SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to the following Clark County Public Utility District No.1 (the district) revenue bonds:
$41.035 million electric system revenue & refunding bonds, series 2011.
The bonds are expected to price May 24, 2011. Proceeds will be used to fund ongoing capital expenditures, reimburse a $3.0 million draw on a line of credit and, depending on market conditions, refund a portion of the outstanding electric system bonds, series 2002A.
In addition, Fitch affirms the 'A+' ratings on the follow Clark County Public Utility District No. 1 bonds:
--$194.540 million outstanding electric system revenue & refunding bonds;
--$179.250 million generation system revenue and refunding bonds.
The Rating Outlook is Stable.
SECURITY:
The bonds are secured by a pledge of the net revenues of the district's electric system. Note that operating expenses of the electric system include contract resource obligations. Contract resource obligations include the costs of the district's generating system, including debt service, which are payable as an operating expense, prior to debt service on the district's electric distribution system's debt.
RATING RATIONALE:
--The 'A+' rating reflects the district's stable financial metrics at both the electric distribution (1.49 times (x) annual debt service coverage) and generation system (1.03x annual debt service coverage) in 2010, solid plant operating performance (at the River Road generating plant) and a diversified, electric customer base;
--The conservative management team maintains a good working relationship with its governing board of commissioners;
--Ownership of the natural-gas fired, River Road generation project diversifies the district's power supply mix (previously concentrated largely in power purchases from Bonneville Power Administration [BPA]).The generating plant also provides stable capacity to support more variable power purchases from renewable resources and pursuant to the new BPA contract beginning Oct. 1, 2011;
--The customer base is well diversified, with residential users representing 58% of retail revenues and industrial users representing just 13% of revenues;
--A credit concern is the district's liquidity levels (11 days cash on hand), which are below average for the 'A+' category (the Fitch median is 103 days cash on hand). The district expects cash balances to grow through the projection period (2012 through 2015) through rate increases and a modest resumption of growth;
--The district has established a history of fiscal conservancy and monitoring, which has resulted in consistent and notably stable financial metrics, albeit at a lower level, through periods of volatile fuel and electricity market prices and the current economic recession;
--While the district's average electric rates are somewhat high relative to some of the other public utility districts that own hydroelectric generation, the district's rates compare favorably to similarly sized systems and investor owned utilities in the vicinity;
--Positively, the district's financial projections are typically conservative, based on 86% of average regional water conditions and moderate sales growth. The district will not need additional power supply resources for the foreseeable future, other than to meet increasing renewable energy goals post 2015.
KEY RATING DRIVERS:
--A key rating driver is the district's ability to effectively manage its relatively narrow financial margins going forward, given its fuel (natural gas) commodity exposure, the ongoing economic downturn and the shift in a portion of the BPA power purchases to the more variable slice product. This change in the power supply is a function of BPA new power sales agreements which go into effect for all preference customers of BPA Oct. 1, 2011;
--Another key driver is the governing board's continued support and willingness to raise rates when needed to maintain the district's projected financial performance;
--Fitch will be closely monitoring the district's ability to replenish its rate stabilization fund and cash balances as projected, in order to and improve operating liquidity;
CREDIT SUMMARY:
Clark Public Utilities owns and operates three utility systems: electric distribution, electric generation, and a water system. The district provides electric service to 183,514 customers, in the county, which is located in southwestern Washington, just a few miles from Portland, OR. The water system is modest in comparison, with 30,300 customers and is separately financed.
In 2010, retail revenues consisted of 55% residential, 26% commercial, 12% industrial, and 7% other. Major customers appear to be diversified.
The distribution system's power supply consists of variety of power purchases: roughly 60% from BPA, 38.6% from the district's generation system (River Road plant), and remaining 1.2% from market purchases.
While liquidity levels are low for this rating category, the Fitch calculated debt service coverage for the district's electric system improved to 1.49x in 2010. Debt levels are manageable as illustrated by the debt to funds-available-for-debt-service of 4.2x and equity to capitalization is a respectable 44.8% in 2010. Prospectively, based on fairly conservative assumptions including: below average water conditions in the northwest, moderate sales growth (0.8% per year post 2010), modest rate adjustments, manageable capital expenditures (mostly cash funded), and largely hedged natural gas requirements through 2013, the district's financial performance and liquidity levels should strengthen through the five year projection period.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was additionally informed by information from Public Financial Management, EES Consulting Inc., Koegen Edwards LLP and Creditscope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (Aug. 16, 2010);
--'Public Power Rating Guidelines' (March 28, 2011).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
U.S. Public Power Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=613065
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