A credit rating agency has chopped its rating on Oakville Hydro, blaming the policies of the outgoing provincial Conservative government.

The rating cut by Standard & Poor's highlights the problems surrounding local utilities, which the incoming Liberal energy minister will have to deal with on an already crowded agenda.

S&P reduced Oakville Hydro's rating one notch, to BBB+ from A-. The outlook for the utility is negative, S&P says.

The new rating comes shortly after the election of a Liberal government, but S&P looks back to the previous government's record in assessing Oakville Hydro's risk.

The rating "reflects a moderate increase in business risk following considerable intervention in the regulatory process in Ontario," the agency says.

First, the province leaned on the Ontario Energy Board to make utilities like Oakville Hydro spread a planned rate increase over three years instead of one. Then, last November, after only two of the scheduled three hikes had been granted, the province froze the utilities' rates.

All local utilities, including Oakville Hydro, were put on credit watch following the province's action. Major ratings agencies have been working their way through the utilities, issuing downgrades to some and noting with disapproval the uncertainty surrounding their financial positions.

Charlie Macaluso heads the association that represents local utilities, also referred to as local distribution companies or LDCs.

"One of the first things we want to talk to the government about is addressing the LDCs' financial issues," he said.

The rate freeze squeezes the utilities' profitability, he said. That can trigger a rating downgrade, which in turn makes it harder for the utilities to raise capital.

Another question mark overhanging the future of local utilities is tied to Hydro One, which owns and operates Ontario's long-distance electricity transmission lines. Hydro One bought up 90 local utilities under the leadership of former chief executive Eleanor Clitheroe, and continues to hold them.

Macaluso has argued in the past that Hydro One should sell them off. The Liberals' policy paper on energy issued for the election is silent on the issue.

Macaluso said he'll be looking for a signal about the new government's over-all approach to electricity.