Marin Clean Energy scores Moody’s rating boost to A3

Marin Clean Energy had its issuer rating boosted to A3 from Baa1 by Moody’s Ratings on continued improvement in its liquidity position.

The outlook is stable.

The upgrade “reflects the continued resiliency of MCE’s business profile, including a demonstrated ability to deliver sustained solid financial and operational performance over the last several years,” Moody’s analysts said in the report released Wednesday.

Marin Clean Energy is a community choice aggregator and joint powers authority formed in 2010 to reduce energy-related greenhouse gas emissions and increase renewable energy usage in California.

The CCA model was created through enabling legislation under the California Public Utilities code. MCE procures green energy for its customers, but investor-owned Pacific Gas & Electric continues to provide transmission and distribution services, and MCE charges appear on PG&E’s bill.

The community choice aggregator provides fossil-free electricity to 585,000 customers in four affluent San Francisco Bay area counties: Contra Costa, Marin, Napa, and Solano.

Fitch upgraded MCE’s long-term issuer default rating to A-minus from BBB-plus in December citing improved liquidity and its trend of retaining customers despite its limited operational role as a community choice aggregator. Also in December, S&P affirmed an A issuer rating and stable outlook.

As a CCA, Fitch noted, MCE serves a non-captive customer base in which customers can choose to abandon MCE-provided electric supply in favor of receiving it from Pacific Gas & Electric, but MCE has retained “86% of the customers able to opt out each year.”

Risk mitigation strategies implemented by MCE support its growth and have strengthened its liquidity profile and access to cost-effective electric resources, Moody’s analysts said.

“The rating also incorporates the inherent strengths of the California CCA model, which provide MCE with a captive and sticky customer base, which for MCE, is skewed towards the residential customer class, allowing it to deliver reliable revenue and cash flow on a consistent basis despite variations in power cost,” Moody’s said.

MCE’s liquidity position “has improved substantially in recent years and is expected to be stable in the near-term as it balances power procurement risks with an often volatile energy market,” Moody’s analysts said. MCE’s procurement strategies have been aided by participation in an electric prepayment transaction which provides MCE with a reliable source of generation that is discounted to the market, Moody’s analysts said.

MCE issued more than $1 billion in pre-paid gas bonds on June 18 through the California Community Choice Financing Authority, its third transaction.

In prepaid gas deals, public utilities secure a long-term supply of natural gas at a discounted rate, made possible by the tax-exemption on the bond interest.

The CCCFA won The Bond Buyer’s 2024 ESG/Green Financing Deal of the Year for a $1.52 billion clean energy project revenue bond transaction.

Rating constraints include a relatively high exposure to wholesale market conditions compared to more traditional publicly owned utilities, Moody’s analysts said.