Fitch Ratings has assigned an “A+” rating to bonds issued by the Lower Colorado River Authority on behalf of the Lower Colorado River Authority Transmission Services Corp.
Specifically, the rating was assigned to approximately $340.0 million transmission contract refunding revenue bonds, series 2024.
Proceeds will be used to refinance commercial paper and short-term notes into long-term debt, fund a debt service reserve fund and pay costs of issuance. Bonds are expected to price on March 6, 2024 via negotiated sale.
In addition, Fitch has affirmed the “A+” rating on the following parity transmission bonds -- Approximately $3.35 billion in outstanding transmission contract refunding revenue bonds.
The Rating Outlook is Stable.
TSC maintains or operates more than 5,400 circuit miles of transmission lines and equipment at about 440 substations in Texas with strong system availability. Its network of facilities, located in about 80 Texas counties, provides a vital link among Texas power plants and the statewide power grid.
TSC facilities integrate more than 15,000 megawatts of generation capacity into the power grid. TSC has an active maintenance program, inspecting and maintaining the lines it owns to help ensure safe and reliable operations.
The “A+” rating reflects the strong financial profile of TSC in the context of its very low operating risk profile and the strength of its regulated revenue framework in the Electric Reliability Council of Texas market, in which TSC operates, Fitch said.
Transmission revenues are regulated by the Public Utility Commission of Texas and collected from all retail customers within ERCOT.
“The regulatory framework provides a consistent and dependable cost recovery methodology and rate of return. The largest utilities contributing to TSC's transmission revenues have a collective midrange purchaser credit quality and primarily consist of the largest electric utilities operating within the state,” Fitch said.
Leverage (measured by net adjusted debt to adjusted funds available for debt service) was between 8.0x and 9.0x over the last decade, despite large additional capex investments in new and existing transmission assets, primarily funded from new debt, Fitch noted.
The regulatory process in ERCOT allows capex additions to be included in the transmission tariff in a timely manner, allowing revenues to keep pace with the increased debt costs, the rating agency said.
The planned capital spending at TSC over the next five years should be accompanied by supporting revenues and not result in a material dilution of the utility's key financial ratios, Fitch said.
“In addition, Fitch views the revenue consistency and low operating risk of transmission-only utilities as enabling these utilities to accommodate slightly higher leverage levels than utility peers with generation and retail electric business lines.”
