Standard & Poor’s revised its outlook on Heartland Consumers Power District in South Dakota to negative from stable. At the same time, Standard & Poor’s affirmed its A-minus issuer credit rating on Heartland.
The outlook revision reflects the district’s low and uneven coverage of fixed obligations; increasing rate pressures that affect its competitive position and ability to achieve positive margins on surplus energy sales; and the district’s challenges in replacing loads associated with the expected loss of its largest member, coupled with the risks with renewing contracts with remaining members.
“We could lower the rating if Heartland cannot replace expected load losses that would help to mitigate the impact of rising fixed costs,” said analyst Jeffrey Panger. “We could also lower the rating if the district cannot maintain minimally adequate coverage levels and liquidity, the prospects for which are enhanced by power-cost-adjustment improvements, but challenged by increasing rates.”
In addition to its own credit profile, the credit quality of the district’s largest current member, Marshall, Minn., greatly influences the A-minus rating on Heartland.