Gainesville Regional Utilities (GRU) remained at the “A” level with a stable outlook, according to the latest report by Standard & Poor’s Global Ratings, one of three companies that assign ratings.
The report, released on June 30, lists a series of pros and cons for the utility and notes the uncertain future with a new authority board poised to take control of GRU in October.
Standard & Poor’s (S&P) last issued a credit rating for GRU in 2021. Since then, Moody’s Investor Service, another credit rating company, also affirmed GRU’s rating with no change. Moody’s did, however, lower the city of Gainesville’s rating to Aa3 in January.
Looking ahead, the report said the company doesn’t expect to raise GRU’s credit rating in two years. But the rating could be hurt depending on future action by the new authority or city commission.
“We do not expect to raise the rating over the next two years, as we believe that GRU’s substantial debt burden and high rates constrain improvement in credit quality,” the report stated.
S&P said the authority could hurt the credit rating if it fails to adjust the pass-through cost of fuel to customers or to if it fails to increase base rates. The city’s willingness and authority to raise rates as needed to stay financially secure is one reason Moody’s and S&P have kept stable outlooks for GRU.
The Gainesville City Commission adopted a seven-year rate increase schedule in 2021. That schedule forms a key part in the city’s plan to reduce debt by $315 million in the next decade. The S&P report also pointed to that plan as a pro for the city.
“In our view, financial metrics are stabilized by the adoption of electric and wastewater rate increases, the reduction in the transfer to the city’s general fund, and the plan to reduce leverage [the $315 million debt reduction],” the report says.
The report also touches on the biomass plant and the city’s plan for zero emissions by 2045.
S&P points to the highest renewable energy in the state as a plus but also states that the biomass plant is one of two reasons for high rates—the other being the solar feed-in tariff. The report also highlights that the biomass plant isn’t competitive, pointing to a reduction in use between 2019 and 2022.
- Economy stabilized by UF, hospitals and diverse customer base
- Virtual elimination of coal-fired generation and renewables representing 30% of generation
- Robust fixed cost coverage
- Robust liquidity that provides flexibility
- Uncompetitive renewable energy sources—biomass and solar feed-in tariff
- Electric rates among the highest in the state (132% of state average in 2021)
- Ratepayer backlash resulting in the new authority board that could change GRU’s strategic goals and cost recovery
- Constrained ability to fund future capital improvements because of high debt and rates
You can find the eight-page report online.