CPS Energy Achieves Lowest Interest Rates in 50 Years on Bonds

This week, CPS Energy sold $200 million of its electric and gas systems junior lien revenue bonds. Proceeds from the bond sale will be put toward capital improvement projects over the next 12-18 months, and will cover the cost of issuing the bonds.

As CPS Energy’s customer base continues to grow, the number of civic improvement projects the utility must do in support of the City of San Antonio and Bexar County also escalates — relocating existing electric and gas facilities to support street and drainage improvement projects, for example.

New technology and environmental regulations also require strategic investment to maintain industry standards and customer expectations. Modernization of the electrical grid to become internet enabled will increase efficiency, allowing CPS Energy to see and respond to power outages remotely.

“Our tax-exempt bonds were well received in the market which illustrates our credit strength,” said Justin Locke, vice president of finance. “We’re fortunate that the demand for our bonds was greater than our supply.”

Locke explained that the market was tight, and that even though “we saw interest rates starting to rise during the day; we were able to get the transaction done at lower yields than other deals that were priced the same day.” He added that “Long-term interest rates are still at historical lows. The bonds sold at a total interest cost of 4.16 percent (the lowest long-term interest rates CPS Energy has seen on a new money tax-exempt debt issuance in more than 50 years), which will result in debt service savings for our customers.”

The junior lien revenue bonds received strong ratings from the three main credit ratings agencies:

Fitch Ratings Inc. AA+
Moody’s Investor Service Aa2
Standard & Poor’s AA-

For the benefit of our investors, Standards & Poor took note of several of our major initiatives, which we believe provide good context about our strong management team and solid strategic decisions:

• The completion and operation of the 775 megawatt (MW) coal-fired plant, J.K. Spruce 2, which provides fairly low-cost base load electricity; and four quick-start gas-fired peaking units, all equipped to minimize particulate, sulfur, and nitrogen oxide emissions; (this unit has been rated the cleanest coal plant in the nation);
• The launch of the advanced meter and data management programs through the company’s smart grid initiative; and
• The Save for Tomorrow Energy Plan, which is helping CPS Energy achieve its goal of reducing the growth in demand 771 MW by 2020.

“The ratings reflect what we view as several strengths of San Antonio’s electric and gas utility. We believe these credit strengths include a strong, growing service-area economy; very competitive electricity rates; economic, diverse-fuel generating capacity; strong financial metrics; and good management,” said Standard & Poor’s credit analyst Judith Waite.

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