Lubbock, Texas; Retail Electric

Similar documents
Lubbock, Texas; Retail Electric

April 10,

28 ИЮНЯ 2012 Г. 1

Navigators International Insurance Co. Ltd. Assigned 'A' Ratings; Outlook Stable

Connecticut; State Revolving Funds/Pools

U.K. Life Insurer Scottish Equitable 'A+' Rating Affirmed; Outlook Remains Negative

Health Care Service Corp. d/b/a Blue Cross Blue Shield of Illinois, New Mexico, Oklahoma, Texas and Montana Downgraded

Stonington, Connecticut; General Obligation; Note

Friendswood, Texas; General Obligation

Tri-County Metropolitan Transportation District, Oregon; Miscellaneous Tax

Montebello Public Financing Authority Montebello, California; Appropriations; General Obligation

Bristol, Connecticut; General Obligation; Note

Dutch Energy Distribution Network Operator Enexis Holding N.V. Assigned 'A-1' Short-Term Rating

Providence Water Supply Board, Rhode Island; Water/Sewer

Shenandoah, Texas; General Obligation

Highmark Inc. Outlook Revised To Positive From Stable; 'A-' Ratings Affirmed

City of Windsor 'AA' Ratings Affirmed On Low Debt Burden And Exceptional Liquidity; Outlook Stable

Qatar-Based Doha Bank Assurance 'BBB+' Ratings Affirmed; Outlook Remains Negative

Mound, MInnesota; General Obligation

Snohomish County Public Utility District No. 1, Washington; Retail Electric

Three Euler Hermes Companies Upgraded To 'AA' From 'AA-' Due To Revised Status Within The Allianz Group; Outlook Stable

R.V.I. Guaranty Co. Ltd. Upgraded To 'BBB+'; Outlook Stable

Frederick City, Maryland; General Obligation

Southern California Metropolitan Water District; General Obligation; Water/Sewer

National Public Finance Guarantee Corp., MBIA Inc. Ratings Raised On Reentry Into Financial Markets; Outlooks Are Stable

Summary: San Mateo County Community College District, California; Appropriations; General Obligation. Table Of Contents

Banco de Credito del Peru And Subsidiary Upgraded To 'BBB+' From 'BBB' On Stronger Capitalization, Outlook Stable

Metropolitan Water Reclamation District of Greater Chicago; General Obligation

Comision Federal de Electricidad, PEMEX, And Subsidiaries Local Currency Ratings Cut To 'A-' On Change In S&P Criteria

Sovereign Rating Trends In Central America

Marine Insurer The Swedish Club Outlook Revised To Positive On Continuing Solid Operating Performance; Ratings Affirmed

Albany County Airport Authority, New York Albany International Airport; Airport

Germany-Based Santander Consumer Bank Outlook Revised To Stable From Positive; 'BBB+/A-2' Ratings Affirmed

Springfield, Michigan; General Obligation

Petroleos Mexicanos, Its Subsidiaries, And Comision Federal de Electricidad Outlooks Revised To Stable From Negative

Compania Minera Milpo S.A.A. Ratings Raised To 'BB+' On Revision Of Group Status To Core; Outlook Negative

Empresa Generadora de Electricidad Itabo S. A. 'BB-' Ratings Affirmed, Outlook Remains Stable

AXA China Region Insurance Co. (Bermuda) Ltd. And AXA China Region Insurance Co. Ltd. Rated 'AA-'; Outlook Stable

Brightwaters Village, New York; General Obligation

Germany-Based UniCredit Bank AG Upgraded To 'BBB+/A-2' On Improving Conditions At The Italian Parent; Outlook Developing

Temasek Holdings 'AAA/A-1+' Ratings Affirmed On Close Government Ties; Outlook Stable

NN Group 'A-' And Core Subsidiary 'A+' Ratings Remain On CreditWatch Negative After Offer On Delta Lloyd

Gabriel Petek, CFA Managing Director U.S. Public Finance Copyright 2016 by S&P Global. All rights reserved.

Interactive Brokers LLC

Parker Water & Sanitation District, Colorado; General Obligation

Jacksonville, Florida; General Obligation; Miscellaneous Tax

Dell Inc. Corporate Credit Rating Affirmed; Outlook Revised To Positive On Debt Reduction Expectations

Gainesville, Florida Gainesville Regional Utilities; CP; Combined Utility

Ratings On U.K.-Based MS Amlin's Core Entities Affirmed At 'A'; Outlook Stable

Russia-Based VTB Bank JSC Upgraded To 'BBB-/A-3' Following Similar Rating Action On The Sovereign; Outlook Stable

Germany-Based Specialty Insurer Inter Hannover Downgraded To 'A+' On Change Of Group Structure; Outlook Stable

City of Winnipeg 'AA' Ratings Affirmed; Outlook Remains Stable

St. Marys County, Maryland; General Obligation

Research Update: Grupo de Inversiones Suramericana S.A. 'BBB-' Ratings Affirmed, Off CreditWatch On Successful Capitalization Plan.

VACo/VML Virginia Investment Pool (VIP) 1-3 Year High Quality Bond Fund 'AAf/S1' Ratings Affirmed Following UCO Review

Apex Town, North Carolina; General Obligation

BCS Holding International And BCS (Cyprus) Ltd. Outlooks Revised To Stable On Resilient Earnings; Ratings Affirmed

Mediobanca SpA. Primary Credit Analyst: Regina Argenio, Milan (39) ;

Estonian Power Utility Eesti Energia 'BBB' Ratings On CreditWatch Negative On Announced Plans To Acquire Nelja Energia

Spain-Based Banco Popular Espanol Ratings Raised To 'BBB+/A-2' On Acquisition By Santander; Outlook Positive

Tacoma, Washington; Retail Electric

Anaheim Housing and Public Improvements Authority, California Anaheim; Retail Electric; Wholesale Electric

Outlook On BrokerCreditService (Cyprus) Revised To Positive On Better Group Funding Profile; 'B/B' Ratings Affirmed

Canton, Massachusetts; General Obligation; Note

Sales Tax Securitization Corporation of Chicago Chicago; Sales Tax

Qualitas Controladora S.A.B. de C.V. And Subsidiaries Ratings Affirmed; Outlook Stable

Burlington, Massachusetts; General Obligation; Note

Wicomico County, Maryland; General Obligation

Territory of Yukon 'AA' Rating Affirmed; Outlook Is Stable

South African Life Insurer Liberty Group Ltd. 'zaaa+' South Africa National Scale Rating Affirmed

Swiss Financial Services Provider PostFinance AG Assigned 'AA+/A-1+' Ratings; Outlook Stable

Russia-Based B&N Bank Affirmed At 'B/B'; Outlook Stable

Government Development Bank for Puerto Rico Downgraded To 'CC' From 'CCC-' On Imminent Default; Outlook Negative

Germany-Based Adler Real Estate Upgraded To 'BB' On Expected Stronger Debt Metrics; Outlook Stable

Lloyds Bank Corporate Markets PLC And Lloyds Bank International Ltd. Assigned 'A-/A-2' Ratings; Outlook Positive

Chubb Insurance Singapore Ltd.

Banco Internacional de Costa Rica S.A.'BB-/B' Global Scale Ratings Affirmed; Outlook Remains Negative

Summary: Windsor, Connecticut; General Obligation. Table Of Contents. Rationale Outlook Related Research. March 12,

Aristocrat Leisure Ltd. Outlook Revised To Positive On Improved Operating Performance; 'BB' Rating Affirmed

Asia-Pacific Credit Outlook 2017: Banks and Corporates

Monrovia, California; Appropriations; General Obligation

DLR Kredit A/S Affirmed At 'A-/A-2'; Outlook Stable

S&P REVISE MIRVAC S CREDIT RATING OUTLOOK

Oak Park Village, Illinois; General Obligation

Car Park Operator Infra Park Outlook Revised To Stable From Positive On Proposed Refinancing; 'BBB' Rating Affirmed

Credit Suisse (Schweiz) AG Assigned 'A/A-1' Ratings; Outlook Stable

Banca Popolare dell'alto Adige Outlook Revised To Positive From Stable; 'BB/B' Ratings Affirmed

Territory of Yukon 'AA' Rating Affirmed On Exceptional Liquidity And Very Low Debt Burden

(/en_us/web/guest/home) MidMichigan Health, MI Bond Rating Outlook Revised To Positive On Operational Performance, Solid Balance Sheet Metrics

Belgium-Based Belfius Bank 'A-/A-2' Ratings Affirmed; Outlook Stable

Insurer Helvetia Schweizerische Versicherungs-Gesellschaft in Liechtenstein Affirmed At 'A-'; Outlook Stable

Outlooks On Australian Major Banks And Strategically Important Subs Revised To Negative On Similar Sovereign Action

Austrian State of Burgenland Ratings Affirmed At 'AA/A-1+'; Outlook Stable

Jyske Bank 'A-/A-2' Ratings Affirmed On Offer To Buy Nordjyske Bank

Macquarie Group Ltd.

Connecticut; Gas Tax

Royal Bank of Scotland International Rated 'BBB/A-2'; Outlook Positive

German Wirtschafts- Und Infrastrukturbank Hessen Upgraded To 'AA+'; Outlook Stable

Hartford County Metropolitan District, Connecticut; General Obligation

AXA Insurance Group 'AA-' Ratings Affirmed After Announcement Of IPO Of U.S. Subsidiaries; Outlook Stable

Transcription:

Summary: Lubbock, Texas; Retail Electric Primary Credit Analyst: Scott W Sagen, New York (1) 212-438-0272; scott.sagen@spglobal.com Secondary Contact: Peter V Murphy, New York (1) 212-438-2065; peter.murphy@spglobal.com Table Of Contents Rationale Outlook WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 20, 2017 1

Summary: Lubbock, Texas; Retail Electric Credit Profile US$17.44 mil elec lt and pwr sys rev bnds ser 2017 dtd 08/15/2017 due 04/15/2047 Long Term Rating AA-/Stable New Lubbock retail elec Long Term Rating AA-/Stable Affirmed Rationale S&P Global Ratings assigned its 'AA-' rating to Lubbock, Texas' series 2017 electric light and power system revenue bonds. At the same time, we affirmed our 'AA-' rating on the system's parity electric system revenue bonds. The outlook is stable. The system does business as Lubbock Power & Light (LP&L). The rating is based on our opinion of LP&L's general creditworthiness, and includes: The 2010 agreement that effectively ended the competitive situation between LP&L and an investor-owned utility that had been in place since 1942, making LP&L the sole retail electric provider to virtually the entire service area, which, in our opinion, not only removes competitive risks but also allows LP&L to have more certainty regarding long-term planning; The city's strong regional economy, anchored by higher education and health care; The low-risk operations of the city, which has essentially become a distribution-only system with a full-requirements purchased power agreement through 2019 with Southwestern Public Service Co. (SPS), a subsidiary of Xcel Energy, which is also LP&L's former competitor; Possible integration to the Electric Reliability Council of Texas (ERCOT) power grid by 2021, which would likely reduce its wholesale power costs, and assure a diversified long-term power supply; and Good liquidity position, which we believe will be maintained equal to at least 100 days' cash through fiscal 2021. In our view, these credit strengths are offset, in part, by the system's low fixed-charge coverage metrics for the rating level equal to roughly 1.2x in fiscal 2016. However, management's plausible financial projections suggest fixed-charge coverage will range between 1.2x and 1.4x through fiscal 2021. The bonds are secured by a first-lien pledge on the net revenues of LP&L's electric system. We understand series 2017 bond proceeds will fund system improvements. A debt service reserve fund in the amount of average annual debt service provides additional liquidity; however, a surety policy can be used to satisfy the reserve fund requirement, a new provision as of 2013. Also introduced in the 2013 master resolution was a revision to additional bonds language to a historical 1.1x maximum annual debt service (MADS) coverage test. A rate increase implemented within 60 days of the bond issuance may be permitted to be applied to projected revenues to meet the additional bonds test. There is no change to the sufficiency rate covenant. The system has not entered into any direct-purchase bank debt. A business profile score of '4' on a '10'-point scale, with '1' being the strongest and '10' the weakest, reflects the WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 20, 2017 2

Summary: Lubbock, Texas; Retail Electric system's position as a full-requirements purchased power agreement through 2019 with SPS, a subsidiary of Xcel Energy, which we believe limits operational risk. The system's possible integration to ERCOT by 2021, if approved, will likely lower capacity costs but also drive the capital program with transmission projects accounting for the majority of total needs. LP&L lies in the Southwest Power Pool, a regional transmission operator that serves all or portions of 14 states, including the Texas Panhandle. Currently LP&L is a full-requirements customer of SPS by way of the city's participation in West Texas Municipal Power Agency (WTMPA), a joint action agency that derives 95% of its revenues from the city. WTMPA's total requirements contract expires in May 2019. We understand the city desires to become a member of ERCOT, and if approved, the majority of LP&L's future power supply (70%) could transition from the Southwest Power Pool (SPP) to ERCOT by 2021. LP&L currently has 112 megawatts (MW) of dependable natural gas-fired generation, with 112 MW anticipated to be available in 2019 for load requirements. Officials project the city will require an estimated 626 MW of total generation in 2019 for load requirements. LP&L has a bilateral agreement directly with SPS, beginning in June 2019, to become a partial requirements customer for 170 MW through 2044. LP&L through its participation in WTMPA entered into a power purchase agreement with Elk City II Wind LLC for 96 MW of wind energy from June 2019 through May 2032. In addition, LP&L entered into a capacity and energy scheduling contract with SPS for 400 MW from June 2019 through May 2021 that will allow LP&L to purchase most of its energy needs from the SPP Integrated Marketplace. In September 2015, LP&L announced its intention to join ERCOT, which officials believed was significantly less expensive than self-build and all SPP-based proposals. The public utility commission (PUC) directed ERCOT to study the integration, and over the next six years, additional infrastructure will be completed to convert to the ERCOT power grid, which serves most of the state's population, by 2021. We consider LP&L's financial position just adequate at the current rating level and it is strengthened by a good liquidity position that we believe to be sustainable. Following a 5.75% rate increase and a warm summer which helped increase energy sales almost 1%, fixed-charge coverage improved to a still low 1.24x in fiscal 2016 from just below 1.2x in the prior two fiscal years. Annual debt service coverage (DSC) of LP&L's revenue bond debt and even its allocable portion of the city's general obligation (GO) debt remains above 2x. Fixed-charge coverage, which is S&P Global Ratings' internally adjusted DSC calculation that treats fixed demand charges as if they were on-balance-sheet debt and general fund transfers as if they were part of operating expenses, is projected by management to range between 1.2x and a good 1.4x through fiscal 2021. We also consider the system's liquidity position to be a credit strength, with $64.3 million, or a strong 133 days' cash on hand in fiscal 2016. The average rate revenue of 8.79 cents per kilowatt-hour based on the most recently available 2015 data from the federal Energy Information Administration is 101% of the state average. However, the system's weighted average system rate competitiveness based on relative customer classes' revenue contributions is 94.1% of the state average, which we consider competitive. Management plans to raise utility base rates 5% in October 2017 (lower than the 5.75% originally projected). In addition, the financial forecast no longer includes a rate increase in 2018. The proposed WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 20, 2017 3

Summary: Lubbock, Texas; Retail Electric new flat residential rate will change the seasonal fixed energy costs to an annual rate meant to lower customers' bills in the summer months. We will continue to monitor LP&L's possible integration to ERCOT; decisions supporting consistent financial performance, including rate adjustments, will also play a part. Management has in place, and automatically semi-annually adjusts its fuel/purchased power cost adjustor with any power cost recovery also absorbed by a rate stabilization reserve. Management still reserves the right to implement a pass-through adjustment outside of the automatic semi-annual adjustments should LP&L become under-recovered beyond its target level. We consider the system's debt burden moderate, with a debt-to-capitalization ratio equal to 41% in fiscal 2016. Following the series 2017 debt issue, the system will support $128.1 million in total debt, including $33 million of GO or certificates of obligation debt. LP&L's five-year capital improvement plan (CIP) has identified about $357 million in total projects through fiscal 2023; the bulk of identified projects are transmission-related. LP&L intends to debt finance the majority of its current CIP. LP&L currently serves 104,103 metered accounts. The city, home to approximately 244,861 people, is in west Texas and acts as a regional trade and service center for a 25-county region with a population of about 600,000. The city's economy includes strong education and health care sectors. Lubbock's economy is anchored by Texas Tech University, which has an estimated enrollment of 35,000 and is the city's largest employer with approximately 9,000 employees. In our opinion, median household income levels are adequate at 90% of the national level in 2016, in part reflecting the large student population. LP&L is not reliant on any of its principal customers for operating revenues. Outlook The stable outlook reflects LP&L's track record of implementing rate increases and management's commitment to responding to changes in its cost structure. The projected rate increase in 2017, coupled with their history of adopting of rate increases and passing through any deviation in budget at least on a semi-annual basis, should help support the current rating. We will continue to monitor LP&L's possible integration to ERCOT and expect management to continue using a combination of revenue enhancements and cost-control measures to meet its financial projections. Downside scenario If we view fixed-charge coverage to be weak for the rating and the utility alters from bi-lateral contracts to market purchases that exposes it to greater supply-cost volatility and does not respond in a timely manner with rate adjustments, we could lower the rating. In affirming the rating, we note current coverage levels are weak for the rating. Although we acknowledge slight improvement in projected financial metrics, absent this financial improvement, there would likely be a downgrade. Upside scenario We do not foresee raising the rating given the system's capital needs, and the proposal to move to an energy supply source that could expose the utility to greater price volatility. Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 20, 2017 4

Summary: Lubbock, Texas; Retail Electric have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 20, 2017 5

Copyright 2017 by Standard & Poor s Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an as is basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. STANDARD & POOR S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor s Financial Services LLC. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 20, 2017 6