NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a long-term rating of AA with a Stable Outlook to the Department of Water and Power of the City of Los Angeles Power System Revenue Bonds, 2021 Series B.
Key Credit Considerations
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The rating was assigned because of the following key credit considerations:
- Efforts to-date to transform resources and meet renewable mandates put the Department at the vanguard of U.S. public utilities in the transition to green energy and position it to reap significant benefits from lower generating costs as technologies evolve.
- Electricity rates are extremely competitive and affordable relative to other California utilities, allowing for flexibility to impose rate increases as necessary. The Rate structure incorporates several pass-through adjustments that effectively decouple revenue generation from changes in customer demand.
- Strong liquidity helps to offset enterprise risks.
- The Department faces continued operating cost pressure and increased leverage as it works to meet myriad federal, state and local regulations and mandates relating to energy efficiency, GHG emissions, renewable energy standards, supplies and development, and environmental stewardship.
- Climate change creates the potential for increased frequency and severity of wildfires in the service area. Claims related to wildfire litigation could negatively impact the Department’s financial position. Moreover, exposure to wildfire liability risk, which is influenced by the State’s doctrine of inverse condemnation and its unique strict liability standard, may become increasingly costly to hedge against in the traditional insurance and catastrophe bond markets.
- Operating margins, though still strong, have declined in recent years, reflecting increased maintenance and operating expenses and higher purchased power costs, which have grown at a faster pace than operating revenues.
- Sustained reduction in Power System operating costs and leverage.
- Ability to maintain competitive and affordable rates while maintaining system reliability and meeting highly capital-intensive environmental goals and requirements.
- Evolving state and local mandates relating to the transformation of power system resources that impose unanticipated, material financial and rate pressures.
- Revenue reduction that results in a sustained decline in DSC or liquidity.
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