Fitch Ratings has affirmed the “AA” rating on Platte River Power Authority's $125.9 million in outstanding series JJ and taxable series KK power revenue refunding bonds.
In addition, Fitch has affirmed PRPA's Long-Term Issuer Default Rating (IDR) at “AA”.
“Affirmation of PRPA's 'AA' IDR and electric revenue bond rating reflect Fitch's expectation that the authority will maintain financial stability through Fitch's base and stress case scenarios despite new debt issuance for at least 160 MW of new dispatchable resources to complement the authority's distributed, renewables and planned storage resources that will replace retiring coal fired resources,” Fitch said.
PRPA's leverage, as measured by net adjusted debt to adjusted funds available for debt service is expected to peak at 2.0x and 2.6x through 2025 (2.1x and 2.8x including deferred revenue) in Fitch's base and stress scenarios, respectively, reflecting strong operating cash flow and downward trending debt.
Fitch expects the Authority's leverage to increase to 6.7x and 8.3x (5.2x and 6.2xincluding deferred revenue), in 2027 in Fitch's base and unmitigated stress scenarios, respectively; thereafter trending back to lower historical levels.
Liquidity and coverage of full obligations are neutral to the rating.
“PRPA's strong revenue defensibility is based on long-term, all requirements wholesale electric power contracts with four-member distribution systems of very strong purchaser credit quality, as well as on the ability of PRPA and its members to independently establish rates,” Fitch said.
PRPA's very low operating cost burden drives its similarly situated operating risk and reflects a diverse resource mix, including historically low-cost coal-fired units, as well as natural gas-fired units, wind, hydropower and solar sources, the rating agency said.
PRPA has begun to engage with members on distributed energy resource strategies and to expand renewable resources in preparation for the retirement of its coal-fired generation toward the end of the decade, Fitch noted.
Fitch said that PRPA's revenue defensibility assessment reflects the very strong contractual framework supporting its revenue base, including the all-requirement, unconditional payment obligation of the four members and PRPA's unlimited ability to recover costs from the members.
“PRPA's rate flexibility is very strong given the authority's legal ability to independently revise its rates without state or federal regulatory approval,” Fitch said, noting that rate changes are approved by PRPA's board of directors, which includes the mayor and an appointed board member from each of the member communities.
The assessment further reflects the very strong credit quality of the largest member, the City of Fort Collins utility (rated AA-/Stable). Non-member surplus sales, generally at 20% to 25% of total sales, increase PRPA's revenue variability and represent a revenue defensibility asymmetric risk consideration that Fitch expects will diminish with the phased retirement of coal-fired base load units through 2029, Fitch said.
PRPA's very strong operating risk assessment is driven by its low operating cost burden, reflecting a cost-competitive resource mix, historically low fuel prices, and strong sales, Fitch said.
PRPA member wholesale cost of service will gradually rise through the end of the decade, reflecting integration of energy storage, and distributed generation, including completion of the renewables build out by Jan. 1, 2028, it said.
“PRPA continued its very strong and stable financial performance in 2022 as the authority reported very low leverage of 1.9x on strong sales, consistent performance and amortizing debt. Leverage over the last five years has ranged between 1.7x and 2.4x. Five-year liquidity and COFO are neutral, at 400 days and 2.5x in 2022,” Fitch said.
PRPA's financial profile assessment is very strong, supported by a long-term plan of 5% annual rate increases through 2030 designed to support the funding of energy storage, distributed resources and renewable resource expansion.
Fitch expects the authority's finances to remain stable in its base and stress case scenarios, with a 2027 leverage peaking at 6.7x and 8.3x in the base and unmitigated stress cases, respectively, before returning to historical levels.
PRPA indicates that higher outer year leverage would be more immediately addressed, consistent with the authority's financial policy.
PRPA's debt profile is neutral to the rating and includes $126 million in currently outstanding power revenue and/or refunding bonds. The revenue bonds are conservatively all fixed-rate, with a fairly level amortization schedule and a final maturity of 2037, well ahead of the member contract termination of 2060, Fitch said.
