Fitch: Grant PUD Adequately Managing Wanapum Dam Fracture

NEW YORK--()--The recently discovered fracture at the Wanapum Dam's spillway structure does not currently impact bond ratings for the project's owner, the Public Utility District No. 2 of Grant County, WA (the district), nor other affected utilities, Fitch Ratings says. The reservoir above the dam has been drawn down to relieve water pressure, reduce the diameter of the fissure, and stabilize the dam. The district is investigating the root cause of the fracture and should have a determination by June. Repair work should begin shortly thereafter.

The reservoir drawdown has reduced power generation at the dam. While generation is below average, production is within normal variability levels that occur with fluctuating annual river flows. The district sells approximately 60% of its Priest Rapids Project (PRP) output, inclusive of generation from the Wanapum and Priest Rapids hydro developments, through slice contracts, which shifts the volume exposure onto the power purchasers, helping to insulate the district from operational risk. The district's electric distribution system is entitled to 40% of PRP output, after accounting for resale contracts. Its entitlement is planned based upon 68% of average regional water, and current generation should be sufficient to meet distribution system expectations. Favorably, regional water levels are slightly above average, which further mitigates the impact of the generation curtailment.

The fish ladders at the Wanapum Dam have also become exposed due to the lowered reservoir levels, making the ladders inaccessible to migrating fish. PRP is licensed by FERC, subject to terms and agreements relating to the safe passage and preservation of native fish. In order to ensure the safety of migrating fish, the district is modifying the ladders and work should be completed by April 15. Initially, fish will be trapped and transported upstream while the effectiveness of the adapted ladders is tested. The cost of modifications is estimated to be approximately $3 million, including related trap and haul costs.

Strong financial metrics and ample liquidity put the district in a solid position to fund initial needed repair costs and withstand lower wholesale sales. To date, costs have been relatively minimal. The district had a healthy unrestricted electric system reserve balance of $199.4 million at fiscal year-end 2013 (unaudited), or over 400 days cash on hand. Once the root cause of the fracture has been discovered and a repair plan established, the district should have adequate rate and debt capacity to fund remaining infrastructure repairs. Positively, the district's distribution system benefits from retail rates that are among the lowest in the U.S.

The lowered reservoir levels have not had a negative impact on utilities downstream from Wanapum Dam; however, energy production at the upstream Rock Island dam, which is owned and operated by Chelan County Public Utility District, has been affected. Energy production levels are lower but also within the range of normal variation due to water flow. Similar to the district, Chelan PUD has robust unrestricted reserves, approximately 494 days cash on hand at fiscal year-end 2012, and stable operating performance, putting the utility in a strong position to manage the lowered power production.

Fitch will continue to monitor developments at Wanapum Dam and evaluate their effect on the surrounding utilities.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Primary Analyst
Stacey Mawson, +1-212-908-0678
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Lina Santoro, +1-212-908-0522
or
Dennis Pidherny, +1-212-908-0738
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Stacey Mawson, +1-212-908-0678
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Lina Santoro, +1-212-908-0522
or
Dennis Pidherny, +1-212-908-0738
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com