Moody’s Investors Service on Friday downgraded the power system revenue bonds of New York’s Green Island Power Authority to Baa2 from Baa1.
Analysts cited years of declining debt-service coverage following a steady drop in wholesale power market prices. The downgrade also reflects the potential affect of GIPA’s expansion plans in light of its weakened service territory.
The authority is a small electric distribution utility with 1,574 customers that serves the village of Green Island, located just north of Albany, and is comprised of three islands in the Hudson River.
GIPA operates a hydroelectric facility and uses the margins it earns from the sale of the energy to reduce rates for its retail customers and to attract new economic development to the region. It benefits from low-cost power provided by a long-term purchased contract with the New York Power Authority that terminates in September 2025.
The New York Municipal Power Agency, of which the authority is a member, also supplies supplemental power as needed under a contract expiring in 2013.
Economic weakness since the last debt offering in mid-2008 coupled with lower wholesale power prices has strained GIPA’s ability to service its debt on a recurring revenue basis.
Debt-service coverage, excluding add-backs from payments in lieu of taxes, declined to 0.92 times in 2009 from 1.91 times in 2007. Coverage based on indenture calculations resulted in 1.26 times for fiscal 2009.
The authority has a 1.15-times rate covenant and its base rates are regulated by the state Public Service Commission, which is obligated to approve rate hikes that ensure recovery of prudently incurred expenses, including debt service.
However, given PSC policies that require the authority’s rate of return to be significantly lower in order to be granted a rate increase, GIPA could not immediately raise rates even if it needed to. A regulatory policy that limits rate-raising flexibility is a credit weakness, Moody’s said.