Moody's Investors Service has changed its outlook on the New York State Power Authority to positive from stable and affirmed the authority's long- and short-term ratings at Aa2 and P-1, respectively.
Moody's also upgraded SFP Transmission's revenue bonds to A1 from A2 and changed the outlook on the power authority's affiliate to positive from stable on Aug. 17.
About $2.4 billion of debt is affected.
The rating agency said the NYPA serves as an instrument of the state and plays a large part in its economic development goals.
"The improved rating outlooks are critical for the Power Authority to ensure that we can continue leveraging the capital markets to provide affordable, reliable, and green electricity in support of the state's transition into a clean energy economy," NYPA President and CEO Justin E. Driscoll told The Bond Buyer.
The NYPA was created in 1931 and provides wholesale power and transmission services. It owns and operates five major electric generating facilities, 11 small gas-fired generating facilities, four small hydroelectric facilities and more than 1,400 miles of transmission lines.
Driscoll is responsible for developing and implementing the utility's strategy of fostering clean energy goals and is in charge of its operations as well as its legal and financial matters. He is also responsible for the operation of the New York State Canal System.
He also oversees NYPA's role as an energy supplier for its governmental customers, including New York City, the Metropolitan Transportation Authority, the Port Authority of New York and New Jersey, the New York City Housing Authority and other state agencies and local governments.
Since 2015, the NYPA has issued almost $2 billion of debt, $1.6 billion of which was sold in 2020.
The rating actions consider "the authority's recent strong financial and operating performance, the increased revenue diversification relating to the growth of transmission investments within the NYPA family, the completion and near completion of SFP's first two transmission projects and an improved credit profile of the State of New York (Aa1/stable)," Moody's said.
Moody's said the NYPA's fiscal 2022 was strong due to higher market energy prices and transmission revenues.
Operating revenues and operating income exclusive of depreciation and amortization totaled $4 billion and $638 million in 2022 compared to $2.7 billion and $420 million in 2021.
"The credit outlook improvements from Moody's are reflective of the Power Authority's stellar operating and financial performance and our deployment of hundreds of miles of transmission throughout the state in recent years, unlocking renewable energy to build the power grid of the future," Driscoll said.
Moody's said the positive outlook revision for NYPA "reflects an expectation for continued strong operating and financial performance over the next 12-18 months and further cash flow diversification associated with the commercialization and increased transmission investments at SFP."
SFP was formed by NYPA to finance, operate and maintain transmission projects eligible to collect transmission revenue through the New York Independent System Operator.
NYISO monitors the reliability of the state's power system and coordinates daily operations to distribute electricity supply.
The SFP is a separate credit from NYPA, with the repayment of its debt coming from only revenue earned by its assets and projects.
The upgrade of SFP "considers the success achieved year-to-date in achieving commercial operation of two transmission project investments within the timeline and budgetary parameters previously outlined leading to improved cash flow visibility," Moody's said.
"The positive outlook for SFP reflects an expected improvement in financial performance as it expands its transmission-related investments over the near term," the rating agency said.
The Smart Path Reliability Transmission Project entered into service in May and SFP anticipates full operation of its ownership in Central East Energy Connect Project by year-end.
Smart Path Connect is a part of several transmission upgrades being undertaken across the state to support clean energy goals. Together, the projects will enable the flow of an additional 1,000 megawatts of clean, renewable energy.
Smart Path Connect aims to rebuild about 100 miles of transmission lines by replacing old wood H-frames with steel poles and replacing or upgrading approximately 10 power substations.
The Central East Energy Connect Project will install high-capacity infrastructure on the LS Power Grid, to end energy bottlenecks caused by limited capacity on the existing transmission lines and improve reliability.
"The reduced notching between the ratings at NYPA and SFP acknowledges the successful execution of construction for SFP's two inaugural projects and the increasing amount of revenue and cash flow visibility that will emerge and be sustained over time as transmission assets are completed," Moody's said.
"While SFP's contribution to NYPA's operating income in 2022 was only $31 million, its contribution will increase in 2023 and beyond due to full year revenue contributions from Smart Path and CEEC and the anticipated addition of incremental transmission investments," Moody's added.
Last month, S&P Global Ratings affirmed the rating on the authority's $1.6 billion of senior revenue bonds at AA and the AA-minus rating on its $20 million of Series 2017 subordinated notes and A1-plus subordinate-lien commercial paper and Series 1 extendible municipal CP notes. As of Dec. 31, $179 million of commercial paper was outstanding.
The outlook on all long-term ratings is stable, S&P said.
S&P said its rating on the senior debt "reflects what we consider to be robust debt service coverage of at least six times in the past three years, which reflects, in part, a debt portfolio that defers to later years portions of existing bonds' principal amortization.
"The authority's $1.1 billion series 2020A term bonds represent 69% of senior debt and the 2020A bonds' amortization does not begin until 2045. The 2020A bonds will amortize in three tranches through 2060. The authority makes sinking fund payments in connection with the 2020A bonds," S&P said.
Earlier this month, Kroll Bond Rating Agency assigned an AA-minus rating with stable outlook to the NYPA's Series 2022A green transmission project revenue bonds, issued in April 2022.
"The rating reflects the broad (essentially statewide) customer base upon which the authority can recover 100% of the annual separately financed project transmission revenue requirement pursuant to a Federal Energy Regulatory Commission approved formula rate," KBRA said. "Further underpinning the rating is the strategic role the SFP Transmission Projects is expected to play in helping New York State achieve the aggressive clean energy goals of its 2019 Climate Leadership and Community Protection Act."
In 2022, Fitch Ratings affirmed the NYPA's senior lien revenue bonds and Series 2012 subordinate notes at AA and the commercial paper and extendible municipal commercial paper program at F1-plus. In addition, Fitch affirmed the NYPA's AA issuer default rating and kept the outlook at stable.
