Fitch Ratings recently affirmed the rating on bonds issued by the city of Colorado Springs, Colo., at “AA.”
The bonds are:
- Approximately $530 million utilities system improvement revenue bonds series: 2005A,2006B, 2007A, 2008A, 2009B-2, 2009D-2, 2010C, 2010D-4, 2012A, 2018A-4;
- Approximately $399 million utilities system refunding revenue bonds series: 2009C, 2015A, 2017A-1, 2017A-2, 2018A-1, 2018A-2, 2018A-3;
- Bank bond ratings for the series 2005A, 2008A, 2009C, 2010C and 2012A.
The Rating Outlook is Stable.
Fitch has also assessed Colorado Springs Utilities' Standalone Credit Profile of “aa”. The SCP represents the credit profile of the city-owned utility on a standalone basis, irrespective of its relationship with and the credit quality of the city of Colorado Springs.
The affirmation of the utility's “AA” rating and “aa” SCP “reflect its very strong financial profile, diverse revenues and low operating costs,” Fitch said.
The utility exercises an independent ability to adjust electric, gas, water and wastewater rates. The utility's neutral electric operating cost flexibility "reflects ample and diverse electric power supply sources.”
Fitch anticipates that the utility's leverage ratio, measured as net adjusted debt to adjusted funds available for debt service, will remain under 10x in Fitch's rating case stress scenario over the next five years.
On November 12, the Colorado Springs City Council approved the combined utility's five-year rate case which includes 6.6% average annual rate increases, and a combined utility capital spend of $3.9 billion. The capital plan will fund decarbonization of the electric power supply, and update aging infrastructure to meet the needs of a growing service area.
The bonds are payable from net pledged revenues, after payment of operation and maintenance expenses, of Colorado Springs Utilities' combined utility systems.
Fitch said its “aa” revenue defensibility assessment recognizes the utility’s independent rate setting abilities and highly affordable rates.
“The Colorado Springs service area is characterized by strong customer growth, above average median household income (MHI) and an unemployment rate that is below the national average,” the rating agency noted.
The city council approved the five-year rate case to support the city's budgeted multi-year programs and infrastructure needs. The approved rate case increases combined utility base rates by an average of 6.6% per year through 2029. The approved rates would increase a typical residential combined bill by roughly 30% in aggregate by 2029, or to about $334 per month. Electric rates are roughly 1.4% of MHI currently, and while rates are on the rise, Fitch expects them to remain affordable.
Time of use energy rates effective Oct. 1, 2025 are expected to provide cost savings and promote energy conservation. Fitch noted.
The utility's financial profile ("aa") is very strong, reflecting very low leverage of 7.7x in 2023, the rating agency said.
"Leverage has been increasing, but at this level is still supportive of the assessment given the very strong revenue defensibility and operating risk profiles. Liquidity is neutral with 160 days of cash on hand, a liquidity cushion of 201 days cash, and coverage of full obligations well above 1x over the past five years."
Fitch's rating case scenario analysis also supports the utility's "aa" financial profile and rating with a leverage ratio that generally stays below 10x.
Colorado Springs Utilities indicates that the utility would undertake additional rate actions to maintain its very strong financial profile should costs increase beyond the levels assumed in its approved five-year rate case, Fitch said.
