Bangkok--8 Aug--Standard & Poor's
Standard & Poor's Ratings Services has assigned its 'AA-' long-term rating to the up to $1.1 billion of California Department of Water Resources' (CDWR) power supply revenue bonds series 2011N. At the same time, Standard & Poor's affirmed its 'AA-' underlying ratings and 'AA-/A-1+' ratings on the department's bonds outstanding. The outlook is stable.
"The ratings reflect our assessment of CDWR's power program, and the ongoing trend of declining power program responsibilities that we believe has greatly reduced the program's exposure to power market volatility," said Standard & Poor's credit analyst David Bodek. The department initiated its power purchasing program with more than 50 contracts. The number now stands at nine priority contracts and one without priority over debt service requirements. The last of the priority power contracts expires at the end of 2013. The last power purchase contract expires at the end of 2015.
We understand CDWR plans to use bond proceeds to refinance some or all of its remaining variable-rate debt with fixed-rate debt. Market conditions will determine the size of the financing and the extent of variable-rate debt retirement. The department reports $7.8 billion of bonds outstanding.
Additional elements supporting the rating include the breadth of the customer base's 11.4 million investor-owned utility (IOU) retail customers, which contributes to revenue stream stability and predictability. The IOUs bill customers for power charges and debt service on behalf of CDWR, and remit the funds to the department. The utilities will continue to collect modest CDWR bond charges of about 0.5 cents per kilowatt-hour after the power program ends. Bond charges will service the nearly $8 billion of remaining debt through its 2022 maturity.
The stable outlook reflects our expectation that CDWR's operating reserves will mitigate the financial risks of the shrinking power supply program's exposure to fuel and electricity obligations. We believe that as power and natural gas supply obligations expire, there could be the potential for a higher rating once only the obligation to service the power bonds remains.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Electric Utility Ratings, June 15, 2007
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ola Fadahunsi, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
David Bodek, New York (1) 212-438-7969
Paul Dyson, San Francisco (1) 415-371-5079