LP&L Earns Good Credit Rating; But Two Serious Warnings Come With It

Published 04/15 2014 03:59PM

Updated 04/15 2014 04:04PM

By James Clark

LUBBOCK, TX -- Lubbock Power & Light earned positive marks from Fitch Ratings, specifically an A+ credit rating, but it comes with two warnings.

“Fitch views the sometimes contentious relationship between the utility, its board, and city political leaders with some caution,” Fitch said last week. “A lack of support for the utility's financial performance could negatively affect the rating.”

Fitch also referenced LP&L’s power supply issue. For the most part, Xcel Energy will no long sell electricity to LP&L at wholesale cost after the spring of 2019. LP&L must decide if it will purchase power on the wholesale market or build a power plant. The most recent attempt to meet Lubbock’s power needs was scrapped and started over earlier this year because of a tainted bid process.

Fitch said, “Forthcoming decisions regarding how to meet future power supply needs and the respective financial and debt plans to support that decision could affect the current rating.”

The most immediate need to borrow money is not for 2019 but for various capital projects including 69,000 volt transmission loop. LP&L will soon borrow $17.3 million, and Fitch also rated the $17.3 million as well as $69.8 million of current debt.

Last year a different rating agency, Moody’s, gave LP&L a negative outlook – which can sometimes lead to a lower credit rating. Later, Moody’s took away the negative outlook.

LP&L spokesman Matt Rose said, “It was really troublesome because if it had led to a downgrade there would be an increase on interest rates.”

Rose said as an example, if LP&L had to pay 1% increase on interest rates for a $700 million debt, it would add $130 million to the total repayment.

“For us Moody’s was a major, major issue,” Rose said.

“We are pleased that all three rating agencies maintained our good rating and gave us a positive, stable outlook,” Rose also said. “We are in a great position to have flexibility on our 2019 decision.”

Mayor Glen Robertson created a task force earlier this year to ease tensions between LP&L and the City Council.

On the positive side, Fitch noted that LP&L has money in the bank and the ratio of revenue to debt is good.

“Liquidity levels are sound and supported by a reserve policy requiring a minimum level of three months gross metered revenue (approximately $49 million for fiscal 2014),” Fitch said. “At the end of fiscal 2013, LP&L retained unrestricted funds of $52.5 million or 113 days cash on hand.”

“While this is the lowest balance on hand since at least 2007, the current balance is comparable to similarly rated utilities,” Fitch said.

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