BRADENTON, Fla. – The credit outlook on Kentucky's Paducah Power System returned to stable after the successful implementation of a recovery plan and stronger performance at the Prairie State Energy Campus, according to Fitch Ratings.
The revised outlook to stable from negative was announced Tuesday as Fitch affirmed its BBB rating on the utility's $148 million of outstanding 2009 revenue bonds and $515,000 of 2010 refunding bonds.
Paducah Power System implemented the rate recovery plan in late 2014 to stabilize rates and bolster its stressed finances partly due to lower output and higher costs associated with its investment in the controversial coal-fired Prairie State generating plant in Washington County, Ill.
"Revision of the rating outlook to stable from negative primarily reflects PPS's successful implementation of a rate recovery plan, as well as the stronger operating performance of Prairie State Energy Campus Units 1 and 2, both of which contributed to improved financial results," said analyst Christopher Hessenthaler.
Higher fixed charges beginning in fiscal 2019 present longer-term challenges, Hessenthaler added.
PPS's transition to owner and operator of generating resources, from being a distributor of purchased power, led to several years of inadequate rate relief and diminished credit quality, which prompted multiple rating downgrades, Fitch said.
Cash flow and liquidity metrics strengthened to more acceptable levels in fiscal 2015 with Fitch calculating debt service coverage of 1.45 times and 48 days of cash-on-hand.
PPS's development and acquisition of generation resources, including 120 megawatts of natural-gas fired capacity and interests in Prairie State, have increased the utility's debt-per-customer ratio to a high $29,000, including off-balance sheet obligations, Fitch said.
Paducah's overall power supply remains long by approximately 50% to 60%. As part of a broader rate recovery plan, PPS now employs American Municipal Power Inc., as its resource portfolio manager.
"While Fitch expects opportunities for off-system sales to remain limited at least over the medium-term given depressed wholesale market prices, PPS was able to recently secure a two-year bilateral contract for the sale of a small portion of its excess capacity" from Prairie State, Hessenthaler said.
PPS's off-balance sheet obligations are to the Kentucky Municipal Power Agency, a local joint power agency created by Paducah and Princeton to invest in the Prairie State project. KMPA issued $491.4 million in 35-year bonds in 2007 and 2010 to finance a 7.82% ownership stake in Prairie State.