OREANDA-NEWS. Fitch Ratings says in a new report that UK gas distribution networks (GDNs, excluding Northern Ireland) are delivering financial and operational performance within the agency's expectations.

Cumulative two-year total expenditure (totex) outperformance across all eight GDNs was GBP635m, or around 15% relative to allowances (not adjusted for the timing of spend). Networks are generally on track in delivering their eight-year output commitments.

GDNs owned by National Grid Gas plc (NGG, A-/Stable) demonstrated weaker output performance and achieved lower totex savings in the financial year to XX 2014 and 2015 than their peers. However, NGG is the top outperformer in cost of debt among GDNs.

Scotland Gas Networks plc (BBB/Stable) and Southern Gas Networks plc (BBB/Stable) delivered impressive totex outperformance and significantly reduced iron mains risk in the first two years of RIIO-GD1. Scotland Gas Networks incurred cost of debt slightly below allowance, while Southern Gas Networks was slightly above.

While Wales & West Utilities Ltd (class A senior secured debt at A-/Stable, class B senior secured debt at BBB/Stable) performed well on totex and outputs, its cost of debt was significantly above Ofgem's allowances. This is because of additional costs related to the company's out-of-money index-linked swaps portfolio.

Although Fitch expects rating stability during GD1, rating changes are possible in case of substantial operational or financial out- or under-performance.