The bonds are scheduled to price via negotiation on
The Rating Outlook is Stable.
The bonds are secured by a senior lien on SUA's electric, water, and sanitary sewer system net revenues, as well as
KEY RATING DRIVERS
COMBINED RETAIL SYSTEM: SUA is a combined retail system purchasing low-cost, full requirements electric power and energy from the
BROAD REVENUE DIVERSITY: SUA's broad revenue diversity sets it apart from its peers. The authority receives electric, water, and sanitary sewer system rate revenues, as well as
SOUND FINANCIAL POSITIONING: Strong cash flow metrics stemming from a series of rate increases beginning in fiscal 2008 position the authority well to finance capital projects. Relatively sizable debt issuance over the next few years will ultimately temper SUA's financial metrics. However, forecast ratios are solidly in line with Fitch's 'AA-' medians.
CONTRACTED NEW GENERATION: The planned facility poses manageable risk, given SUA's experience owning assets; the mature technology; and the expected sale of the plant's capacity and output to GRDA.
SIZABLE ECONOMIC ANCHOR: OSU anchors a growing economic base that benefits SUA operations. A large student population underpins low income levels, but SUA's collection rates remain steady and strong.
STYMIED REVENUE GROWTH: While not currently envisioned, a vote of the trustees or electorate to pare back automatic rate escalators or sales taxes, respectively, could ultimately compress financial margins below forecast levels and lead to negative rating action.
GENERAL FUND PRESSURE: An increase in already sizable general fund transfers that likewise compresses SUA's financial margins could lead to negative rating action.
SUSTAINED RATE FLEXIBILITY AND MARGINS: Conversely, the maintenance of ample revenue-raising flexibility, coupled with strong financial margins, manageable transfers, and continued economic growth, could lead to positive rating action.
SUA provides principally, electric, water, and sanitary sewer service in a 30-square mile service territory that encompasses the city of
DISTRIBUTION CHARACTERISTICS PRESERVED
SUA primarily provides lower risk distribution services, despite owning and operating generating assets. The authority purchases low-cost, full requirements power and energy from GRDA pursuant to a recently renewed, long-term power purchase and sale agreement that extends to
The proposed 55MW natural gas-fired facility expected online by
RATE INCREASES PROVIDE FOOTING
Rate increases over the past several years position SUA well to finance new infrastructure projects and balance overall system operations. Moreover, SUA distinguishes itself with a 2007 resolution providing for automatic annual rate increases. The escalator - equal to the lesser of 3% or the regional consumer price index - provides for regular rate relief. A majority vote of the trustees could repeal the automatic escalator, but the trustees currently have no such plans.
Of note, any direct or indirect limitations on the authority's revenue-raising flexibility could ultimately become a negative rating factor. Electric rates are now comfortably above the state average and water and sanitary sewer rates are above average relative to median household income.
BROAD REVENUE DIVERSITY
SUA's broad revenue sources should continue to bolster its financial flexibility and stability. The utility receives revenues across three systems: electric, water, and sanitary sewer. In addition, it receives considerable sales tax revenues from the city of
FINANCIALS FORECAST TO REMAIN STRONG
SUA's financial metrics are currently very strong, largely as a consequence of recent rate action. Debt service for the series 2014 bonds and proposed 2016-2018 bonds (
SIZABLE GENERAL FUND TRANSFERS
SUA's general fund transfers currently appear manageable. Service territory growth has aided city tax revenues and relieves some pressure on the utility.
The transfers have averaged a high 25.6% of SUA's total operating revenues over the past five fiscal years. Fitch's 'AA-' rating category average is 6.8%. Nevertheless, SUA's ratio of equity to capitalization (82.4%) is well above the category median (48.5%), i.e. the transfers have not limited the utility's ability to build equity. In addition, the resolution provides that transfers are made after payment of debt service.
UNIVERSITY ECONOMIC ANCHOR
The city is home to OSU. SUA benefits from the ancillary effects of a large, expanding university. However,
Additional information is available at 'www.fitchratings.com'.
This rating action was informed by information identified in Fitch's U.S. Public Power Rating Criteria.
--'U.S. Public Power Peer Study --
--'U.S. Public Power Peer Study Addendum -
--'U.S. Public Power Rating Criteria' (
--'Transferring from Power: Transfer and PILOT Payment Characteristics in the Public Power Sector' (
U.S. Public Power Peer Study --
U.S. Public Power Peer Study Addendum -
U.S. Public Power Rating Criteria
Transferring from Power: Transfer and PILOT Payment Characteristics in the Public Power Sector
Source: Fitch Ratings
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