LIPA's credit outlook cut to negative by Fitch

Adding to the Long Island Power Authority's woes, a Wall Street credit agency Monday warned that the utility is on course for a downgrade to its credit rating.

"Given the intense political pressure surrounding LIPA's storm response and the authority's historic objective to moderate already high electric rates . . . LIPA's willingness to increase rates may be limited," the report said.

LIPA spokeswoman Elizabeth Flagler said in an email that the agency "is focused right now on the restoration process and will address the cost issues once restoration is completed."

A negative outlook means that the rating agency has identified a downward trend that is likely to result in a downgrade within two years if that trend continues. Just as lower consumer credit ratings increase the cost of borrowing for individuals, lower ratings for LIPA would result in it having to pay higher interest rates when it borrows money to improve the system.

Fitch gives LIPA a rating of A, considered investment grade, on $5.9 billion in bonds. Despite uncertainty over federal reimbursement and future rates, Fitch said the utility is fundamentally strong financially. Its customers are affluent, it has been diversifying its mix of power suppliers and it can set utility rates.

To deal with the current cash needs of repairing damage from Sandy, LIPA has $500 million of cash on hand, authorization to borrow $100 million for short-term needs using commercial paper and it is seeking an additional $500 million of short-term credit.

SEE PHOTOSSandy's impact on Long Island

But those solutions will only carry it through until it gets federal disaster money -- which history shows could take more than a year. Moreover, LIPA presumably will borrow to handle repair costs that the federal money doesn't cover.

LIPA expects to pay $569.3 million in debt service -- interest and principal on its debt -- in 2012, according to financial documents. Those debt payments account for 15.4 percent of the utility's $3.7 billion budget.