Fitch Affirms Eugene Water & Electric Board, OR's Water Revs at 'AA+'
Source: Business Wire
The Rating Outlook is Stable.
RATING RATIONALE:
--EWEB exhibits strong financial performance with healthy cash flow to support the majority of its capital needs.
--EWEB has sufficient water rights on the McKenzie River (through its two perfected water certificates) and treatment capacity to meet long-term water demand.
--Sizable annual rate increases have been implemented to support a capital plan designed to replace aging infrastructure. The investment to maintain system infrastructure is viewed as a positive credit factor.
--An additional rate increase was enacted in 2009 to offset the loss of the system's largest water customers - a semiconductor facility.
KEY RATING DRIVERS:
--Capital funding is provided in significant part from system development charges, which have decreased in the current economic recession. Changes to the overall mix of funding sources for the capital plan could occur.
--Continued rate flexibility will be needed to implement an additional projected rate increase in fiscal 2011, following five years of sizable rate increases. However, in fiscal 2012, annual rate increases should fall to a more manageable 4% annually.
--Additional debt issuance is limited to approximately $8 million in fiscal 2011.
SECURITY:
Bonds are secured by net revenues of the water system.
CREDIT SUMMARY:
Eugene Water & Electric Board provides retail water service to 50,400 customers in and around the city of Eugene and wholesale service to two water districts. The customer base is primarily residential with modest customer concentration. However, the largest water customer closed its facility in late 2008. Hynix, a semiconductor facility, closed its manufacturing facility, which resulted in the loss of approximately 1,400 jobs. EWEB raised rates in 2009 to offset the loss in revenues. Growth in water demand is minimal. System development charges, or connection fee revenues, fell to $495,000 in fiscal 2009 from $1.5 million in fiscal 2007. In response to the economic recession, EWEB's Board of Commissioners has approved spending around $6 million on a Customer Care program in fiscal years 2009 and 2010 to assist customers directly impacted by unemployment or other financial hardship.
EWEB has sufficient water supply through its rights on the McKenzie River to meet current and projected demand. Treatment capacity is sufficient at 68.8 MGD (millions of gallons per day) to meet the current peak of 63.2 MGD and the average daily demand of 26.0 MGD. The capital plan includes a 20MGD expansion of the water treatment plant that is under construction. There do not appear to be any material environmental concerns regarding the water supply or its delivery.
The EWEB Board of Commissioners approved a 10-year CIP in 2007 to replace aging infrastructure. The capital plan is expected to cost $130 million spread fairly evenly over the 10 year period. Despite the economic recession, EWEB has not put the CIP on hold nor delayed construction. Major projects include reservoir improvements, expansion of the treatment plant, an upgrade of the intake structures, as well as substantial funding of infrastructure replacement. Funding of the capital plan has required sizable annual rate increases beginning in 2006. The cumulative rate increases from fiscal 2006 through fiscal 2010 are approximately 60%. However, the average monthly water bill of $24 is still competitive with other regional water suppliers. Future moderate annual rate increases are anticipated in each year of the capital plan. Depending on future revenues provided by the system development charge, the rate increases may be higher or capital funding may be lower.
EWEB's water system continues to exhibit strong financial performance. Debt service coverage was 2.8 times (x) in fiscal 2009. Cash flow at the utility has been strong following annual rate increases that began in 2006 in preparation for the large capital plan. Liquidity has improved as reserves have accumulated. Days operating cash in fiscal 2009 was 272 days cash, including some unrestricted funds that will be spent on capital. Debt service coverage is projected to remain above 3.5x, including the additional bond issuance of approximately $8 million in fiscal 2008. The water system is not required to make a transfer payment to the city's general fund from its water system although it does make a transfer from its electric system. Debt levels are low. The age of the system facilities is above average, but this will improve with the ongoing capital investment underway.
These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:
--'Revenue-Supported Rating Criteria', Dec. 29, 2009;
--'Water and Sewer Revenue Bond Rating Guidelines', Aug. 6, 2008.
Additional information is available at 'www.fitchratings.com'.
Contact:
Fitch Ratings
Kathy Masterson, +1-415-732-5622, San Francisco
Bud Littman, +1-212-908-0500, New York
Cindy Stoller, +1-212-908-0526, New York
cindy.stoller@fitchratings.com
