GRU rate increase earns improved bond forecast

Gainesville Regional Utilities General Manager Robert Hunzinger is shown in this June 24, 2013 file photo. Standard & Poor's has upgraded GRU's bond rating.

Erica Brough/ The Gainesville Su
Published: Tuesday, September 24, 2013 at 4:26 p.m.
Last Modified: Tuesday, September 24, 2013 at 4:26 p.m.

A move that will hit Gainesville Regional Utilities’ electric customers in the wallet has also improved Standard & Poor’s view of the direction of the utility's bond rating.

After the City Commission’s final approval last Thursday of a utility budget that included an electric rate increase associated with the biomass plant, the credit rating agency issued a report on Monday affirming GRU’s long-term AA bond rating.

It also changed the future outlook of the utility's credit rating from the “negative” forecast issued in 2012 to “stable.”

The report listed GRU management’s attention to financial risks, budget decisions intended for the utility to maintain a level of cash flow adequate to help cover its debt obligations, and the “willingness of Gainesville’s commissioners to approve utility rate increases needed to achieve budget goals” as reasons for affirming the AA rating.

Next budget year, a monthly residential electric bill for 1,000 kilowatt-hours usage will rise by about $13.50 a month from $127.67 to $141.15. The report projected that the cumulative effect of expected annual electric rate increase would, by 2019, total around $33.50 for 1,000 kwh a month usage.

That combined impact by 2019 is some $10 more per month than GRU officials projected in a June 2012 report associated with a bond refinancing.

In a Tuesday afternoon interview, GRU General Manager Bob Hunzinger said he could not immediately provide an explanation for the discrepancy.

The Standard & Poor’s report also pointed to “cost saving” moves the utility has implemented in an effort to partially offset the rate impact of the biomass plant, including the debt refinancing last year.

“The commissioners have approved the 2014 budget, which includes the first year of rate increases associated with a biomass facility. In a series of meetings, they have also reviewed the proposed subsequent year rate increases that, in conjunction with targeted cost reductions, GRU management believes will result in fairly strong credit metrics. The rate increases will counter the increased cost of purchasing power from the Gainesville Renewable Energy Center (GREC) biomass plant scheduled to begin commercial operation in late 2013.”

Hunzinger said Standard & Poor’s changing the debt outlook from negative in 2012 to stable was “really positive news.”

“It shows the work the utility has done in the interim period, especially integrating biomass into the rates,” he said.

Commissioner Todd Chase said the report delivered both positive and negative news.

“It’s a validation to me of what I talked about during the budget process, that we have to be honest with our customers,” Chase said. “On the one hand, it’s good to get a high credit rating. On the other hand, it’s coming at the expense of raising utility rates by about $34 over six years.”

The budget and utility rates passed 4-1 last Thursday. Mayor Ed Braddy was in dissent. That night, Chase, who previously voted against the budget and rate increase, and Randy Wells were absent.

The Standard & Poor’s report noted that GRU electric rates “have always been high compared with those of other Florida utilities, but more competitive rates for natural gas, water and wastewater service has offset this in the past.”

But the ratings agency said that recently approved rate increases will, “based on average usage,” put GRU rates for all utility services toward the “high end” in the state.

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