National Grid PLC was downgraded March 2 by all three major rating agencies after the U.K.'s energy regulator curbed investor returns for its electricity and gas transmission business.

S&P Global Ratings revised its long-term rating for the company to BBB+ from A-, while Fitch Ratings downgraded it to BBB- from BBB, and Moody's to Baa2 from Baa1. The three agencies all have a stable outlook on the company.

National Grid's reduced regulated earnings prospects in the U.K. for the upcoming regulatory period, the impact of COVID-19 with an uncertain recovery timeframe in the U.S., and its increased investment plan mean its forecast leverage and gearing are too weak for the previous rating, according to Fitch.

National Grid is planning to appeal the decision by the Office of Gas and Electricity Markets, or Ofgem. The utility said it will file a technical appeal to the U.K. Competition and Markets Authority on March 3 to seek a higher allowed return on equity, which has been set by Ofgem and will apply for the next five years.

In December 2020, Ofgem softened its proposed cuts to investor returns after heavy industry opposition. Yet, the company said the allowed returns, roughly 40% below current levels, are still insufficient.

National Grid also wants Ofgem to scrap a so-called outperformance wedge, a downward adjustment to the allowed returns made in expectation of future outperformance by the utilities, which CEO John Pettigrew said undermines productivity incentives.

S&P Global Ratings said even if the appeal is successful, it does not expect metrics to improve sufficiently to improve the rating.

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