The Rating Outlook is Stable.
Outstanding energy system revenue bonds are secured by a first lien on net revenues of the city's electric system.
KEY RATING DRIVERS
SIZEABLE RETAIL ELECTRIC UTILITY:
VERY LOW RATES: Electric rates continue to rank among the lowest in the state, providing the system with significant flexibility. In addition, a city ordinance requiring timely adjustments in the system's fuel rate limits the under-recovery of fuel costs to a very low threshold.
SOUND FINANCIAL PERFORMANCE: Financial metrics continue to exceed management's prudent targets and approximate Fitch's rating category medians. Fiscal 2013 ended with debt service coverage of 1.9x and available reserves that provided for 180 days of cash on hand. Fitch expects the system's future financial performance will remain at a similar level based on the most recent financial forecast.
AMPLE CAPACITY: Existing power supply resources are anticipated to be sufficient for the long-term. The system's owned generating capacity and fuel mix are weighted towards natural gas-fired resources. However, no single generating asset accounts for more than 36% of total capacity and the ability to purchase power from the
MANAGEABLE CAPITAL PROGRAM: Excess cash flow and existing resources are expected to be sufficient to fund capital needs through fiscal 2018, which should improve the system's already moderate debt burden. Potential costs related to proposed environmental regulations are not likely to be onerous.
EXPOSURE TO VARIABLE RATE DEBT: Proactive management of the system's extensive exposure to short-term debt with large bullet maturities remains critical.
STABLE SERVICE TERRITORY
The city owns and operates a mix of generating units that provide ample capacity totaling 980.5 MW. Total energy requirements have historically been generated almost entirely from
SOUND FINANCIAL PERFORMANCE
Fitch calculated debt service coverage is typically at or close to 2.0x while coverage of full obligations, including an annual transfer made to the city's general fund, has averaged 1.5x over the prior five years. Rating category medians for both ratios are 2.4x and 1.4x, respectively. Fitch notes that management prudently targets debt service coverage of 2.0x and a minimum of 150 days of cash on hand for operations when formulating the annual budget.
Electric rates are currently the lowest in the state, providing the system with considerable financial and operating flexibility. As of
MANAGEABLE CAPITAL PROGRAM
Capital needs over the intermediate term appear manageable, and are not expected to require additional debt issuance. New generation projects are not included in the capital plan; officials believe the system's ample capacity from both owned generation and available purchases from FMPP will preclude the need for additional generation for about the next ten years.
Debt levels have steadily improved as capital expenditures continue to be funded from current resources. The ratio of debt to funds available for debt service (FADS) now equals the rating category median of 5.1x, and equity has grown from 34.5% of capitalization in fiscal 2009 to a healthier 41% at the close of fiscal 2013.
MANAGEABLE VARIABLE RATE EXPOSURE
Nearly half (44%) of the system's
The exposure to variable rate debt and associated interest rate swaps remains somewhat of a concern; however, the city's management team has demonstrated its ability over the years to successfully refund bullet maturities, manage interest rate risk and maintain access to ample liquidity. The lack of put risk associated with the outstanding floating rate notes together with access to a city-wide pooled investment fund that currently totals
Additional information is available at 'www.fitchratings.com'.
--'U.S. Public Power Peer Study --
--'U.S. Public Power Peer Study Addendum -
--'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
Source: Fitch Ratings
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