Rating News: Moody's refines ratings on various Southern California Public Power Authority Project Revenue Bonds, California.NEW YORK--(BUSINESS WIRE)--March 5, 1997-- Palo Verde Project Bonds downgraded to A2 from A1 Moody's has Refined the ratings on the various Southern Califronia Public Power Authority (SCPPA SCPPA South Carolina Professional Photographers Association SCPPA South Carolina Pulp and Paper Association ) project bonds in conjunction with a comparative surveillance review of the Nation's joint power agencies. Our review, which includes an individual assessment of each of the nation's JPAs focuses on a number of factors including the potential inability of certain joint power agencies to compete in a deregulated electricity market due to their high fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). of capacity. We have reviewed each SCPPA project against several fundamental credit factors including relative power costs and have used newly developed JPA JPA Java Persistence API JPA Joint Project Agreement (Department of Commerce) JPA Joint Powers Authority JPA Jabatan Perkhidmatan Awam (Public Sevices Department of Malaysia) JPA Joint Powers Agreement financial and cost ratios to better compare and contrast SCPPA performance against the JPA peer group. SCPPA's primary purpose is to provide joint financing for its member municipal utilities. It has invested in five generation and transmission projects, each designed to diversify the power resource base of the participants choosing to invest in that particular project. The debt for each of the projects is separately secured by strong take-or-pay contracts through debt maturity. Debt service is paid by each participant as an operations and maintenance expense. Credit quality of the bonds reflects the underlying credit strength of the project participants; the lack of substantial reliance by any one participant on each resource financed; the competitive price of the resource produced or transmission service provided; and the legal provisions which back the authority and its bonds. Our evaluation also took into consideration the impact of the California Deregulation Deregulation The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Notes: Traditional areas that have been deregulated are the telephone and airline industries. legislation which established the framework of a new more competitive electricity marketplace in California. A credit comment on each of the five separately secured SCPPA projects is provided below: Power Project Revenue (Palo Verde Project) Senior Lien senior lien n. the first security interest (lien or claim) placed upon property at a time before other liens, which are called "junior" liens. (See: mortgage, deed of trust, lien, UCC-1) , A2 (revised from A1) The Power Project Revenue bonds financed acquisition of an ownership interest in the Palo Verde Nuclear Generating Station The Palo Verde Nuclear Generating Station, a nuclear power plant located in Wintersburg, Arizona, about 45 miles (80 km) west of central Phoenix, is currently the largest nuclear generation facility in the United States, producing over 30,000 gigawatt hours of electricity annually , a three unit, 3,810 MW nuclear plant. SCPPA represents a 5.91% ownership of Palo Verde of which Los Angeles Department of Water and Power The Los Angeles Department of Water and Power (LADWP) is the largest municipal utility in the United States, serving 3.9 million residents in 2006. It was founded in 1902 to deliver water and electricity supplies to residents and businesses in Los Angeles. has a 67% interest in SCPPA's ownership. The downgrade to A2 from A1 reflects a number of uncompetitive factors including a very high average total power cost of almost 8 cents per Khw. While Palo Verde is very competitive on an incremental energy cost basis, fixed costs represent about 60% of toal power costs leaving limited pricing flexibility. Technological problems, including tube cracking, may require additional capital investment. An important strength of the bonds is they carry the strength of the long-term take-or-pay contracts with several California municipal utilities including LADWP LADWP Los Angeles Department of Water and Power . However, given the high cost of Palo Verde power and the technological and operating challenges ahead, the Palo Verde bonds are more vulnerable to deregulation pressures and carry a higher degree of credit risk particularly in the more competitive electricity marketplace intoduced by the California deregulation law. SCPPA has put in place a major strategic plan to reduce SCPPA debt over the next several years to lower the overall power price. The ultimate success of the SCPPA plan will be an important future rating consideration. Transmission Project Revenue Bonds, Rated Aa3 (refined from Aa) These bonds financed construction of the 500 kilvolt, 488 mile transmission line connecting the Intermountain Power Project coal generating plant in Utah to Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, . The transmission lines provide access to the participants' enitlements to energy produced at Intermountain, a baseload resource for each of the participants. The transmission system has had strong availablity (99.1% in l996) and reliability since inception. Another important credit strength is that LADWP has a 59.5% participation in the project and is also operating agent. The Aa3 rating rests on the expectation that transmission costs will be fully recoverable in a deregulated marketplace. Results of the policy discussions on establishment of the independent system operator (ISO (1) See ISO speed. (2) (International Organization for Standardization, Geneva, Switzerland, www.iso.ch) An organization that sets international standards, founded in 1946. The U.S. member body is ANSI. ) may have significant bearing on how transmission debt is funded in the future. Hydroelectric Project Revenue Bonds, Rated Aa3 (refined from Aa) The Hydroelectric Project bonds financed a portion of an upgrade to the Hoover Hydroelectric Plant which allowed for increased production from existing turbines. The uprating of the 17 generating units at the Hoover Dam Hoover Dam, 726 ft (221 m) high and 1,244 ft (379 m) long, on the Colorado River between Nev. and Ariz.; one of the world's largest dams. Built between 1931 and 1936 by the U.S. has been completed. The project provides low-cost hydroelectric power hydroelectric power: see power, electric; water power. hydroelectric power Electricity produced from generators driven by water turbines that convert the energy in falling or fast-flowing water to mechanical energy. to the participants with power priced at about 36 mills. San Juan San Juan, city, Argentina San Juan (săn wän, Span. sän hwän), city (1991 pop. 353,476), capital of San Juan prov., W Argentina. It is a commercial and industrial center in an agricultural region. Project (Unit 3) Revenue Bonds, Rated Aaa (MBIA MBIA Montana Building Industry Association MBIA Municipal Bond Insurance Association MBIA Michigan Boating Industries Association MBIA Municipal Bond Investors Assurance MBIA Massachusetts Brain Injury Association MBIA Maryland Business Incubation Association ); underlying rating, A2 (revised from Aa) The San Juan Project is a l993 acquisition by SCPPA of a 41.8% ownership interest in the coal generating station's Unit 3. The SCPPA participants were able to acquire the capacity of this coal facility with an improving capacity factor and a total power cost in the 4 to 5 cents range. The project provides resource diversity for the participants. The bonds are rated Aaa due to the insurance provided by MBIA. An underlying rating of A2 reflects the credit strength of the participants including Imperial Irrigation irrigation, in agriculture, artificial watering of the land. Although used chiefly in regions with annual rainfall of less than 20 in. (51 cm), it is also used in wetter areas to grow certain crops, e.g., rice. District, rated Aa, (50.98% of entitlement); Glendale, Azusa, Colton and Banning, not rated (49.02% of entitlement) and the average competitiveness of the resource. Mead Phoenix and Mead-Adelanto Revenue Bonds, Rated Aaa (AMBAC AMBAC American Municipal Bond Assurance Corporation AMBAC Active Mass Balance Auto-Control (Gundam anime) ); Underlying Rating Aa3 (refined from Aa) The Mead-Phoenix and Mead Adelanto projects are two transmission lines that were constructed which connects southern California to a larger power market in the western U.S. These projects provide the participants with transmission access to their interests in San Juan Unit 3 as well as energy markets throughout the southwest. The bonds are rated Aaa due to the insurance provided by AMBAC. An underlying rating of Aa3 has been assigned reflecting the importance of these transmission lines to SCPPA members; potential economic benefits of transmission line ownership in the deregulated wholesale marketplace and the credit strengths of individual participants and their contractual obligation to retire the bonds. The Aa3 rating rests on the expectation that transmission costs will be fully recoverable in a deregulated marketplace. Results of policy discussions on establishment of the independent system operator (ISO) may have significant bearing on how transmission debt is funded in the future. CONTACT: Dan Aschenbach or Journalists: 212/553-1925 or Subscribers: 212/553-1653 or All other inquiries: 212/553-1625 |
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