LUBBOCK, Texas – All three major U.S. financial rating agencies reaffirm Lubbock Power & Light’s (LP&L) long-term rating and stable outlook on the municipal electric utility’s system revenue bonds. Standard & Poor’s (S&P) Rating Services assigns an ‘AA-’ rating; Moody’s Investors Service assigns an ‘A1’ rating; and Fitch Ratings assigns an ‘A+’ rating.
The ratings affect the $7.7 million in LP&L system revenue bonds to be issued by the City of Lubbock in 2016 and $80.2 million in outstanding parity debt. The ratings are based on the three agencies’ opinions of LP&L’s general creditworthiness, which places the utility in a strong financial position as it moves forward with the 2019 Solution in order to secure a long-term power source beyond the June 1, 2019 expiration of its current wholesale power contract with Xcel Energy.
Moody’s Investors Service lists, “strong, forward looking management; stable financial metrics; a manageable debt profile; and below average rates compared to the statewide average” as some of the drivers of the utility’s strong bond rating. Fitch Ratings also highlights LP&L’s rates as being competitive in the statewide market stating, “Even with the recent rate increases, the utility’s rates remain well below the Texas average and competitive with other Texas municipal utilities.”
S&P bases their rating, in part, on LP&L’s shown ability to implement small, incremental adjustments to rates in order to plan for long-term infrastructure needs; the creation of a rate-stabilization program; and seasonal rates that allow the utility to recover wholesale power costs through a fixed rate while at the same time absorbing volatility which would otherwise be experienced by the customer.
All three rating agencies put focus on the decision and process of the proposed transition by LP&L to the ERCOT market, termed the 2019 Solution. The announced plan by LP&L to transition to the ERCOT market at the conclusion of their current full-requirements contract with Xcel Energy in June of 2019 is currently in the approval process as the utility works closely with the Public Utility Commission of Texas and ERCOT. S&P lists the 2019 Solution as a positive driver for LP&L, stating the integration will “likely reduce its wholesale power costs, and assure a diversified long-term power supply.”
“LP&L is focusing a tremendous amount of attention on the financial stability of our operations in order to put us on a secure path forward,” said Greg Taylor, chairman of the Electric Utility Board. “It is recognition of the leadership we have in place today at LP&L that all three rating agencies reaffirm our strong credit rating as we invest in the reliability of our infrastructure while simultaneously maintaining some of the most affordable rates in the state. Consistent leadership and responsible financial stewardship of the City’s electric utility is paramount and I could not be more proud of where we stand today as we work to secure the future of Lubbock power.”
The news of the strong bond ratings comes on the heels of the municipal utility receiving a clean audit opinion. BKD, LLP, the City’s independent auditors report that LP&L’s financial statements “present fairly, in all material respects, the financial position of Lubbock Power & Light…in accordance with accounting principles generally accepted in the United States of America.”
The City sells revenue bonds to finance a portion of the utility’s capital program. A revenue bond is a special type of municipal bond distinguished by the guarantee of repayment solely from revenues generated by LP&L, rather than from ad valorem taxes. State and local governments typically issue municipal bonds to pay for relatively large, long-life (20-30 year) infrastructure projects. Issuing bonds helps the utility effectively manage rate adjustments and provides “intergenerational equity”, where the citizens that benefit from the project over time will help pay for it.
A bond rating is a measure of a city’s ability to repay its bondholders. Several factors are considered when assigning a rating, including the local economy and the strength of the city’s financial and administrative management, as well as various financial ratios. The bond rating is often the single most important factor affecting the interest cost on bonds. Therefore, the higher the rating, the lower the financing costs.
---
Lubbock Power & Light is the third largest municipal electric utility in Texas and has been serving the citizens of Lubbock since 1917. LP&L serves more than 102,000 electric meters and owns and maintains 7,220 miles of power lines and three power plants in and around the City of Lubbock. For more information about Lubbock Power & Light, as well as updates on new customer initiatives implemented, go to www.lpandl.com and follow the utility on Facebook and Twitter.