BRADENTON, Fla. - Many utilities in Florida's exhibit strong financial metrics, though funding challenges lie ahead replacing aged infrastructure and dealing with climate change, according to Fitch Ratings.
Of the 59 Florida water and sewer utilities rated by Fitch, the fiscal performance of most remained stable in 2014 with strong liquidity and debt service coverage as well as greater free cash flow, Fitch analysts said June 11 in a sector report.
Fitch said credit-related issues facing water, sewer and stormwater systems include renewal and replacement expenses as well as regulatory issues and the "impacts of potential climate variability and population growth."
Some utilities will need to fund sustainable alternative water supply sources while others will deal with expenses related to hardening or elevating existing infrastructure due to rising sea waters.
"'Deferred maintenance has not been a harbinger for crisis - in fact it has left many water utilities in Florida with a surplus of cash," said Fitch Director Andrew DeStefano. "However, many utilities are beginning to readdress their infrastructure, especially as regulatory demands evolve."
While most Florida systems are unregulated and currently set rates "largely free of political interference," Fitch Ratings said credit concerns include capital pressures from ongoing system upkeep, increasing water supplies to meet customer demand, and the potential for future regulation.
"Fitch expects the average rating for Florida water and sewer systems to remain AA despite these challenges," analysts said.
In 2014, the average Florida residential customer paid $72 per month for utility service. Fitch said the cost is almost 2% of median household income, and is near the top of its affordability benchmark at which monthly utility service cost may impose financial hardship on ratepayers.
Water affordability remains a long-term concern, and limits the flexibility of utilities to raise rates in the future, DeStefano said.
"The good news is that Florida's water utilities have generally planned well, and are in a position where declining debt burdens and growth in free cash flow should buffer the need for large rate increases in the near-term," he said.
As of May 15, about 70% of the 59 Florida retail systems were rated in the AA category or higher by Fitch, with seven rated AAA. Some 17 utilities are rated in the A category, and for the second year only one is rated in the BBB category.
From January 1, 2014 through May 15, 2015, Fitch took 62 rating actions affirming 52 or 84% of existing ratings. Five rating actions resulted in single-notch upgrades, two were affirmed with outlooks revised to positive from stable, and one rating was downgraded.
The remaining actions were new ratings for issuers not previously rated by Fitch.
