The American Public Power Association on May 11 asked the Federal Reserve System Board of Governors to expand eligibility to participate in the Fed’s Municipal Liquidity Facility (MLF) to include public power utilities.
The Fed on April 27 said it was “considering expanding the MLF to allow a limited number of governmental entities that issue bonds backed by their own revenue to participate directly in the MLF as eligible issuers.”
“APPA strongly encourages the Fed to do so and, as such, to include public power utilities as eligible issuers,” wrote Joy Ditto, President and CEO of APPA, in the comments submitted to the Fed.
The COVID-19 pandemic and quarantining to respond to the pandemic are creating a double-edge challenge for electric power providers: increased costs and reduced revenues, Ditto said.
While near-term challenges could be significant and require borrowing from the MLF, APPA believes the cost and revenue issues outlined in the comments will abate over time and that some of the additional costs and lost revenue will be recouped over time.
Costs may be reimbursed through state grants, or through grants from Federal Emergency Management Agency public assistance grants for emergency protective measures. Revenues may be recouped when moratoria are lifted and collections from delinquent customers resume.
“In fact, on the whole, the credit outlook for public power utilities is generally seen to be stable,” Ditto noted.
Moody’s Investor Services last month issued a report in which it said that public power utilities “provide essential services in a nonprofit manner, have strong liquidity, continue to deleverage and benefit from cost recovery through self-regulated rate-setting.”
Likewise, Fitch Ratings reported on April 24 that while public power utilities face “unprecedented challenges” their long-term credit outlooks generally remains stable.
“This long-term stability coupled with short-term needs would make public power utilities particularly well-suited participants of the MLF,” Ditto said.
Meanwhile, Ditto noted that while all states are eligible to participate in the MLF, the Fed has limited city and county participation based on population.
“APPA believes that a revenue-based standard might be more appropriate if the Fed were to expand participation in the MLF to governmental entities that issue bonds backed by their own revenue, particularly public power utilities,” she said.
While city and county populations are easily ascertained through census data, the population of other political subdivisions of the state may be harder to ascertain. “Population” of such entities may also simply be an inappropriate measure of when deciding eligibility, Ditto pointed out.