The ‘AA’ Issuer Default Rating and rating on Orlando Utilities Commission’s (OUC) utility system revenue bonds reflects the utility’s very low leverage in the context of very strong revenue defensibility and operating risk, which are both assessed at ‘aa’. OUC’s revenue defensibility is anchored by the provision of monopolistic electric and water utility services to a very favorable and growing service area, as well as the independent ability to raise rates without regulatory oversight. OUC’s operating cost burden is historically very low. However, elevated gas prices in 2022 drove operating costs to 11.11 cents/kWh from 9.04 cents/kWh in 2021. Natural gas accounts for 65% of OUC’s energy generation; sustained elevated operating costs could negatively affect OUC’s very strong operating risk assessment. OUC’s financial profile and leverage ratio, measured as net adjusted debt to adjusted funds available for debt service remained very strong in fiscal 2022, when recorded leverage was a very low 4.3x. Total operating expenses increased 22% yoy, while purchased power expense nearly doubled yoy, totaling $86.6 million in fiscal 2022. Operating margins remained strong as the utility’s fuel charge pass-through increased revenues and recovered higher fuel costs. Fitch Ratings expects OUC will continue to demonstrate strong operating performance while incorporating additional capital spending to reach long-term carbon-emission goals.
Fri 02 Jun, 2023