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Tennessee Valley Authority In Review: How The TVA's Relationship With Local Power Companies Is Evolving

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Tennessee Valley Authority In Review: How The TVA's Relationship With Local Power Companies Is Evolving

Chart 1

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Established by a Depression-era act of Congress in 1933, the Tennessee Valley Authority's original mission was to boost economic growth and job creation by bringing electrification and flood control to poor, primarily rural areas throughout the Tennessee Valley.

Today, TVA operates the nation's largest public power system, supplying wholesale power to 153 LPCs. Many of the LPCs can no longer be characterized as rural; in total, they serve 4.9 million retail customers (including five cities with populations of more than 186,000) in a footprint spanning seven states--most of Tennessee; northern Alabama; northeastern Mississippi; southwestern Kentucky; and small portions of northern Georgia, western North Carolina, and southwestern Virginia.

S&P Global Ratings maintains ratings on 17 of the LPCs served by TVA, and the 'A+' modal rating mirrors the rating on all public power utilities that we rate. At the modal rating, the LPCs exhibit strong or very strong enterprise and financial profiles--highlighted by primarily residential customer bases, moderately constrained rate-raising flexibility (with rates that are close to their respective state averages, but below-average income levels); good coverage of fixed costs; moderate liquidity; and favorable debt profiles.

Chart 2

image

The largest TVA LPCs are among the highest-rated LPCs, and they include:

  • Memphis Light, Gas and Water, Tenn. (MLGW; A+/Stable), accounting for about 9% of TVA's 2020 sales;
  • Nashville Electric Service, Tenn. (AA/Stable), 8%;
  • Chattanooga Electric Power Board, Tenn. (AA/Stable), 4%;
  • Knoxville Utilities Board, Tenn. (AA/Negative), 3%; and
  • Huntsville Utilities, Ala., (AA-/Stable), 3%.

Other rated LPCs range from small to moderate size. Although a couple are highly rated ('AA-'), the rest are in the 'A' and 'BBB' rating categories, generally reflecting relatively shallower service area economies, lower income levels, limited financial flexibility, and in some cases, less sophisticated management. Since September 2018, S&P Global Ratings has lowered its ratings on eight of the 17 LPCs, including each of the largest LPCs as listed above. Generally, the rating changes reflected our revised criteria combined with financial metrics that no longer supported the previous ratings.

To understand the credit risks of the LPCs, we believe that it is important to understand some of the credit risks of TVA, and how the authority interacts with the LPCs.

TVA's Service Area And Anti-Cherry-Picking Provisions Present Barriers To Entry Or Exit

The TVA service area is ring-fenced to its service area, meaning TVA can only sell power within its defined footprint. An anti-cherry-picking provision under the Federal Power Act prevents the Federal Energy Regulatory Commission (FERC) from ordering TVA to provide access to its transmission lines to others to deliver power to customers within TVA's defined service area, creating a barrier to entry for other suppliers by preventing the use of the TVA transmission system to serve LPC load. In our view, the provision provides a significant degree of protection from the loss of an LPC (and its load-bearing retail customers), and the loss of a revenue stream that supports debt repayment (e.g., stranded assets). In our view, this provision has effectively bound most LPCs to TVA, and enabled the authority to traditionally offer five- and 10-year contracts to the LPCs, significantly shorter than the life of the TVA's debt. However, 142 of 153 LPC customers have now migrated to the longer, 20-year contracts (see below). Although Paducah, Ky. gave its five-year notice in 2009 (and left TVA in 2014) as it sought lower-cost energy, and Bristol Virginia Utilities (BVU; not rated) exited in 1997 (only to return a decade later, when the cost of other power suppliers proved more volatile), the barriers to exit have, in our opinion, largely kept the LPCs tethered to TVA. In our view, however, the ties that bind have weakened.

For Some LPCs, Moderate Rate Increases And Desire For Renewables Are Testing The Ties That Bind

TVA has successfully reduced its carbon footprint--closing older, less-efficient coal units, and replacing them with the zero-emission Watts Bar nuclear unit 2 (which was significantly over budget) and natural gas units. TVA adopted modest base-rate increases during 2014-2019 to support its decarbonization efforts, as well as substantial debt reduction. Nevertheless, the wholesale rate has been flat during this period, as lower fuel commodity prices have offset the base-rate increases.

LPC retail rates were within 10% of their state averages in 2019, and their market positions, a metric we include in our criteria, were not significantly different from those of a decade earlier. Furthermore, because the TVA service area is fenced, wholesale rate increases apply to all retail providers in the Tennessee Valley; therefore, like a rising tide that floats all boats, there has been a limited effect on relative competitive positioning. Nevertheless, we believe that the rate increases have reduced the LPCs' financial flexibility, particularly in consideration of below-average ratepayer incomes. Meanwhile, the LPCs and some of their retail customers have increasingly been seeking greener profiles, the latter through distributed energy resources.

In our view, this has loosened the ties that bind some LPCs to TVA. A study by the Cooperative Finance Corp. noted that despite the anti-cherry-picking provision, "…Six of the 27 LPCs [cited in the CFC study]…could leave TVA, build new transmission, interconnect to a new supplier, and pay for it in less than five years from power savings alone….and 16 of 27… within 15 years."

However, we note that since this study was completed, 142 of the 153 LPCs have signed new longer-term contracts with TVA (see below). In our view, this suggests that most LPCs continue to see the value of remaining with TVA.

Nevertheless, not all do. A complaint that TVA is violating federal energy policy by not granting access to its transmission system to alternate power suppliers has been filed with the FERC by four LPCs (not rated). However, credit risk is mitigated by the longer-term contracts, which we believe inoculate TVA from loss of these signatories in the event of an adverse ruling from FERC.

Some TVA customers--including the largest LPC, MLGW, which is at the periphery of the TVA service area--have been exploring options to leave the authority. In our view, should MLGW leave TVA, fixed costs for the remaining LPCs would likely rise, as the costs would need to be spread over a smaller pool of electric sales.

However, noting reliability concerns in the wake of weather-related outages across the Electric Reliability Council of Texas (ERCOT) and portions of the Midcontinent System Operator (MISO), MLGW recently announced that it is reconsidering its efforts to pursue an alternative energy supplier. (We understand that a board-approved decision has yet to be made).

At this time, the future of Memphis' power supply arrangements with TVA is uncertain and we will assess the credit effects of any changes in the existing arrangement once the future supply arrangements are announced.

TVA Responds With Longer Partnership Agreements, Flexibility Options, And Discounts

Facing the potential for greater competition, TVA has been working to shore up its support to, and from, its LPCs. We expect that these efforts will not only strengthen the LPCs' ties to the authority, but also help to support the credit quality of the LPCs.

TVA announced that it would offer the LPCs partnership agreements--20-year contracts, with a 3.1% discount as an inducement to sign. Signatories can elect to retain the value of the discount, keeping retail rates at their current level (and either boost financial metrics–-fixed-cost coverage (FCC) and liquidity--or provide funds for capital expenditures). Or they can lower rates, passing the discount on to ratepayers. The partnership agreements contain annual evergreen extensions "contingent on certain circumstances, including limited rate increases going forward." The agreements increase the opt-out notice requirement to 20 years, and if notice is given, result in the immediate suspension of the discount. Signatories can also opt into a flexibility options, allowing them to locally source up to 5% of energy from renewables and storage resources (i.e., from rooftop solar or battery storage).

As of Feb. 11, 2021, 142 of the 153 LPCs have signed partnership agreements, while 68 of these have opted into a flexibility option. All signatories rated by S&P Global Ratings have indicated that they plan to retain the discount rather than pass the savings on to ratepayers. In general, we view this decision by the LPCs as prudent because the coverage metrics and liquidity of rated LPCs are relatively weaker than their market position, and they are more heavily weighted, from a credit risk and ratings perspective.

Fifteen of the 17 LPCs rated by S&P Global Ratings have signed on to the partnership agreements. Although Nashville, Knoxville, Huntsville, Chattanooga, and the smaller LPCs have signed the longer-term contracts, Memphis and Bessemer, Ala. notably have not, and they continue to operate under their current contracts. Memphis is at the outer edge of the TVA ring-fence, and in our view, could conceivably connect with an alternate energy supplier, building a tie-line across the Mississippi River and needing to construct fewer line-miles of transmission than would other LPCs considering alternate power suppliers.

If MLGW does give notice to TVA, it could have implications beyond Memphis and the authority. In our view, TVA would need to cover its stranded costs by hiking rates for the remaining LPCs, which could have implications for their market position, and if not fully passed on to ratepayers, their financial metrics as well. And it could prompt them to re-examine plans to stick with TVA beyond 20 years--situations that we continue to monitor.

In a further effort to provide rate relief, TVA's board approved a special $200 million pandemic relief credit. Beginning in October 2020, LPCs received a 2.5% base-rate credit that remains in effect through fiscal 2021 (ending Sept. 30). In our view, if the LPCs retain the value of the credit, rather than pass it through to ratepayers, it could help boost their liquidity. However, if the LPCs use the nonrecurring credit to obviate the need for rate increases, it could exacerbate a revenue/expense imbalance.

Finally, in March 2020, TVA announced the establishment of a $1 billion fund to provide credit support to allow LPCs to delay or defer a portion of their monthly power payments to TVA during the pandemic. We understand that few LPCs have availed themselves of this credit support to date, which confirms our view that the effects of the pandemic on electric utilities have been manageable.

The TVA-LPC Relationship Versus The Traditional Joint Action Agency Structure

The contractual relationship between TVA and its LPCs differs from the wholesale-retail relationship under traditional joint action agencies (JAAs).

Under the traditional JAA structure, members generally have a governance role at the JAA. Through board representation, members participate in the hiring of the JAA's executive management, decisions that go into determining the JAA cost structure, and the approval of the wholesale rates the JAA charges the members. JAAs and their members generally have rate-setting autonomy, except in a few states that require retail rates to be approved by a public service commission, which may be elected or appointed by the governor. Contracts between a JAA and its members generally (but not always) extend throughout the period JAA debt remains outstanding, often 30 or more years, and occasionally are evergreen contracts. The contracts effectively tie the members to the JAA, and even in contracts that allow for member exit, provisions are generally in place that ensure the JAA investment in its assets will not become stranded. Although JAA contracts are often all-requirements, they sometimes have carveouts allowing the participants to self-generate a portion of their power requirements, to source power from other providers, or to elect to participate in JAA generation and/or transmission projects on a case-by-case basis. The JAA has little control over whether member electric systems engage in non-traditional ventures, such as telecommunications (internet, phone, and video), or make transfer payments to other funds of their associated general governments.

The LPCs have no TVA board representation. The TVA board members are appointed by the President of the United States and confirmed by the U.S. Senate. The TVA board has unfettered wholesale rate-setting autonomy; although the LPCs do provide input (sometimes through elected federal representatives), they have no official role in approving TVA projects or setting authority rates. In contrast, TVA must approve LPC base-rate changes. Despite this involvement, we view the LPCs as still maintaining rate-setting autonomy, as the approval process is streamlined, power cost adjustments do not require TVA approval, and the authority's role is limited to ensuring that the LPCs' rates are sufficient to support power purchases while ensuring that the LPC rate schedule does not unfairly disadvantage one class of customer over another. LPCs are prohibited from making transfers to their associated local governments beyond recovery of shared administrative costs. We view this as credit supportive because it guards against the erosion of bondholder security interests (via shifting costs from taxpayers to ratepayers), and limits a potential drain on the utility's liquidity. LPCs are not allowed to finance non-traditional ventures using funds of their respective electric systems without TVA approval. In our view, this has a double-edged effect. On the one hand, it is credit supportive in that it precludes the dilution of security interest in the electric system from resource-draining investments in startup competitive ventures. On the other hand, it makes it difficult for the utilities to invest in services that customers may want.

LPC Ratings: TVA Characteristics That We Impute To LPCs

The LPCs rated by S&P Global Ratings have certain shared characteristics by virtue of their association with TVA, most directly related to the authority's power supply, which significantly influences our Operational Management Assessment (OMA).

In our view, TVA has extremely strong operational assets and a strong environmental profile--two of the four (unweighted) components of our OMA--and we impute these assessments to each of the LPCs that we rate.

TVA's operational assets (and by extension, those of the LPCs) are highlighted by a deep and diverse set of generating units. TVA's fuel mix has changed significantly over the past decade, as the decline (and greater stability) of natural gas prices, exposure to increasingly stringent emission regulations, and the completion of the zero-emission Watts Bar nuclear unit have prompted the retirement of almost 7,000 megawatts (MW) of coal-fired capacity since 2012.

We believe that as distributors of TVA power, the LPCs have greatly reduced financial and operating risk relative to that of vertically integrated utilities. In our view, the diversity of generating units and fuels insulates TVA and its LPCs from the risk of outages and fuel-cost volatility. With about 60% of energy produced by zero-emission units and only 13% from coal units, in our opinion, TVA and the LPCs are well positioned to respond to future emission regulation, most significantly for carbon dioxide, which we believe will be accelerated under the Biden administration.

Table 1

TVA Fuel Mix
--% of total energy--
Generation resource Number of units Capacity (MW) 2020 2019 2018 2013 2010
Nuclear 7 7,922 42 39 39 31 36
Natural gas 101 12,509 22 20 20 11 4
Coal 25 6,915 13 17 19 35 51
Hydroelectric 109 3,759 10 10 9 10 9
Purchased power (non-renewable) N/A N/A 8 9 9 10 N/A
Purchased power (renewable) N/A N/A 5 5 4 3 Less than 1%
N/A--Not applicable. MW--megawatts.

TVA's efforts to reduce its carbon footprint (through the closure of older, less-efficient coal plants, and in part replacing them with the Watts Bar nuclear unit 2) prompted the authority to adopt annual rate increases during 2014-2019. TVA's wholesale rate differs from one LPC to another, largely due to differences in respective transmission costs. Nevertheless, TVA's wholesale rate is a significant generator of LPC retail rates (which are also influenced by the LPC's distribution costs, leverage, and capital needs). Finally, the LPCs each have power cost adjustment mechanisms, which we view as credit supportive, enabling them to pass though wholesale cost increases to their retail ratepayers.

TVA's Environmental, Social, And Governance Factors

By reducing coal generation by 75% between 2010 and 2020, in our opinion, TVA has greatly lowered its exposure to environmental regulation. Nevertheless, natural gas generation quadrupled during the same period. Renewable resources accounted for 15% of fiscal 2020 generation.

We believe the utility's cost structure as a provider of favorably priced power mitigates social risk. However, low-income ratepayers pervade the TVA service territory, which could limit financial flexibility, especially in light of the negative economic pressures of directives to limit the spread of the coronavirus. TVA announced that it is prepared to allow its wholesale customers to, in the aggregate, defer up to $1 billion of payments to the authority if their retail customers are unable to make timely payments, which could mitigate near-team social pressures but burden customers later.

We believe that TVA's record of relying exclusively on operating revenues to support operations limits risks of government intervention. Moreover, TVA plays an important role in meeting key economic, social, and political objectives of the government and in the implementation of a key regional policy.

LPC Ratings: Enterprise Profile Metrics

The following are key metrics considered as part of S&P Global Ratings' enterprise profile assessment for rated TVA LPCs.

Table 2

Enterprise Profile Metrics -- Economic Fundamentals
Local power company State Rating Total electric customers % of TVA sales Residential revenue (%) Industrial revenue (%) Top 10 customers as % of total revenue Median household effective buying income (%) Unemployment rate as of November 2020 (%)

Nashville Electric Service

TN AA 409,000 8 45 5 10 100 4.6

Knoxville Utilities Board

TN AA 205,000 3 49 6 14 93 4.8

Chattanooga Electric Power Board

TN AA 186,000 4 45 45 13 88 5.5

Bristol

TN AA- 34,000 Less than 1% 53 38 19 74 5.4

Huntsville Electric System

AL AA- 195,000 3 50 38 8 91 3.8

Athens

AL A+ 47,000 Less than 1% 57 11 15 77 2.7

Fayetteville

TN A+ 19,000 Less than 1% 58 12 17 68 5.0

Florence

AL A+ 50,000 Less than 1% 54 6 7 66 3.8

Memphis Light Gas & Water

TN A+ 415,000 Less than 1% 42 8 7 86 8.6

Erwin Utilities Authority

TN A 9,000 Less than 1% 48 20 27 64 6.2

Hartselle

AL A 6,000 Less than 1% 45 12 23 86 3.1

Russellville

AL A 5,000 Less than 1% 40 6 22 64 2.5

Columbus

MS A- 13,000 Less than 1% 36 4 19 64 7.5

Hopkinsville Electric Plant Board

KY A- 13,000 Less than 1% 41 10 34 62 5.5

Tarrant

AL BBB+ 3,000 Less than 1% 47 5 21 51 4.5

Bessemer

AL BBB 11,000 Less than 1% 39 1 13 66 7.6

Franklin Electric Plant Board

KY BBB 5,000 Less than 1% 38 26 42 65 4.4

Table 3

Enterprise Profile Metrics -- Market Position
Local power company State Rating Weighted-average revenue (% of state 2019) Weighted-average revenue (% of state 2009) Weighted-average system rate (cents/kWh; 2019) Weighted-average system rate (cents/kWh; 2009) Weighted-average system rate (% change 2009-2019)
Nashville Electric Service TN AA 106 104 11.07 9.17 21
Knoxville Utilities Board TN AA 100 98 10.42 8.74 19
Chattanooga Electric Power Board TN AA 102 100 10.19 8.78 16
Bristol TN AA- 98 94 9.98 8.26 21
Huntsville Electric System AL AA- 86 89 9.96 8.31 20
Athens AL A+ 87 92 9.86 9.03 9
Fayetteville TN A+ 106 109 10.76 9.89 9
Florence AL A+ 92 98 10.66 9.40 13
Memphis Light Gas & Water TN A+ 94 99 9.68 8.71 11
Erwin Utilities Authority TN A 111 107 10.56 9.20 15
Hartselle AL A 95 101 10.41 9.33 12
Russellville AL A 101 96 11.68 9.46 23
Columbus MS A- 101 100 10.61 8.90 19
Hopkinsville Electric Plant Board KY A- 105 121 10.46 8.89 18
Tarrant AL BBB+ 108 112 12.61 10.73 18
Bessemer AL BBB 96 103 11.27 9.91 14
Franklin Electric Plant Board KY BBB 110 127 10.11 7.89 28

Highlights

The higher-rated issuers tend to have larger service areas and more customers, which, in our view, provide economies of scale and operating flexibility.

  • Most TVA LPCs receive a preponderance of revenue from residential customers, while only a few have sizable industrial bases. In our view, the customer class mix is credit supportive, as we believe residential demand is generally more stable across economic cycles.
  • With only a couple of exceptions, concentration among leading customers is not generally a risk.
  • Income levels correlate highly with ratings, as they tie into the relative vibrancy of the local economy, rate affordability, and rate-raising flexibility.
  • Despite the COVID-19 pandemic, unemployment rates remain low compared with national levels, as we note that the Tennessee Valley took a more measured approach to responding to the pandemic.
  • Weighted-average revenue per kilowatt-hour (kWh) for LPCs was within 10% of the state average in 2019. With a couple of exceptions, LPC market positions relative to the state averages were not significantly different from the market position a decade earlier. However, because the TVA service area is fenced, wholesale rate increases apply to all retail providers in the Tennessee Valley, and thus there is a limited effect on the relative positioning of a given LPC's retail rate versus the state average.
  • Our operational and management assessments for the LPCs range from adequate to extremely strong, and correlate highly with credit quality. Because two of the four components of the OMA are common to all LPCs, this means the other two OMA components--management, policies, and planning; and rate-setting policies--explain the differences in the OMA assessment among the LPCs.
  • The five largest LPCs--Nashville, Knoxville, Chattanooga, Huntsville, and Memphis--have enterprise profiles that are extremely strong (Nashville and Knoxville), or very strong (Chattanooga, Huntsville, and Memphis). In our view, Memphis' relatively weaker economic fundamentals and market position significantly contribute to our lower rating relative to that on the other large LPCs.

Table 4

Enterprise Profile Assessment
Local power company State Rating Economic fundamentals Market position Operational management assessment Overall enterprise profile assessment
Nashville Electric Service TN AA Extremely strong Strong Extremely strong Extremely strong
Knoxville Utilities Board TN AA Very strong Very strong Extremely strong Extremely strong
Chattanooga Electric Power Board TN AA Very strong Very strong Very strong Very strong
Bristol TN AA- Strong Very strong Very strong Very strong
Huntsville Electric System AL AA- Very strong Extremely strong Very strong Very strong
Athens AL A+ Very strong Very strong Strong Very strong
Fayetteville TN A+ Adequate Adequate Strong Strong
Florence AL A+ Adequate Very strong Strong Strong
Memphis Light Gas & Water TN A+ Strong Strong Very strong Very strong
Erwin Utilities Authority TN A Vulnerable Adequate Very strong Strong
Hartselle AL A Adequate Strong Strong Strong
Russellville AL A Vulnerable Strong Strong Strong
Columbus MS A- Vulnerable Adequate Adequate Adequate
Hopkinsville Electric Plant Board KY A- Vulnerable Adequate Very strong Strong
Tarrant AL BBB+ Highly vulnerable Vulnerable Strong Adequate
Bessemer AL BBB Vulnerable Strong Adequate Adequate
Franklin Electric Plant Board KY BBB Vulnerable Vulnerable Very strong Strong

LPC Ratings: Financial Profile Metrics

The following are key metrics considered as part of S&P Global Ratings' financial profile assessment for rated TVA LPCs.

Table 5

Financial Profile Metrics
--Fixed charge coverage (x)-- --Days' total liquidity-- --Debt to capitalization (%)--
Local power company State Rating Financial metric trends 2020 2019 2018 2017 Average, three most recent years (x) 2020 2019 2018 2020 2019 2018
Nashville Electric Service TN AA Worsening 1.28 1.34 1.41 1.24 1.34 138 147 134 45 49 55
Knoxville Utilities Board TN AA Steady 1.27 1.25 1.31 1.23 1.28 62 57 58 43 46 45
Chattanooga Electric Power Board TN AA Worsening 1.09 1.22 1.29 1.25 1.20 79 92 103 51 48 50
Bristol TN AA- Improving 1.5 1.26 1.29 1.26 1.35 189 174 202 16 18 19
Huntsville Electric System AL AA- Steady 1.27 1.19 1.39 1.22 1.28 20 13 12 22 24 25
Athens AL A+ Steady N/A 1.16 1.12 1.12 1.13 N/A 52 46 N/A 28 32
Fayetteville TN A+ Worsening 1.41 1.40 1.47 1.48 1.43 223 186 180 N/A 16 18
Florence AL A+ Improving 1.34 1.30 1.13 1.19 1.26 48 40 32 7 7 9
Memphis Light Gas & Water TN A+ Worsening N/A 1.17 1.33 1.18 1.23 N/A 52 74 N/A 16 17
Erwin Utilities Authority TN A Steady 1.49 1.41 1.43 1.31 1.38 106 128 74 N/A 21 14
Hartselle AL A Improving 1.28 1.21 1.16 1.25 1.22 88 62 82 16 18 19
Russellville AL A Worsening 1.11 1.20 1.43 1.38 1.34 45 68 84 42 42 45
Columbus MS A- Steady 1.12 1.09 1.11 1.08 1.11 56 41 54 24 29 29
Hopkinsville Electric Plant Board KY A- Steady N/A 1.10 1.11 1.16 1.12 N/A 49 36 N/A 36 39
Tarrant AL BBB+ Improving N/A 1.40 1.20 1.15 1.25 N/A 110 83 N/A 26 31
Bessemer AL BBB Improving 1.45 1.13 0.95 1.02 1.18 83 120 132 34 39 42
Franklin Electric Plant Board KY BBB Steady N/A 1.18 1.15 1.07 1.13 N/A 9 7 N/A 33 34
N/A--Not applicable.

Highlights

  • FCC metrics--which account for 55% of the financial profile assessment--are generally strong (averaging in the 1.2x-1.4x range) for the bulk of LPCs rated 'A' and higher.
  • With a couple of exceptions, FCC in 2020 was in line with that in previous years, despite the pandemic, as lower demand was met with lower power purchases and other expense-side savings. However, we note that those LPCs reporting 2020 results generally had June fiscal year-ends, so the total effect of the pandemic might not be fully reflected in available data.
  • Liquidity and reserves (25% of the financial profile assessment) run the gamut--from levels that we consider extremely strong (for distribution systems) to highly vulnerable--and are the primary distinguishing metric for the financial profiles of TVA LPCs.
  • Debt and liabilities (20% of the financial profile) are generally low, largely because of limited capital needs associated with operating a distribution utility. However, they are considerably higher for a few of the larger utilities with broader, more urbanized service areas.
  • The financial profiles of the five largest LPCs--Nashville, Knoxville, Chattanooga, Huntsville, and Memphis--are remarkably similar: In our forward-looking view, all have strong coverage of fixed costs (1.2x-1.4x). In our view, Chattanooga's extremely strong liquidity contributes to a higher rating, offsetting an enterprise profile that is slightly weaker than that of the other 'AA' rated LPCs. In our opinion, Huntsville's liquidity, which we view as only adequate, contributes to a slightly lower rating. We have assigned holistic adjustments to our indicative ratings on Nashville, Knoxville, and Huntsville, raising those ratings by one notch, largely based on peer review.

Table 6

Financial Profile Assessment
Local power company State Rating Fixed cost coverage assessment Liquidity and reserves assessment Debt and liabilities profile Overall financial profile assessment
Nashville Electric Service TN AA Strong Very strong Adequate Strong
Knoxville Utilities Board TN AA Strong Strong Adequate Strong
Chattanooga Electric Power Board TN AA Strong Extremely strong Strong Very strong
Bristol TN AA- Strong Extremely strong Extremely strong Very strong
Huntsville Electric System AL AA- Strong Adequate Very strong Strong
Fayetteville TN A+ Very strong Extremely strong Extremely strong Very strong
Florence AL A+ Strong Strong Extremely strong Very strong
Memphis Light Gas & Water TN A+ Strong Strong Very strong Strong
Erwin Utilities Authority TN A Strong Adequate Very strong Strong
Hartselle AL A Strong Strong Extremely strong Strong
Russellville AL A Strong Adequate Adequate Strong
Columbus MS A- Adequate Adequate Extremely strong Strong
Hopkinsville Electric Plant Board KY A- Adequate Strong Strong Adequate
Tarrant AL BBB+ Strong Vulnerable Very strong Strong
Bessemer AL BBB Highly vulnerable Very strong Strong Adequate
Franklin Electric Plant Board KY BBB Adequate Highly vulnerable Strong Adequate

This report does not constitute a rating action.

Primary Credit Analyst:Jeffrey M Panger, New York + 1 (212) 438 2076;
jeff.panger@spglobal.com
Secondary Contacts:Scott W Sagen, New York + 1 (212) 438 0272;
scott.sagen@spglobal.com
Jenny Poree, San Francisco + 1 (415) 371 5044;
jenny.poree@spglobal.com
David N Bodek, New York + 1 (212) 438 7969;
david.bodek@spglobal.com

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