A financial rating service sees ‘additional risk’ for LP&L and ERCOT deal but with long-term benefit

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LUBBOCK, Texas –The Fitch bond rating service on Tuesday said Lubbock Power and Light faces “elevated operating risk” in the short term as it moves to ERCOT or the Electric Reliability Council of Texas.

Fitch especially made note of “weaknesses in the ERCOT market exposed by the recent Texas winter storm event.” At times, more than 4 million Texans were without power – mostly on the ERCOT power grid – during a period of bitter cold temperatures in February.

LP&L plans to join ERCOT on June 1. In light of the widespread power failures in February, some, including state lawmakers, asked the City of Lubbock to consider delaying the move to ERCOT. So far, Lubbock remains on schedule.

“LP&L’s financial profile is very strong,” Fitch said. It described a $300 million revolving program to fund the ERCOT integration and related projects to upgrade electric transmission.

LP&L plans to move to retail competition before the end of fiscal year 2023.

“LP&L anticipates remaining as the transmission and distribution utility, while ceasing to act as the power provider,” Fitch said. “Customers would contract directly with power suppliers, and LP&L would provide access to their distribution and transmission system on a non-discriminatory basis to qualified power providers.”

In the long term, this switch away from power generation is good for LP&L in the Fitch analysis, which said in part:

Fitch views LP&L’s plan to integrate its load into ERCOT as a potential longer-term credit positive as the plan assumes LP&L would only provide transmission and distribution services and no longer provide generation services.

Lubbock Power and Light issued the following statement after the Fitch rating:

“Lubbock Power & Light (LP&L) is pleased with the action taken by Fitch Rating Agency to affirm our ‘A+’ bond rating as this is a reflection of the work undertaken by LP&L’s finance team over the past few years to grow and maintain strong financial stability of Lubbock’s municipal utility. Holding a strong bond rating is crucial in the effort to minimize costs to our customers over the long-term.

“Given the events of the past few months within ERCOT and the major shift to migrate 70 percent of our customers to ERCOT next month, it is understandable that Fitch noted short-term uncertainty. LP&L anticipated this warning as the electric utility sector as a whole is being closely watched pending legislative actions following Winter Storm Uri and the given the historic nature of our transition. Fitch views LP&L’s plan to integrate our load into ERCOT as a “potential long-term credit positive” and it is our belief that ERCOT’s benefits to our customers will also be reflected in future reviews by the three rating agencies.”

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