therefore collection rates are as strong as that for
the water and sewer fund.
Unlike water and sewer ratings, there is typical-
ly a gross pledge of revenues securing drainage
revenue bonds. Net coverage is often close to
gross coverage as most drainage funds have little
operations and maintenance expenses. Since
drainage systems are usually established for the
purpose of addressing capital-specific items, most
drainage fund expenditures are capital-related andcan be delayed by management should liquidity
become a concern.
The rate covenant and the ability to raise rates
are important factors, but less so given the overall
stability typically experienced by drainage rev-
enues. It is typical, however, to see a rate
covenant set to achieve debt service coverage of at
least 1.10x. The rates or fees charged are typical-
ly very low in relation to the overall bill for water
and sewer usage.■Electric Utility Ratings......................................................................................................1
http://www.standardandpoors.com 121S
tandard & Poor’s Ratings Services criteria reflect
the challenges and risks of publicly owned utili-
ties operating in a deregulated wholesale environ-
ment, and approaching retail competition. The
criteria also reflect the dynamics of the energy
industry and the credit implications for bondhold-
ers and lenders, and emphasize the qualitative and
quantitative factors that indicate an electric utility’s
capacity to operate in a market in which it must
work to retain, and gain customers.
Credit ratings for public power issuers embody
the interplay between eight variables: management,
operations, competitive position, markets, regula-
tion, service area economy, finances and legal provi-
sions. Standard & Poor’s also assigns business
profiles to all rated electric utilities, which includes
the first five factors. These factors are incorporated
in credit ratings, and enhance an investor’s ability
to differentiate between utility systems by comple-
menting the credit ratings and outlooks.
Similarly, business profiles enable utilities to
make comparative analyses and internal assess-
ments to benchmark themselves against other utili-
ties with which they may compete. Business profiles
are ranked on a ten-point scale. A score of “1”
reflects the strongest business profile.Management
A competitive marketplace puts a premium on lead-
ership skills. Management’s decisions in all facets of
utility rate setting, operations and finances, are crit-
ical to a public power system’s long-term viability
and strength. Standard & Poor’s assessment of
management includes an evaluation of the extent to
which a utility’s strategic plans are supported by
local councils or boards of directors, and the extent
to which the governing body’s actions are support-
ive of credit quality. Management should demon-strate an understanding of, and be supportive of
rate structures, customer service initiatives, and
financial strategies that bolster credit quality. While
Standard & Poor’s evaluation of management con-
sists of a qualitative assessment, our analysis
employs specific criteria for measuring the effective-
ness of management. The following elements are
exhibited by well-run utilities:
■Institutionalized planning processes that are
revised regularly to reflect changing conditions;
■Sound financial and operating policies that are
supported, implemented and achieved;
■A deep and experienced executive team;
■A solid grasp of industry issues that extends
beyond the local utility;
■Extensive knowledge of customers and
their needs;
■Extensive knowledge of competitors; and
■A proactive and farsighted management
approach that has the support of an informed
board or council.
Management should also demonstrate an under-
standing of the risks and rewards associated with
entering into contracts with counterparties, and
with entering into new lines of business beyond the
scope of its core mission. Additionally, management
will be assessed on their ability to operate within a
given governance and oversight structure.Operations
Standard & Poor’s examines the full gamut of a
utility’s operations through a multi-pronged analy-
sis that explores the following:
■Power and fuel resource mix, capacity, supply
and demand;
■Operating efficiency and reliability; and
■Capital needs.