Fitch: Improved Operating Conditions for Australian Utilities <Origin Href="QuoteRef">AGK.AX</Origin> <Origin Href="QuoteRef">ORG.AX</Origin>

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: Australian Utilitieshttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881202SYDNEY/SINGAPORE, May 08 (Fitch) Australian power and utilities companies are benefitting from some ease in operating conditions due to higher gas volume sales, higher electricity demand and favourable electricity prices, Fitch Ratings says.The credit profiles of the larger Australian integrated utility companies, namely, Origin Energy Ltd (Origin, BBB/Negative) and AGL Energy Ltd also benefit from their equity in upstream gas and increased gas sales to meet gas supply shortages at some of the Queensland liquefaction facilities. Fitch expects increasing residential demand, due to lower electricity tariffs, to result in higher electricity generation volumes. Volumes are also expected to increase due to a ramp-up of new liquefaction projects in Queensland. However, margin recovery is likely to slow over the medium-term due to stagnant industrial electricity demand - excluding that from Queensland's gas-processing facilities. Customer switching declined across most states in 2015, although churn rates remain high in New South Wales and Victoria. Easing retail competition could reflect the larger retailers' focus away from customer acquisition to customer retention, although competitive activity is likely to remain high. Fitch expects near-term domestic gas prices across Australia's eastern states to rise, reflecting tightening demand-supply conditions, increased linkage to global prices and significant gas production earmarked for export liquefaction capacity. Uncertainty in the regulatory approach to forecasting expenditure and return-on-capital for network services, which could also include the potential for additional benchmarking techniques, is likely to continue as the industry awaits the outcome of a judicial review. The revised regulatory framework applied in 2015, which included a new approach to cost-of-debt, will limit operator's ability to outperform on funding costs. However, it should provide higher financial flexibility and result in improved debt maturity profiles, as it will minimise the need for lumpy debt maturities at future regulatory resets. The tightening of various allowances will lead to lower equity returns, although Fitch says there is no immediate rating impact from these changes. The report, 'Australian Utilities: Benefitting from Improving Operating Conditions', is available on www.fitchratings.com or by clicking on the link in this media release. Contacts: Sajal Kishore Senior Director +612 8256 0321 Fitch Australia Pty Ltd., Level 15, 77 King Street, Sydney NSW 2000 Buddhika Piyasena Senior Director Head, Energy & Utilities, Asia Pacific +65 6796 7223 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available at www.fitchratings.comALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.