Three Agencies Issue Bond Ratings For Lubbock Power & Light
Fitch Ratings, Moody’s Investor Services and Standard & Poor’s Assign Ratings
Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s), and Standard and Poors Global Ratings (S&P) issued bond ratings for Lubbock Power & Light (LP&L). Fitch and Moody’s reaffirmed LP&L’s strong bond rating at ‘A+’ and ‘A1” respectfully, while S&P adjusted their rating to ‘A.’ These ratings are important as they impact the long-term debt investment payments for LP&L as it transitions into the next phase of the municipal utility’s future. Large investments in the resilience and capacity of the electrical grid in Lubbock over the past few years, along with the announcement of returning a competitive retail electric environment in Lubbock put LP&L in a unique and exciting position in the coming years.
For Fitch’s ‘A+’ rating, Fitch stated, “The rating reflects both LP&L's very strong revenue sources and the hurdles remaining before it completes the transition of all of its customers into the Electric Reliability Council of Texas (ERCOT) organized market and opts into retail competition.” For Moody’s ‘A1’ rating, Moody’s stated, “The A1 rating reflects the system's large service area and stable customer base supported by the institutional presence of Texas Tech University. The A1 rating also reflects the system's strong management and planning practices, demonstrated by the successful transition of 70% of its customer load to the Electric Reliability Council of Texas, Inc. market on May 30, 2021 and timely regulatory approval of transmission cost of service (TCOS) revenue by the Public Service Commission of Texas (PUCT). This new revenue stream, coupled with lower purchased power costs should keep debt service coverage steady.”
In its adjusted rating of LP&L, S&P highlighted the inherent instability in the energy market that could be experienced by LP&L until their transition to the retail competitive market in late 2023. S&P stated, “In February 2022 the Lubbock city council voted and approved to opt-in to retail competition and provide customer choice to its ERCOT electric customers. LP&L plans to exit the power supply business in late 2023, by migrating all of its customers to competitive alternative energy providers while continuing to provide transmission and distribution (T&D) service, which will diminish the utility's exposures to ERCOT market risks. However, until it transitions out of the energy supply business, it remains exposed to the operational and financial risks of managing its power supply in ERCOT. We view the city council's vote to migrate customers to customer choice as a step toward shedding responsibility for power procurement and exposure to the ERCOT market's volatility.”
LP&L believes all three ratings put them in a strong position to complete the historic transition to the retail competitive market in ERCOT, which has been underway for the past six years. Substantial investments in the transmission and distribution system, which will continue to be managed by LP&L after re-instating a competitive electric environment in Lubbock, has greatly improved the reliability of the electrical grid in Lubbock. LP&L has managed to expand the grid, improve electric grid reliability, and deploy state of the art technology to the benefit of its customers all while holding base rates frozen since 2017. Looking to the future, LP&L will continue to manage its financial portfolio in a conservative fashion while steadily investing in the grid providing affordable and reliable service to its customers.