Fitch Ratings Affirms 'AA-' Rating for Indianapolis, IN Gas Utility Bonds

Fitch Ratings has reaffirmed the 'AA-' rating on the revenue bonds of the city of Indianapolis, IN, issued on behalf of the board of directors for its Department of Public Utilities, d/b/a Citizens Energy Group. The rating outlook remains stable. The affirmation reflects the gas distribution system's very low financial leverage, measured as net adjusted debt to adjusted funds available for debt service (FADS), which improved to 2.7x in fiscal 2024. Healthy coverage and liquidity metrics contribute to a strong financial profile, alongside a strong revenue defensibility and very strong operating risk assessments.

Key Takeaways:

• The gas distribution system's financial leverage improved to 2.7x in fiscal 2024, with a very low operating cost burden averaging $6-$8/Mcf in recent years.
• The system benefits from a rate structure with automatic fuel cost pass-throughs and a history of successful rate cases, supporting strong revenue defensibility.
• Citizens Energy Group has no plans to issue bonds with a pledge of revenues ahead of the second lien bonds, and the prior lien indentures remain open but without outstanding bonds.
• The utility's operating risk assessment is very strong due to its robust supply management and transmission/distribution infrastructure, as well as its well-identified cost drivers.
• The five-year capital improvement plan is manageable, with investments in gas mains, physical storage, and system reliability improvements totaling $196 million.
• The system's liquidity profile is neutral to the rating, with adequate coverage and liquidity metrics, including days cash on hand of 114 days and total liquidity of 262 days.
• Fitch's forward-looking scenario analysis considers the potential trend of key ratios in a base and stress scenario over a five-year period, with the stress scenario imposing a volume decline in the first two years and evaluating potential variability in projected ratios.

Statistics:

• The gas distribution system's FADS reached 2.7x in fiscal 2024, with a very low operating cost burden averaging $6-$8/Mcf in recent years.
• The system's rate case history and rate structure contribute to strong revenue defensibility, with gas service cost affordability very high under Fitch's metrics.
• The five-year capital improvement plan for 2025-2029 totals $196 million, with investments in gas mains, physical storage, and system reliability improvements.
• The system's total liquidity is 262 days, including the available liquidity facilities, and days cash on hand improved to 114 days in fiscal 2024.

Sources:

• Fitch Ratings
• U.S. Public Sector, Revenue-Supported Entities Rating Criteria (pub. 10 Jan 2025)
• U.S. Public Power Rating Criteria (pub. 24 Feb 2025)