Fitch Ratings assigns its 'F1+' rating to the $108 million Southern California Public Power Authority (SCPPA), CA Canyon Power Project revenue notes, 2008 series A. Fitch also affirms its 'AA-' rating on the Anaheim Public Financing Authority (Electric System) revenue bonds qualified lien obligations outstanding in the amount of $490.6 million and $126.2 million in second qualified lien bonds. The Rating Outlook on the bonds is Stable. The SCPPA notes will be structured with a 12-13 month final maturity and are expected to be refunded with long-term revenues bonds at maturity. The notes are scheduled to price on December 4, depending on market conditions.
The SCPPA notes are secured by unconditional payments made under a power sales agreement with the City of Anaheim's electric system to cover the full costs of the Canyon Power Project, including debt service on the notes. Therefore, the 'F1+' rating on the SCPPA notes reflects the credit quality of Anaheim electric. The power sales agreement includes an absolute and unconditional take-or-pay obligation that extends for the life of the bonds. Payments are made as operating expense of Anaheim's retail electric systems.
The 'AA-' underlying rating on the Anaheim Public Utilities Department (APUD) reflects the following credit characteristics:
--A diverse power resource portfolio that is competitively positioned within the California market place, although long-term changes required by the state's greenhouse gas reduction legislation will likely increase power supplies costs to electric utilities in the state, including APUD.
--The service area's relative economic stability with limited load growth pressure.
--Competitive retail rates in line with similarly rated public power systems that provide capacity to absorb future rate increases to support expected cost increases.
--Healthy and consistent financial performance with 1.67 times (x) debt service coverage in fiscal 2008, or 1.39x after the general fund transfer, based on unaudited financials. Projections indicate reserves may be drawn down in the next few years to support additional renewable energy purchases until base rate adjustments are adopted.
Key credit drivers for APUD will include:
--On-time and within budget construction of the Canyon Power Project, which is scheduled to be on-line in July 2011, should allow APU to meet its peaking needs and capacity requirements from local generation capacity.
--APUD's continued use of rate increases, to the extent sustained cost increases occur, will achieve timely cost recovery and allow the power cost rate-stabilization account (PCRSA) surcharge to function as designed, as a mechanism to recover periodic short-term or one-time cost increases.
--Shift from high degree of debt-financing of the capital plan to more pay-as-you-go funding.
--Fitch expects long-term cost pressure will be driven by renewable targets and state greenhouse gas legislation. These mandates will likely prompt long-term changes to the power supply mix of all utilities in the state and in particular, those with a significant load supplied by coal-fired generation.
SCPPA is a joint-action agency that owns and operates electric generation, transmission, and physical gas assets on behalf of its 14 members, all of whom are municipal electric utilities in southern California, including APUD. The Canyon Power Project is a SCPPA project. SCPPA will construct and own the project while APUD will operate the project.
APUD provides both retail electric and water service within the city limits of Anaheim, CA. The electric revenue bonds are secured by a net revenue pledge of the electric system. The electric system serves 112,000 connections and receives annual revenues of $356.9 million.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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or
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Email: cindy.stoller@fitchratings.com
