Bangkok--6 May--Standard & Poor's
Standard & Poor's Ratings Services has assigned its 'AA-' rating to the Los Angeles Department of Water and Power (LADWP, the utility, or the department), Calif.'s proposed $190 million power system revenue bonds, series 2009B. At the same time, Standard & Poor's affirmed its 'AA-' long-term and underlying ratings on the department's parity power system revenue bonds and its 'A-1+' short-term rating on the utility's $200 million power system revenue commercial paper notes. The outlook on the long-term ratings is stable.
"The ratings reflect our view of the utility's large base of 1.4 million customers, which provides a diverse and stable revenue stream," said Standard & Poor's credit analyst Peter Murphy.
The department is issuing the series 2009B Bonds to refund certain bonds outstanding.
LADWP exhibits, in our view, sound financial metrics after accounting for direct debt and off-balance-sheet financial commitments. However, the utility is projecting that $5.7 billion of 2010-2014 capital needs and rising operating costs will place pressure on financial margins. We understand that the department is to finance about $3.6 billion of the capital program with debt; we believe moderate additional rate increases could preserve financial metrics.
LADWP's financial flexibility comes from retail electric rates that we believe exhibit a significant competitive advantage relative to its neighboring investor-owned utility. However, we believe that some of that advantage might erode as rising variable costs and debt service tied to capital spending are incorporated in rates.
The stable outlook reflects our assessment of base-rate adjustments and the variable cost pass-through mechanism's capacity to address cost pressures. However, LADWP projects that substantial additional debt and fixed contractual commitments needed to meet generation and system capital needs will continue to pose a challenge to maintaining historically strong financial margins at levels that in our view are only adequate for the rating.
RELATED RESEARCH
USPF Criteria: "Electric Utility Ratings," June 15, 2007
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095, [email protected]
Analyst Contacts:
Peter V Murphy, New York (1) 212-438-2065
Paul Dyson, San Francisco (1) 415-371-5079