The Rating Outlook is Stable.
The bonds are secured by the net revenues derived by the city solely from the operation of its electric system.
KEY RATING DRIVERS
SMALL ELECTRIC UTILITY SYSTEM:
ADEQUATE POWER SUPPLY: Favorable wholesale contracts together with city-owned generation units provide sufficient resources to meet energy and capacity needs for the foreseeable future.
SOLID FINANCIAL METRICS: Coverage ratios have improved since 2011, despite lower kwh sales thru 2013, largely due to stronger recovery of fuel and purchased power costs. Debt service coverage (DSC) rose to 2.31x in fiscal year (FY) 2013 from 1.88x in FY2011, and typically exceeded 2.4x prior to 2011. Adjusting for purchased power expenses and transfers to the city,
IMPROVED ATTENTION TO RATES: Over the past two years, management has focused on quarterly review and adjustment of rates to ensure more timely recovery and solidify financial metrics, which Fitch views favorably. Coverage of full obligations should continue to improve in 2015 on improved recovery and a 14.9% decline in debt service.
FAVORABLE DEBT PROFILE: Leverage ratios compare well to medians for the rating category, as the system continues to fund its capital plan from cash flow. Additionally, an outstanding 2008 bank loan was retired in fiscal 2013, boosting equity-to-total capitalization to 71.7% for FY2013. Debt-to-funds available for debt service (FADS), at 2.9x for fiscal 2013 should improve further to about 2.6x in fiscal 2014.
SALE OF THE UTILITY UNLIKELY: The sale of
PENDING RATE AND FINANCIAL FORECAST:
The city's retail electric system serves 34,308 customers in a 40 square mile area. The electric system is a vertically integrated system, with roughly 50% of available capacity attributable to owned gas/oil fired generation units, about 17% in generation entitlements via FMPA; and the rest (approximately 100MW) purchased from
SALE OF ELECTRIC ASSETS TO
Since Fitch's last review, the sale of the city's electric system to FP&L has encountered fairly insurmountable obstacles and now appears unlikely to occur. The largest hurdle appears to be finding a mutually and legally acceptable exit strategy (stranded cost issues) in regards to
The Asset Purchase and Sale Agreement with FP&L, which provides for the acquisition of the electric utility assets for approximately
FINANCIAL PERFORMANCE IS IMPROVING
Financial performance eroded somewhat in fiscal 2011, as a full year of the OUC contract change resulted in a 15% decline in revenues, coupled with kwh sales that were in decline. Positively, financial performance has improved and stabilized since then.
Debt service coverage which peaked at 4.3x in fiscal 2010, declined to 1.88x in fiscal 2011, has rebounded to 2.3x in fiscal 2013. Over the past two years, management has been closely tracking sales, revenues and expenses. Rate and revenue sufficiency is consistently reviewed on a quarterly basis, and rates are adjusted as needed. Liquidity, which dropped in fiscal 2013 to 77 days cash (available cash was used to accelerate paydown of 2008 bank loan) has recovered to 92 days as of the end of third quarter fiscal 2014.
Prospectively, financial metrics should strengthen beginning in 2015. In 2013, management opted to use cash reserves to retire an outstanding bank loan (
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's 'Public Power Rating Criteria' report, this action was informed by information from CreditScope and the
--'U.S. Public Power Peer Study --
--'U.S. Public Power Peer Study Addendum -
--'U.S. Public Power Rating Criteria' (
--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (
U.S. Public Power Peer Study --
U.S. Public Power Peer Study Addendum -
U.S. Public Power Rating Criteria
2014 Outlook: U.S. Public Power and Electric Cooperative Sector (Calm Under Pressure)
Source: Fitch Ratings
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