Bangkok--17 May--Standard & Poor's
Standard & Poor's Ratings Services today said that changes to Los Angeles Department of Water and Power's (LADWP or the department) rate-making mechanisms will not affect our 'AA-' long-term rating on the department's series 2010A and 2010B bonds.
We issued the rating in March, although the department has rescheduled the sale date to the week of May 25. After we released the rating, LADWP attempted to change its rate-making mechanism. While city council initially denied the rate-relief request, it subsequently approved part of it, on a temporary basis, on April 27.
The enacted resolution temporarily increases LADWP's quarterly cap on increases of its energy cost adjustment factor (ECAF) to 0.6 cents per kilowatt-hour. The increased limit applies only to the quarter beginning July 1, 2010. A city ordinance establishing a 0.1 cent cap per quarter on increases remains in effect beyond that quarter. This change, combined with operating and capital cost reductions in the department's budget, increases its ability to meet its financial targets. Standard & Poor's believes that the temporary cap increase, while not as large as LADWP's board had initially requested, is nevertheless an improvement from the current one, which was not sufficient to assure timely and full recovery of fuel and purchased power costs. LADWP projects that the adopted base rates and the increase in the ECAF will help it preserve financial metrics; in our view, timely rate increases and the ongoing adequacy of debt service coverage relative to the rating will remain important determinants of credit quality.
For more information on the bonds, see the analysis published March 22, 2010, on RatingsDirect on the Global Credit Portal.
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
Paul Dyson, San Francisco (1) 415-371-5079