As a result of lower than suggested cash reserves, Fitch Credit Ratings has announced it will lower the Grays Harbor PUD credit rating from A-stable to A-negative. The decrease is isolated to future outlook and does not reflect upon the PUD’s day-to-day financial management or operations.
It is suggested that utilities carry a cash/credit reserve equal to one-quarter of operating expenses. Currently, the PUD cash reserves would cover one month of operations. In order to reach the recommended reserve total, the utility would need to implement a one-time customer surcharge of 16-18%. That is something the utility is not willing to do.
“We cannot in good conscience pass an increase on to our customers to increase the size of our bank account,” said PUD Commission President Arie Callaghan. “While we acknowledge the circumstances related to the rating downgrade, we will continue to responsibly manage our finances, build up our reserves and strengthen our financial position in a reasonable timeframe that will have a minimal impact on our customers.”
The main result of the credit rating change will be higher interest rates for future borrowing. However, Finance Director Kathryn Skolrood and General Manager Dave Ward do not anticipate the need for increased credit usage and larger bond issuance in the near future.
“The utility has a plan in place to align reserves to the recommended levels in a time frame that fits our needs. This effort will be greatly aided by the expiration of costly and unnecessary energy contracts in 2023,” said Skolrood. “This is the responsible path forward.”
“The best choice is to stay the course and keep to the plan we have been following for the past two years,” said Callaghan.
In addition, the PUD will continue its leadership role in economic development in Grays Harbor. More business means greater electric load use and growth which allows the PUD to absorb changes in the power market.
“The PUD continues to work with Greater Grays Harbor Inc., the Port of Grays Harbor and our legislative and local leaders to foster economic development in Grays Harbor,” said Ward. “By increasing the ratio of commercial to residential customers, it makes the PUD less susceptible to weather related impacts, power price increases and other factors that affect our bottom line.”