OREANDA-NEWS. S&P Global Ratings has revised its outlook to negative from stable and affirmed its 'A-' issuer credit rating on Great River Energy (GRE), Minn.; McLean County, N. D.'s series 2010A-B solid waste facilities first mortgage notes the county sold on GRE's behalf; the utility's 2010D first mortgage bonds; and the cooperative's 2008A first mortgage bonds. At the same time, S&P Global Ratings affirmed its 'A-' underlying rating on several series of insured first mortgage bonds.

The outlook revision reflects debt service coverage (DSC) that has varied considerably in recent years. Although coverage was 1.22x in 2014 and 1.14x in 2013, it was only 1.06x in 2015, 1.02x in 2012 and 1.08x in 2011, which we consider to be weak for the rating. S&P Global Ratings calculated these ratios using the methodology it uniformly applies to electric cooperative utilities. GRE calculates DSC using a different methodology that indicates coverage was 5-10 basis points stronger in these years.

"We view the presence of weak DSC metrics in three of the past five years as highlighting GRE's exposure to the impact of weather on electric sales, the pressure on margins when the utility sells surplus generation in markets under the influence of low natural gas prices, and the negative effects of renewable energy standards on the market's demand for the output of GRE's surplus conventional generation resources' capacity," said S&P Global Ratings credit analyst David Bodek.

GRE benefits from the breadth of its customer base that consists of 28 member distribution cooperatives serving 675,000 customers. The members derive nearly 62% of their revenues from their residential customers. In 2015, all members exhibited sound fixed charge coverage of at least 1.1x.

The negative outlook reflects our view that GRE's exposure to competitive wholesale markets, the weather's impacts on customers' energy demand and its concentration in coal-fired resources in a regulatory environment that is increasingly inconsistent with a high dependence on this fuel, could erode financial performance or perpetuate recent years' inconsistent and weak DSC.

We could revise the outlook to stable if either native customers' electricity demand or management actions can stabilize DSC at levels consistent with the rating.

We could lower the rating if the utility continues to exhibit DSC that we consider weak for the rating, whether due to load growth that is insufficient to counteract the economics of GRE's generation units relative to the power prices of other generators in the Midcontinent Independent System Operator market, weather patterns, or the impacts of renewable mandates on the the utility's fossil fuel plants.