Standard & Poor’s (S&P) issued a stable credit rating outlook for Gainesville Regional Utilities (GRU) last week, and the company said the struggle over the governance structure remains a risk and cause for concern in coming years.  

S&P will keep GRU at an “A” bond rating with a “stable” outlook. 

The report largely mirrors the previous outlook from June 2023 that anticipated the switch to the new GRU Authority. With the authority in place, S&P commented on its debt reduction plan, smaller transfer to the city and upcoming litigation.  

In the outlook, S&P said it doesn’t anticipate GRU’s credit rating improving in the next two years because of “very high rates,” high debt and unsettled governance issues. These issues and others might hurt its rating and utility finances.  

“We believe that recent events are creating governance and management uncertainty, leading to the potential for an inconsistent approach to addressing the credit risks that GRU faces,” the report said. 

The company said the utility could be harmed if the ongoing governance clashes impact GRU’s ability to access the bond market and get loans. Also, switching management might lead to changing strategies to address debt and different approaches to customer rates. The report said it believes utility operations had already been impacted from the governance issues. 

However, S&P also highlights several balancing factors. GRU has high liquidity and robust fixed cost coverage (the ability to pay for ongoing costs like debt payments or equipment maintenance). 

In a press release on Wednesday, GRU CEO Ed Bielarski said he’s confident the utility is on the upswing with the GRU Authority providing the leadership needed to maintain stable credit ratings.  

“We view S&P’s credit opinion as an encouraging sign,” said Bielarski. “S&P’s analyst has expressed concern over the city’s challenge to GRU’s current governance model but ultimately concluded our financial metrics are strong. 

The report noted that the utility is forecasted to keep over an 80% capitalization ratio even with GRU’s reduction in the transfer to Gainesville’s general government (known as the general services contribution). GRU reduced the contribution to $8.5 million in the coming fiscal year, down from $34 million in fiscal year 2023.  

GRU also plans to issue more than $200 million in additional debt to finance its capital plans from 2025-2028—further hampering the utilities’ efforts to manage its debt. 

The report also noted GRU’s high level of renewable energy, one of the largest in the Southeast, but it said the investments have been in largely uncompetitive resources, pointing to a decrease in using Deerhaven Renewables (the biomass plant).  

National winds also impact GRU. Gainesville residents have below-average incomes compared to the rest of Florida but high electric rates. With a high Consumer Price Index in recent years, S&P questioned if ratepayers would start dropping off, unable to pay.  

“We continue to monitor the strength and stability of electric utilities’ revenue  

streams for evidence of delinquent payments or other revenue erosion,” the report said.  

The largest impact GRU’s customers may be the upcoming legal hearings scheduled for early 2025. The hearings will determine whether the recent referendum passed at the November election can be enforced, giving control of GRU back to the Gainesville City Commission and away from the GRU Authority.  

S&P noted that it doesn’t prefer one governance structure over another, but the continued uncertainty causes concern.  

We believe this unsettled status has already resulted in an inability to gain validation for debt issuance and creates the potential for an inconsistent approach to rates, transfers to the city’s general fund, power supply planning, decarbonization, and leverage reduction,” the report said. “However, at this time, we believe GRU’s financial position supports the current rating.”