Bangkok--24 Dec--Standard & Poor's
Standard & Poor's Ratings Services has raised its long-term rating on the California Department of Water Resources' (CDWR or the department) power supply revenue bonds to 'AA-' from 'A+'. The outlook is stable. The department has $9.03 billion outstanding.
"The higher rating reflects 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 Peter Murphy. "The rating also reflects the department's maintenance of what we view as adequate operating reserve levels that we believe will likely mitigate remaining program risks," Mr. Murphy added.
The upgrade reflects our view of the impact of CDWR's final revenue requirement filing for 2010 that the California Public Utility Commission approved Dec. 3.
The 'AA-' rating also reflects our opinion of the breadth of the customer base that supports the revenue stream, namely the customer bases of the state's three largest investor-owned utilities. CDWR's ability to raise rates to recover potentially higher operating costs is also a key factor that we consider in our rating.
The stable outlook reflects our expectation that CDWR will maintain adequate reserves to reflect the market risks of the shrinking power supply program, and our assumption that the natural gas hedging program will remain in place and limit exposure to manageable levels. Barring extreme volatility in natural gas prices, we believe the operating and operating reserve accounts should continue to shield bondholders during the next two years, after which we believe most of the wholesale market risks will dissipate. Time and the resulting expiration or cancellation of power supply contracts will eventually eliminate wholesale risks and provide, we believe, the potential for a higher rating.
RELATED RESEARCH
USPF Criteria: "Electric Utility Ratings," June 15, 2007
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Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Peter V Murphy, New York (1) 212-438-2065
David Bodek, New York (1) 212-438-7969