The approval of a water-rate increase much lower than it sought is a credit negative for Bethlehem, Pa., said Moody's Investors Service, because it limits how much the city can strengthen debt-service coverage on its roughly $90 million of general obligation-guaranteed water revenue bonds.

The Pennsylvania Public Utility Commission approved only a 4.7% increase, instead of the 15% that the 75,000-population city in Lehigh County requested in November.

According to Moody's, the difference equals about $770,000 of annual revenue, just under 9% of net water revenues of $9 million.

"Bethlehem's net water revenues in 2012 were sufficient to cover debt service by just 1.07 [times], a narrow coverage level that is likely to remain tight after approval of the lower rate increase," Moody's said in a July 14 report.

Moody's, which does not rate the city, said the ruling exemplifies the PUC's tendency to deny full rate increase requests to water and sewer utilities in Pennsylvania.

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