Fitch Rates SPPC's GRMBs 'A-'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has assigned an 'A-' rating to Sierra Pacific Power Company's (SPPC) general and refunding mortgage bonds (GRMB). The Rating Outlook is Stable. Proceeds from the offering will be used toward the repayment of $450 million of SPPC's 6% GRMBs, Series M due May 2016.
SPPC is a wholly-owned operating subsidiary of NV Energy (NVE). NVE is a wholly-owned intermediate holding company subsidiary of Berkshire Hathaway Energy Company (BHE).
KEY RATING DRIVERS
--Constructive regulation in Nevada from a credit perspective;
--Rating linkage with NVE;
--Solid credit ratios and manageable leverage.
SPPC and Nevada Power Company (NPC) are Nevada-based operating utility subsidiaries of NVE. The ratings of SPPC, NPC and NVE are closely linked, consistent with Fitch criteria. SPPC shares common management, administrative and treasury functions as well as strategic and operational goals with NVE.
Nevada Regulatory Compact:
Fitch believes the regulatory compact in Nevada is credit-supportive. SPPC is subject to the jurisdiction of the Nevada Public Utilities Commission (PUC) which requires the utility to file a general rate case (GRC) every three years. While GRC filings are based on historic test years, filings may be updated to include known and measurable changes. The PUC has adopted tariffs to facilitate recovery of fuel, purchased power, energy efficiency and conservation related costs outside of GRC filings.
SPPC is expected to file its 2016 GRC in June 2016. The utility filed its last GRC in June 2013, supporting an $800,000 net rate increase composed of a $9.4 million electric rate reduction and a $10.2 million gas rate increase. The final PUC order granted a $35.2 million net rate decrease composed of a $39.1 million electric rate reduction and a $3.9 million gas rate increase.
Fitch's key assumptions within the rating case for SPPC include:
--A continued supportive regulatory environment in Nevada.
--A balanced outcome in SPPC's anticipated 2016 GRC.
--Load growth of approximately 1%, on average, 2016-2017.
Future developments, individually or collectively, that could lead to a future SPPC upgrade include:
--All else equal, an NVE upgrade would likely result in an upgrade for SPPC. An upgrade at NVE could be driven by stronger than expected sales growth and/or better than expected rate case outcomes and strengthening credit metrics.
Future developments, individually or collectively, that could lead to a future SPPC downgrade include:
--All else equal, an NVE downgrade would likely result in a downgrade for SPPC. A downgrade at NVE could be driven by lower sales growth relative to Fitch's expectations, execution risk associated with utility capex, and/or deterioration in Nevada's regulatory compact resulting in weakening credit metrics.
--Significant deterioration in SPPC's debt-to-EBITDA to higher than 5.1x on a sustained basis, potentially driven by an unexpectedly adverse outcome in the utility's next GRC or other factors, could result in adverse credit rating actions.
Liquidity at SPPC is solid with approximately $356 million available as of Dec. 31, 2015. Total liquidity includes $106 million of cash and cash equivalents and full availability under SPPC's fully committed $250 million credit as of Dec. 31, 2015.