Fitch sees no trend toward public power buyouts or sellouts
Originally published March 22, 2013
Despite recent initiatives, Fitch Ratings does not anticipate a material increase in the number of municipalities attempting to form a municipal electric utility by purchasing investor-owned utility facilities, nor does the credit rating agency expect to see a growing number of municipally owned utilities being sold to IOUs. Examples of both include Boulder, Colo.'s ongoing consideration of forming a municipal utility and purchasing utility assets currently owned by Xcel Energy and the recent approval granted by voters of Vero Beach, Fla., to sell its electric utility to Florida Power & Light. "These proposed transactions are not part of a growing trend in our view but rather a consequence of the specific needs and objectives of the respective municipalities and its ratepayers," Fitch said.
Municipalities will likely face many obstacles in either selling or purchasing electric utility assets that impede such transactions and should continue to limit the number of successful transactions. Barriers typically include determining a mutually agreeable value and purchase price for the assets and garnering political approval from governing bodies and voter approval, which is often driven by the perceived level of risk to ratepayers.
The effect on the credit quality of any new or existing municipal utility purchasing assets would be determined at the time of purchase and reflect the final terms, Fitch said. Fitch views the privatization of municipal utilities as credit neutral based on the expectation that existing tax-exempt municipally issued debt would be repaid in full or defeased as a condition of the sale.
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