CHICAGO -- Standard & Poor’s revised its outlook to negative from stable for Cleveland Public Power on Wednesday in light of the system’s weakened debt coverage levels and growing competition.
The rating company affirmed its A-minus rating on the outstanding bonds, which total $230 million.
“The outlook revision reflects our view of recent years’ lower debt service coverage and the constraints that unrestricted customer choice place on raising rates to strengthen coverage,” analyst David Bodek said in a press release on the rating action.
Cleveland Public Power is the city’s municipal electric system. Its main competitor is Cleveland Electric Illuminating Co., and the pair engage in door-to-door competition for customers, according to Standard & Poor’s.
“Because it lacks a dedicated customer base, we believe CPP exhibits less revenue stream predictability than is normally associated with public power utilities,” Bodek said.
CPP serves about 73,000 customers, and its base remained stable from 2010 through 2012.
Given the competition, it’s questionable whether CPP can raise rates to increase debt service coverage, analysts said. The city council has unregulated authority to set rates.
“Should the trend of low DSC and fixed charge coverage continue, the rating could suffer,” Standard & Poor’s said. “We do not expect to raise the rating in the next two years.”