (to June 2025) because the regulatory parameters are known and we anticipate no material change in ETSA's unregulated activities. While it is a low probability, we could lower the rating on ETSA by one notch if the FFO-to-debt ratio were to fall below 8% and keeping one notch of

...ETSA Utilities Finance's regulatory parameters will support credit metrics consistent with the current rating ETSA's FFO to debt metrics will remain consistent with current ratings although it will weaken to 13% over the next two years from 15.6% in 2020. The step change is due to lower return on capital at 4.75% for the period 2020-2025 compared to 6.17% in the prior five years. This trend line was anticipated due to current lower interest environment. The lower revenues will be partly offset by lower interest costs, that will enable the FFO to debt remain around 13% over the medium term. ETSA will continue to benefit from the predictable, consistent, and transparent regulatory regime it operates under. The company is regulated by the Australia Energy Regulator (AER) and is subject to five-year regulatory periods, with the current period running from July 1, 2020 to June 30, 2025. While regulatory parameters are subject to the change during the determination process, once set they provide...

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