Stabilization is most pronounced for 'AA' and 'A' rated wholesale electric systems. Their coverage medians improved in 2013 following a period of decline that began in 2010. Coverage medians for retail electric systems have exhibited greater volatility in recent years but declined in 2013, which remains a concern and could lead to future downward ratings actions. Data on issuers with other ratings is too sparse to generalize.
We believe that the divergence in coverage between wholesale and retail systems may be partially attributable to these issuer's reluctance to pass higher wholesale costs on to retail ratepayers. Rate increases remain politically challenging in many regions, particularly those where the economic recovery has been slower than expected.
The results also show that liquidity ratios remain relatively stable and very robust for issuers rated in the 'A' and 'AA' categories. The strong liquidity metrics observed in recent years are likely driven in part by slower growth in construction and capital investment, as evidenced by a declining ratio of cap ex to depreciation. The downward trend in capital expenditures, which began in 2009, likely reflects slower sales growth and the deferral of certain capital projects. We will continue to monitor this and its potential impact on resource planning and maintenance life cycle costs.
A full copy of the "U.S. Public Power Peer Study," including more details and an Excel-based addendum, are available on our website www.fitchratings.com
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
U.S. Public Finance
+1 212 908-9159
Source: Fitch Ratings
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