This article has been updated.
Just two weeks after securing its first rate increase in eight years, CPS Energy had its credit rating downgraded by Moody’s Investors Service on Monday.
Citing concerns about the millions of dollars in long-term debt the utility incurred when purchasing natural gas during the statewide winter freeze last February, Moody’s analysts said Monday that Texas’ “unstable energy supply chain” factored into its decision.
The analysts also noted that CPS Energy may still end up on the hook for some — or all — of the $587 million it is currently disputing in court for fuel costs racked up during Winter Storm Uri, and that the utility must work to regain public trust.
Despite the rating downgrade, Moody’s changed its outlook from negative to stable reflecting “the numerous steps” CPS Energy has taken to prepare staff and its electric and gas system for another extreme weather season, “including plans to fund additional resiliency enhancements with the recent base rate increase.”
Moody is one of the three major credit rating agencies that measure the risk associated with lending to an entity such as CPS Energy. These ratings help determine interest rates on the utility’s debt. Despite the rating downgrade Monday, CPS Energy remains optimistic about its future, a spokeswoman said.
“Nothing is worse today than it was yesterday,” said Christine Patmon. “While Moody has downgraded [CPS Energy] … a level, we’re still above what Fitch [Ratings] and S&P [Global] had us at. [Moody] did what they did to bring us in line to our peer utilities.”
CPS Energy Chief Financial Officer Cory Kuchinsky said the utility does not expect the downgrade to impact its customers.
“We remain a double-A rated utility, with the ratings reflecting continued confidence in our credit,” Kuchinsky said. “In fact, our financing transactions, even after Winter Storm Uri, continue to be highly sought after which allows us to achieve the lowest possible interest rates for our customers and that is a reflection of our continued strong reputation by the financial markets.”
When it sought a 3.85% base rate increase and for the creation of a new pass-through fee to help recover the $418 million CPS Energy has already paid in fuel costs from February’s winter storm, CPS Energy interim CEO Rudy Garza told the city council the additional revenue would help stabilize the utility’s finances, an important factor to credit rating agencies like Moody’s.
“If our credit rating is downgraded, that means higher interest payments and less investment in our system,” Garza said at the time.
Following the votes, Garza told reporters he hoped the credit rating agencies took CPS Energy’s newly stabilized financial status into account. Garza added that he hoped the passing of the base rate increase and new fee showed credit rating agencies the utility and city are aligned in their priorities moving forward.
Moody’s rating decisions contrast with S&P Global’s, which affirmed the utility’s A-plus rating in October, but gave the utility a negative outlook due to prevailing statewide energy concerns.
In March, just weeks after the winter storm, Fitch Ratings downgraded $5.3 billion in CPS Energy combined senior- and junior-lien bonds from AA+, its second-highest, to AA-, its fourth-highest. On Monday, the ratings agency reaffirmed that rating, and said in its report that CPS Energy’s financial profile remains very strong despite the incurred costs from the winter storm.
Like S&P Global, Fitch reaffirmed its negative outlook, reflecting “in part, the remaining uncertainty surrounding cost recovery,” as well as statewide grid reliability issues.
Moody’s downgraded the CPS Energy’s senior lien revenue bond rating to Aa2 from Aa1 and junior lien revenue bond rating to Aa3 from Aa2.
CPS Energy still has much to do in the coming months. CPS Energy plans to use the $73 million it will raise in revenue next year to address its growing workforce shortage, the impending retirement of its outdated computer system and to meet additional weatherization requirements from the state.
In other CPS Energy news Monday, Mayor Ron Nirenberg appointed Councilwoman Ana Sandoval (D7) as the city council liaison to the CPS Energy Rate Advisory Committee, which launched last spring to revise the utility’s rate structure and make recommendations on generation planning.
As liaison, Sandoval will act as a bridge between the committee’s chairman, the CPS Energy board of trustees and the city’s Municipal Utilities Committee, on which she serves.