• S&P Global Ratings affirmed its ‘A+’ issuer credit rating (ICR) on Merrimac Municipal Light Department (Merrimac, MMLD, or the light department), Mass.
  • The outlook is stable.

Merrimac has a credit-supportive customer base, as most of the light department’s revenue comes from residential customers, which we view as having consistent demand for power. We expect that Merrimac’s fixed-cost coverage (FCC), which we calculate using a proxy for capacity charges to assess the capacity to fund suppliers’ recovery of capital investments in generation serving Merrimac and which has averaged 1.57x in the three most recent years, will decline significantly when the utility reports fiscal 2022 financial results due to significantly higher operating costs associated with the Mystic Reliability must-run cost-of-service agreement that were not addressed by a rate adjustment until near the end of the year. As a member of New England Power Pool and ISO-NE, Merrimac does not have the option of whether or not to participate in the contract, as all members must pay their share of costs associated with the Mystic Reliability contract. Nevertheless, we expect FCC to rebound given the double-digit rate increase to offset these higher costs. The utility used its rate stabilization fund to account for costs until the rate increase went into effect. The contract is set to expire in 2024. We view Merrimac’s infrequent use of rate stabilizations as credit supportive.