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Batavia electric system revenue bonds rated at A-

Staff writer ▼ | November 10, 2014
Fitch Ratings affirms the City of Batavia, Ill.'s outstanding $25.1 million electric system revenue bonds at A-.
Batavia Electric Utility   The bonds are secured
The bonds are secured by a pledge of the revenues of the city of Batavia's electric utility, after payment of operations and maintenance expense. Batavia's electric utility is an enterprise fund of the city.

The Batavia Electric Utility (BEU) is a city-owned retail distribution system providing electric service to approximately 10,900 customers in a relatively wealthy suburb of Chicago.

BEU is a member of the Northern Illinois Municipal Power Agency (NIMPA, A-/Stable), a joint action agency that participates in the Prairie State Energy Campus (PSEC), a 1,600 MW coal-fired generating station. BEU's power supply is concentrated in this single asset, accounting for up to 85% of energy requirements.

The rating reflects the completion of PSEC and its commercial operating status. Although initial operating results have fallen short of expectations, PSEC's performance improved and stabilized during 2014 as most start-up issues were resolved.

BEU's credit metrics deteriorated during fiscal 2013 with Fitch calculated debt service coverage dropping to 1.18x as a result of BEU's decision not to raise rates to recover higher purchased power costs. Historical coverage was in excess of 4.0x. BEU's stable liquidity position (116 days cash on hand), approved rate increases for 2014 and 2015, and other cost savings measures underpin the Stable Outlook.

BEU's imputed debt, which takes into account its share of debt issued by NIMPA to construct PSEC, remains high at over $22,000 per customer. This risk is partially mitigated by BEU's competitive retail rates and above average service territory economics.

While there is some concentration in BEU's retail customer base (top 10 users represent 39.7% of electric revenues), the ratepayers are above-average income earners, which provides added rate and financial flexibility. The city's unemployment level (5.2%) remains better than both state and national averages.

A recent class action suit filed by certain BEU ratepayers against certain developers of the PSEC project has been factored into the rating. Fitch notes that an increasing politically charged environment, recently underscored by the city council's request to have the state attorney general (AG) investigate the development of PSEC, could pressure the city council to adopt less supportive rate setting practices at BEU.