S&P Bielarski

S&P Global Ratings, one of the three bond rating agencies, lowered its long-term rating on GRU’s
combined utility revenue debt two notches to ‘A” from ‘AA-‘. This two-notch downgrade is the first of
its kind for GRU and is the fifth bond rating downgrade since 2010. Unlike other utility downgrades, this
action was not driven by a specific event, which is what you normally see with a two-notch downgrade.
For instance, JEA’s contractual dispute with the Municipal Electric Association of Georgia (MEAG).
Instead, this downgrade is the result of decisions that adversely impact GRU and created financial
inflexibility. Specifically described by S&P: 1) “two power supply decisions made more than a decade
ago – a solar FIT paid to behind-the meter generators and a power purchase agreement (PPA) for a
biomass plant”; 2) “significant transfers to support the city’s general fund”; and 3) “an uncertain
approach to achieving a stated goal of 100% of energy from renewables by 2045, there is a risk that this
goal could become an unfunded mandate, which could have further implications for GRU’s credit
worthiness.”
Although a downgrade to ‘A’ sounds fairly innocuous, it is 5 notches away from the loss of investment
grade status and 4 notches away from the highest investment grade status of ‘AAA+’. An ‘A’ rating is not
like an ‘A’ on your children’s report card. It’s more like a ‘B-‘ to a ‘C’. GRU will incur additional costs to
its liquidity facilities and letters of credit. Interest costs will increase on both existing and future debt
issuances.
It needs to be mentioned that the rating agencies monitor the activities of the city commission from the
activities surrounding the buyout of the biomass PPA on November 7, 2017 through these past year’s
budget discussions. I think it’s important to note that the municipal utility arm of rating agencies are
quite conservative in their efforts to fulfill their fiduciary responsibility to bondholders. These municipal
bondholders aren’t hedge funds or investment capital firms, but insurance companies and money
market funds who secure the payouts of individual insurance claims. The vast majority of GRU’s
bondholders are seeking very modest returns on their investments (3 to 6%). The security of the
payments are their primary concern.
Unfortunately, over the past decade, GRU’s governing board has taken actions that concern the rating
agencies. In addition to the execution of the two power supply agreements made more than a decade
ago, the commission’s reluctance to address and mitigate the financial headwinds faced by GRU
weighed heavily on this downgrade. In my white paper, written in February, 2019, I noted that the
primary financial headwind GRU faced was “negative bond ratings based on GRU’s financial leverage.” I
also alerted the commission that there would be “political pressure to approve lower rates than what
GRU recommended.”
In response to those headwinds, I requested that the commission significantly reduce the GFT in FY
2020, FY 2021, and FY 2022. Unfortunately, in FY 2020 and FY 2021 the GFT was simply frozen, not
reduced and GRU continued to remit payments in excess of what it had earned. In FY 2022, the
commission reduced the GFT by $2 million, not the $11 million GRU had recommended in accordance
with the conditions set forth in the 2019 debt restructure. S&P addressed this action directly by writing,
“Although the city modestly reduced the amount to be transferred in 2022, this nevertheless represents
a substantial burden on the utility, and in our view, partially contributes to GRU’s high rates.”
Just this February, GRU finance staff met with commissioners individually to discuss the future state of
the utility if the commission chose to 1) forego a sizeable reduction in the GFT while 2) undertaking the
100% renewable goal with the current state of technologies. In this presentation, “State of the Utility”,
the commissioners were shown the financial impacts of forgoing reductions in the GFT along with
moving towards 100% renewable goals under current technologies. The results of which are that GRU
does not have the financial condition to continue to pay more than it earns in the general fund transfer
nor could GRU or this community financially support the 100% renewable energy goal at the present
time, under the state of the current technologies. That is why I have consistently battled with the UAB
concerning their approach to energy policy that has little or no regard for the financial health of the
utility. This downgrade also reflects that S&P is concerned about GRU‘s ability to fund, finance and
execute on 100% renewable goal as well.
This two-notch downgrade by S&P is a signal from knowledgeable industry experts that GRU is now
beyond the crossroads. GRU will be forced to navigate the ship against stronger headwinds of higher
utility rates, higher leverage, high general fund transfer and financial inflexibility. Although some
commissioners may find this communication to be too strong, I will assure you it is necessary in order
for me to support the careers, livelihoods, and legacy of my top-flight financial staff, who don’t deserve
to be tarnished with such an historic two-notch downgrade.

S&P Bielarski

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S&P Global Ratings, one of the three bond rating agencies, lowered its long-term rating on GRU’s

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