Bonds and Financing

CPS Energy receives strong bond credit ratings from S&P, Fitch and Moody’s

Texas public power utility CPS Energy recently received strong bond credit ratings from Moody’s, S&P, and Fitch.

Each agency affirmed CPS Energy’s existing high industry credit ratings, which will support two refunding debt transactions that are planned for this week, CPS Energy noted on Oct. 16.

Moody’s and S&P have reaffirmed their current ratings of CPS Energy at Aa1 and AA, respectively, both with a Stable Outlook. Fitch has also reaffirmed its current rating of the utility at AA+; however, it has changed its Outlook from Stable to Negative.

“CPS Energy remains focused on helping its customers through these challenging times and is absolutely committed to performing at the highest levels. This is despite this year’s challenges associated with COVID-19 and lower wholesale market sales,” said Paula Gold-Williams, President & CEO of CPS Energy, said in a news release.

“We know the credit ratings agencies are watching all significant activities in San Antonio closely,” she said. “Part of their close focus is because, historically, we have performed extremely well. While we received a Negative Outlook from one agency, every day we are focused on operating efficiently and are working diligently to return the outlook to ‘Stable,’ across the board.”

CPS Energy pointed out that a Negative outlook is not always followed by a downgrade.

CPS Energy said it faced similar issues in 2010 when it worked to pursue new nuclear generation. CPS Energy was ultimately moved back to a Stable outlook after reaching a settlement with a counterparty that limited financial exposure and after completing a successful rate case.

The utility also noted that it has been six years since CPS Energy has needed a rate increase and it has only needed one in nine years.

Each year, it has considered the need for an increase and has been able to deploy other measures that have kept its financial ratios strong. CPS Energy said this has included the consistent pursuit of cost savings, investments in technologies that increase efficiencies, managed growth, and optimization of its extensive generation capacity in the wholesale and retail markets.

“Again, due to the implications of the pandemic, recent declines in wholesale sales, and new activities from special interest groups to use political avenues to affect the company’s proven governance structure, it appears CPS Energy may need an increase by the fall of next year,” it said.

 While CPS Energy’s management team is cautiously optimistic about fiscal year 2022, which ends January 31, 2022, “it remains committed to having future rate case discussions with its community and the San Antonio City Council, as the need evolves. While subject to change, current average total bill estimates could increase by 5%-to-8%.”

What the rating agencies said

Fitch said its “AA+” rating continues to reflect CPS Energy's strong revenue defensibility, supported by the favorable demographic trends of its service area, including very strong customer growth, competitive rates, and the utility's independent rate-setting ability. Operating costs are expected to remain very low, even as the utility shifts its power supply toward lower carbon-emitting resources, Fitch said, adding that financial margins for bondholders remain dependable and strong with very little fluctuation from either volume sales or fuel prices.

Moody’s said its Aa1 senior lien rating considers various strengths including:

  • The utility's broad and growing service area economy; supportive self-regulation on electric and gas rates and sound environmental policies;
  • Competitive retail rates despite a high General Fund transfer requirement;
  • A competitive, reliable and diverse power supply; conservative financial record including strong liquidity; and
  • The sound debt structure and risk management program. The Aa2 junior lien rating considers the subordinate pledge relative to the security on the senior lien obligations.

CPS Energy's power supply is well balanced with both conventional and renewable energy that continues to evolve towards lower carbon emissions, a key policy initiative, the rating agency said.

For its part, S&P cited the utility’s very strong service area economic fundamentals, extremely strong industry risk relative to other industries and sectors, strong market position and very strong operational and management assessments.

CPS Energy executives discuss ratings in media briefing

Gold-Williams and CPS Energy Gary Gold discussed the credit rating reports and what they mean for CPS Energy and their customers in an Oct. 16 media briefing.

To view a replay of the briefing, click here.