Standard & Poor's gave Central Coast Community Energy an "A" issuer credit rating Oct. 16, an indication that S&P considers the community choice aggregator "stable."
3CE—formerly known as Monterey Bay Community Power—said it expects the rating will ultimately boost the number of counterparties competing for its wholesale contracts, lower its transaction costs, and provide it with access to "innovative financing structures" needed for developing energy solutions.
"3CE is proud to receive the first 'A' investment grade credit rating among California CCAs," Bruce McPherson, 3CE policy board chair and Santa Cruz County supervisor, said in a news release. "This is a testament to the hard work and forward thinking 3CE staff and leadership have demonstrated since launching in 2018 . . . This historic rating will allow 3CE to embark on an even more impactful path towards reducing greenhouse gas emissions through local energy programs and energy procurement, and it helps to ensure the longevity and continued success of 3CE on behalf of our communities."
In its analysis, S&P said it applied its retail electric criteria and found 3CE to have "strong enterprise and financial risk profiles" as a result of its large customer base and solid customer retention since it started operations. It also attributed this strength to the CCA's joint-powers authority structure, the diversity and low cost of the power it has procured, and its limited direct exposure to wildfires, specifically because it owns neither transmission nor distribution infrastructure.
S&P said the CCA has "robust liquidity," which it attributes to a debt-free balance sheet with no plans to issue debt in the long term and low fixed costs. 3CE has a "very strong liquidity" with $119.4 million in cash and reserves, and is forecast to reach a levelized liquidity of $210 million by 2024. S&P stated it expects the fixed costs to be lower still because 3CE is expected to shift to a cost-of-service rate.
In its brief, S&P said it does not expect to raise 3CE's rating in the next two years based on competition for the CCA's retail customer base. Among issues that could lower 3CE's credit rating are if customer collections become an issue, if market prices fall significantly below those of the CCA's portfolio, or other negative financial pressures, such as the loss of a member that could force 3CE to sell surplus contracted power to the market.
"Achieving the first 'A' rating is a testament to our Boards, customers, staff and 33 communities that believe in the CCA model as critical to our affordable clean and renewable energy future," 3CE CEO Tom Habashi said in a news release. "This rating also demonstrates the viability of both the CCA business model and the leadership that CCAs provide in achieving California's greenhouse gas emission goals while providing reliable low-cost electricity."
Three other CCAs—MCE, Peninsula Clean Energy and Silicon Valley Clean Energy—have been given a Baa2 investment-grade credit rating from Moody's Investors Service. MCE, which serves 34 communities in Napa, Marin, Contra Costa and Solano counties, obtained its rating in May 2018, making it the first California CCA to obtain any credit rating. PCE was assigned its rating May 6 and SVCE July 15.
The benefits of any investment-grade credit rating include the potential to negotiate lower energy prices and secure improved credit terms for future power purchases.
3CE is a CCA serving roughly 439,000 customers in Monterey, San Benito, San Luis Obispo, Santa Barbara and Santa Cruz counties.
This article has been updated to reflect the number of California CCAs assigned a Baa2 investment-grade credit rating by Moody's Investors Service. There are three: MCE, Peninsula Clean Energy and Silicon Valley Clean Energy.