S&P Global Ratings maintains public ratings on 212 U.S. public power retail electric and gas utilities and 55 wholesale utility projects (across 39 wholesale electric utilities). Downgrades outpaced upgrades during the first six months of 2023 across both sectors); however, we note that the downgrades represented only 2% of total outstanding public ratings. In addition to the rating changes, there was an equal amount of favorable and unfavorable outlook revisions and CreditWatch actions. During the first half of 2023, 68 ratings were unchanged after review (25% of the total combined sectors), which supports our view of the stable sector outlook.

A New Issuer Credit Rating

There was one new issuer credit rating, Peninsula Clean Energy (PCE), a Community Choice Aggregation (CCA) in California. PCE is rated A- with a stable outlook. PCE has 22 members including 20 cities and towns in San Mateo County, San Mateo County, and Los Banos in Merced County. The rating reflects the strong participation rate, protective joint power agreements, and a diverse low- and no-carbon-emitting power supply. Peninsula Clean Energy has experienced volatile fixed-charge coverage in recent years because of elevated power costs and a high power charge indifference adjustment (PCIA), while maintaining a 5% discount to Pacific Gas & Electric Co. The PCIA is a charge that CCA customers pay to the incumbent investor-owned utility to recover those portions of pre-existing generation investments and energy-procurement costs that market sales of energy surpluses created by customer migrations to CCAs do not financially support.

Positive Rating Actions and Outlook Revisions

Our "Outlook For U.S. Public Power And Electric Cooperatives: Essentiality And Strategic Planning Temper Challenges," (published Jan. 17, 2023, on RatingsDirect) discussed our expectation of continued rating stability due to sound financial performance, credit-supportive rate-making decisions, and access to capital and liquidity. The 68 unchanged ratings highlight the stability of the sector, with healthy financial performance and rate-making flexibility continuing to stabilize credit quality.

Improvement in financial performance led to two upgrades. In both cases, declining annual debt service requirements boosted fixed-charge coverage (FCC). Further supporting the raised ratings were these issuers' low leverage and competitive retail rates indicating strong revenue-raising flexibility.

The two outlook revisions to stable from negative were related to unique credit fundamentals, and we removed two ratings from CreditWatch with negative implications following receipt of sufficient information from the issuers. Among these issuers was the Municipal Energy Agency of Mississippi. Prior to this, in September 2022, we lowered our rating on the agency's debt to incorporate transparency and reporting risks because of continued reporting delays of one of its participating members, Canton, Miss. For more information on how timeliness of financial reporting factors into our rating process, see "Lack Of Timely Information Leads To Increase In Negative Rating Actions Across U.S. Public Finance So Far In 2023," published March 13, 2023

Table 1

Table 2

Negative Rating Actions and Outlook Revisions

Our sector view identified numerous risks and challenges that public power utilities could face in 2023, including inflationary pressures, recessionary risks, supply chain disruptions, increasingly stringent emissions regulations, climate risks, and cyber security and physical security exposures. The five downgrades and three negative outlooks reflect the effects of some of those risks.

The commonality among the negative rating actions and outlooks were weak financial performance, because of volatile commodity prices in 2022, inadequate hedging, and insufficient or delayed cost recovery, which resulted in a decline in FCC (55% of our financial risk profile score) and/or liquidity (25% weighting of our financial risk profile score).

Two of the downgrades stemmed from risk management, culture, and oversight risks: Alexandria, La., had insufficient hedging practices that we view as a weakness in the face of volatile commodity prices, and Fayette Gas Board, Ala.'s delayed cost recovery resulted in weak financial performance.

Table 3

Table 4

Ratings Unchanged

Sixty-eight ratings were unchanged after review, supporting our view of the stable sector outlook. Ninety-four percent of these ratings had stable outlooks and 6% had negative outlooks that were unchanged.

Table 5

The preceding tables summarize S&P Global Ratings' various biannual rating actions and outlook revisions based on "U.S. Municipal Retail Electric And Gas Utilities: Methodology And Assumptions" published Sept. 27, 2018, and "Wholesale Utilities" published May 24, 2005.

Related Research

• Cyber Risk Insights: Ongoing Preparedness Is Key To U.S. Power Utilities Keeping Attackers In The Dark, May 11, 2023 
• Not-For-Profit Utilities' Broadband Investments Require Enhanced Risk Management, April 17, 2023 
• State Laws Shield Many Municipal Natural Gas Utilities From Energy Transition-Related Demand Erosion, March 14, 2023 
• Outlook For U.S. Public Power And Electric Cooperatives: Essentiality And Strategic Planning Temper Challenges, Jan. 17, 2023 
• U.S. Municipal Retail Electric Sector Update And Medians: Resilient Metrics Support Ratings, Dec. 14, 2022