Moody's Ratings downgraded the Guam Power Authority's senior lien revenue bond rating to Baa3 from Baa2, citing a weakened financial profile and increasing constraints on its ability to raise rates.
The action — which affects $422 million of debt — stemmed from "elevated fuel cost volatility, materially weaker liquidity, and growing affordability pressures that are constraining rate-setting flexibility and weakening credit metrics. With already high customer bills expected to substantially rise with another increase to the Levelized Energy Adjustment Clause starting October 1st there are increasing practical limitations on the implementation of future rate increases, despite the utility's demonstrated willingness to take rate actions when necessary," the agency said in a statement Wednesday.
Moody's cited the authority's monopoly position providing electrical power on the island, the large U.S. military demand for electricity, and the utility's right to adjust rates and recover fuel costs through established mechanisms as credit positives.
The authority is expected to open a line of credit in the near term to manage fuel purchasing costs, which Moody's said should help with liquidity, but negatively impact leverage metrics.
The electric system generates its baseload capacity from fuel oil with a mix of other sources, including solar, generating non-baseload capacity.
Rates are set by the Consolidated Commission on Utilities and are subject to the review of the Public Utilities Commission.
The bonds are rated BBB with a stable outlook by S&P Global Ratings and Fitch Ratings.
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