KeySpan Gas East Corp.

Overview Key strengths Key risks Largely predictable cash flows from the essential nature of the company?s gas-distribution utility operations. A lack of regulatory diversity that makes the company dependent on the New York State Public Service Commission (NYSPSC) to sustain its credit quality. Large long-term investments to replace aging infrastructure, supports lower-risk rate-base growth. Long-term customer growth in question given proposed New York state environmental agenda. Mostly residential customer base of about 600,000 customers that provides cash-flow stability. Aging pipe materials that increase the company?s operating risk. Forecast negative discretionary cash flow which we assume will lead to incremental debt financing. Because of this, our issuer credit rating on KEDLI is in line with our group credit profile on NGNA.

...We consider KeySpan Gas East Corp. (KEDLI) a core subsidiary of National Grid North America Inc. (NGNA). Because of this, our issuer credit rating on KEDLI is in line with our group credit profile on NGNA. We assess KEDLI's business risk profile at the lower half of the excellent business risk profile category. Though the company provides a monopolistic essential service and more consistently earns close to its authorized returns than its sister downstate gas utility Brooklyn Union Gas Co. (###+/Stable/--), the company's 2021 rate-order delay led to regulatory lag, and the order itself was not as favorable as prior KEDLI rate cases. The company's current rate case filing is currently pending. In June 2023, KEDLI submitted a gas rate case filing, requesting a revised rate increase request of $277 million based on a 9.8% return on equity upon a 48% equity capitalization ratio. Furthermore, we continue to monitor KEDLI's longer-term growth prospects. In late 2021, New York City passed a law...

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