Global ratings heavyweight, Standard & Poor's, has downgraded its outlook on state-owned national grid operator Transpower from stable to negative, following a Government threat to regulate its pricing.
S&P also warned other electricity and gas lines businesses could face a similar fate, as competition watchdog, the Commerce Commission, flexed its regulatory muscle.
The ratings agency affirmed Transpower's AA-/A-1+ corporate credit rating, but said it could "weather some short-term weakening".
The Commerce Commission announced in December it intended to take control of Transpower.
As a monopoly, Transpower is subject to a regulatory regime that restricts its price rises to the rate of inflation minus 1 per cent.
Last week the commission released a report showing Transpower breached its thresholds by $14.3 million in 2004/05 and by $35.8 million in 2005/06.
The commission said it would decide by March 31 whether to impose controls on Transpower's prices, which would benefit consumers.
S&P credit rating analyst, Justin Davey, said the commission's report "cast serious doubt on Transpower's ability to apply future charges that are sufficient to protect its credit profile should the company continue with its grid upgrade plan."
"Transpower has headroom under its rating to weather some short-term weakening in its credit profile," Mr Davey said.
"However, should uncertainty persist in how price regulation is determined, there exists the risk that Transpower's corporate credit rating could be downgraded."
In April 2004, Transpower raised its prices by 13 per cent for most of the power companies it supplies, and this was passed on to consumers.
Last November, it flagged a 19 per cent price increase in April this year and said it needed an average 13 per cent rise in the next five years to pay for its investments in the grid.
Mr Davey said the "shadow of regulatory intervention" meant S&P would closely monitor other lines companies, including the NZX-listed Vector.