S&P Global Ratings maintains public ratings on 211 U.S. public power (retail electric and gas) and distribution electric cooperative utilities and 55 wholesale utility projects (across 39 wholesale electric utilities). In early 2024, we revised the U.S. public power 2024 sector outlook to negative, reflecting our opinion that financial performance of, and ratings on, U.S. public power utilities could weaken in 2024, due to a confluence of inflation, reduced consumer wherewithal to pay utility bills, the sensitivity of rate-setting bodies to economic conditions, and a developing trend of weakening financial margins. (For more information, see "U.S. Public Power And Electric Cooperative Utilities 2024 Outlook: Mandates, Rising Costs, And Diminishing Affordability," published Jan. 23, 2024, on RatingsDirect.) These credit challenges have led to rating downgrades exceeding upgrades by seven to four in the first half of the year, outpacing 2023. Putting the numbers into perspective, the downgrades represent just 3% of the rated universe, but the negative sector outlook reflects our view that these issuers are more susceptible to the above mentioned financial pressures. Apart from rating changes, we revised more outlooks to negative than to stable or positive. During the first half of 2024, 57 ratings were unchanged after review (21% of the total combined sectors).

The number of ratings on new issuances increased more than 40% the first half of 2024 compared with 2023 for U.S. public power retail, gas, and wholesale electric utilities.

Chart 1

New Issuer Credit Ratings

There were two new issuer credit ratings and two new issue-level ratings during the first six months of 2024. We assigned issuer credit ratings to Pioneer Community Energy and San Jose Clean Energy (SJCE), both community choice aggregators (CCAs) in California, and issue-level ratings to debt for Delano Municipal Utilities, Minn., and Southern Utah Valley Power System (SUVPS).

Pioneer Community Energy is a joint powers agency formed in 2017 to procure retail electric commodity on behalf of about 158,000 electric customers across 10 members in El Dorado, Placer, and Nevada counties. SJCE is an enterprise of the city of San Jose and a CCA that began operations in 2019. SJCE provides electric service to about 350,000 customers in the city of San Jose, the heart of California's Silicon Valley. With the addition of Pioneer and SJCE, S&P Global Ratings now publicly rates eight CCAs, all in California. For more information on our view of CCAs, see "California Community Choice Aggregators Provide Consumer Choice, But Not Without Risk," published Nov. 2, 2022.

Delano Municipal Utilities, located in Wright County, Minn., serves a small customer base of about 3,100 accounts and has a diverse power supply. The utility is a member of the Central Municipal Power Agency/Services. SUVPS is a wholesale utility that issued debt to acquire and construct electric transmission facilities. SUVPS' organization agreements with its five members--Spanish Fork, Springville, Payson, South Utah Valley Electric Service District, and Salem--extend through at least 2074.

Table 1

Negative Rating Actions And Outlook Revisions

The seven downgrades, five negative outlooks, and one negative CreditWatch placement reflect the effects of some of the aforementioned risks. In addition, so far in 2024, total speculative-grade ratings increased to seven from only one in 2023, further emphasizing the effects. Although they make up only 3% of the rated universe, the number of speculative-grade ratings across our municipal retail electric, gas, and combined utilities is growing.

The common themes throughout the negative rating actions and outlooks include a weakened competitive and affordability position and financial performance due to elevated capital and power costs and/or large transfers out to the general fund, and insufficient or delayed cost recovery. These factors resulted in a decline in fixed-charge coverage (55% of our financial risk profile score), liquidity (25% weighting of our financial risk profile score), and/or market position (20% of our enterprise risk profile score). We believe that delayed and insufficient cost recovery reflects ratemakers' sensitivity to the economic pressures consumers face.

Five of the downgrades and one outlook revision to negative stemmed from risk management, culture, and oversight weaknesses: Alexandria, La., had insufficient cost recovery to offset elevated cost pressures, large transfers to the general fund, and remedial actions that we considered lagging. Bessemer, Ala., violated a rate covenant due to lack of effective risk management and oversight and persistently high delinquencies that were pressuring already marginal liquidity. Kennebunk Light & Power District, Maine, had delayed cost recovery resulting in weakened financial performance. Banning, Calif.'s unrestricted cash fell to a negative balance due to management's cash-spending on capital projects that depleted available liquidity, combined with a lack of rate increases and, in our view, poor internal controls. Lastly, customer dislocations in the Southwest Public Power Agency, Ariz., had eroded the revenue stream's credit quality, in our view.

We revised the New Hampshire Electric Cooperative Inc. debt rating outlook to negative because of the cooperative's ongoing use of electric system margins and debt to subsidize broadband operating losses, which highlight the risks of operating startup broadband systems. For more information on key broadband operating risks, see "Not-For-Profit Utilities' Broadband Investments Require Enhanced Risk Management" (published April 17, 2023).

Table 2

Table 3

Positive Rating Actions And Outlook Revisions

There were four upgrades during the first six months of 2024. Two resulted from improved financial performance; one from improved risk management, culture, and oversight risks, including enhanced natural gas hedging; and one--Lubbock Power & Light, Texas--from the utility's shedding responsibility as a generator to provide transmission and distribution services, a lower-risk business.

Similar to the upgrades, the four outlook revisions to stable and the one revision to positive reflect improved financial performance, timely cost recovery mechanisms, and improved risk management related to generation additions and other steps to reduce exposure to market prices.

We removed one rating from CreditWatch with negative implications following receipt of sufficient information from the issuer.

Table 4

Table 5

Ratings Unchanged

Fifty-seven ratings were unchanged after review. Over 99% of these ratings had stable outlooks, with almost 1% on unchanged negative outlooks.

Table 6

The preceding tables summarize S&P Global Ratings' various biannual rating actions and outlook revisions based on "U.S. Municipal Retail Electric And Gas Utilities: Methodology And Assumptions," published Sept. 27, 2018, and "Wholesale Utilities," published May 24, 2005.

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