BRADENTON, Fla. - Florida residents will likely to see water rates increase in the coming years, despite a steady rise in bills since the state's housing boom, Fitch Ratings said in a special report.
As Florida's average monthly residential bill for combined water and sewer service approaches Fitch's affordability marker of 2% of median household income, utilities may see increased political pressure around future rate hikes, the firm said May 29.
"For many water utilities, Florida's rapid housing expansion led to the expansion of water and sewer infrastructure and the debt to finance it," said analyst Andrew DeStefano. "When you build it and they don't come, rate hikes become necessary to finance existing debt with a smaller population."
While financial results have improved with the economy, Fitch said rate hikes will likely continue as utilities face increased spending from tighter regulations on wastewater effluent disposal and water quality, longer-term water supply needs, and from ongoing repairs and maintenance.
Expectations for future development, as well as climactic, geographic and ecological nuances, present different challenges for utilities in the Sunshine state over the long term.
Those challenges are expected to affect capital programs and increase the likelihood for higher debt levels and rising fixed costs that will challenge long-term service affordability, DeStefano said.
Overall, water and sewer utility ratings remain strong, and have benefitted from improving economic conditions, stable customer demand trends, and sound management.
"While rising affordability concerns are unlikely to lead to negative rating actions over the short term, a utility's ability to adopt and implement rate increases may become more limited over time, potentially affecting ratings over the longer term," he said.
The essential service water and sewer systems typically display robust credit characteristics, and Fitch said its portfolio of rated issuers in Florida follows this axiom.
Of the 62 rated systems, Fitch affirmed 47 ratings and upgraded three in 2013. There was only one downgrade. The majority of the predominantly stable rating outlooks were affirmed, indicating that changes are unlikely for the vast majority of issuers over the next two years.
About two-thirds of Fitch-rated Florida systems are rated in the double-A category, and six systems are rated triple-A. As a result, the average AA rating is consistent with the national average for the sector, Fitch said.