OREANDA-NEWS. S&P Global Ratings today affirmed its ratings on Tucson Electric Power Co. (TEP), including the 'BBB+' issuer credit rating and 'BBB+' senior unsecured debt rating, and revised the outlook to stable from negative. At the same time, we revised our stand-alone credit profile on TEP to 'bbb+' from 'bbb'.

"The rating actions reflects TEP's recent track record of stable profit measures that has resulted in a stronger competitive position and an improved business risk assessment relative to peers," said credit analyst Obioma Ugboaja. "Our stable rating outlook reflects the reduced probability of a downgrade in the event of a downgrade on ultimate parent Fortis Inc."

We base our 'BBB+' issuer credit rating on our assessments of TEP's excellent business risk profile and significant financial risk profile.

The stable outlook on TEP reflects our reduced expectation of a one-notch downgrade on TEP even if we downgrade ultimate parent, Fortis Inc. following its pending acquisition of ITC Holdings Corp. This reflects TEP's improved stand-alone credit profile that we expect it can sustain as demonstrated by its recent track record of stable earnings that has resulted in less volatile profits, strengthening TEP's business risk profile.

We could downgrade TEP over the next 12 months if we downgrade ultimate parent Fortis by more than one notch. We could also downgrade TEP if financial ratios of parent UNS are consistently indicative of an aggressive financial risk profile category, or FFO to debt that is below 13%. This could occur if the company's financial measures weaken because of adverse regulatory outcomes, or if capital spending materially increases beyond our base-case forecast.

We could upgrade TEP over the next 12 months if UNS' consolidated financial ratios reflect FFO to debt that is consistently greater than 23%, indicative of the intermediate financial risk profile category. Although we do not anticipate it over the near term, we could also upgrade TEP if ultimate parent, Fortis Inc., is upgraded.