KBRA Assigns AA Rating to the Department of Water and Power of the City of Los Angeles (LADWP) Power System Revenue Bonds; Outlook is Stable
28 Sep 2023 | New York
KBRA assigns a long-term rating of AA to the Department of Water and Power of the City of Los Angeles (LADWP) Power System Revenue Bonds, 2023 Series D. Concurrently, KBRA affirms the long-term rating of AA with a Stable Outlook on LADWP's outstanding Power System Revenue Bonds.
Key Credit Considerations
- LADWP is at the vanguard of U.S. public utilities in the transition to green energy and is well positioned to benefit from emerging technologies.
- Current electricity rates, while well above the national average, are affordable relative to other California utilities, allowing some rate flexibility.
- 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’s ability to maintain rate affordability and ensure system reliability while meeting highly capital-intensive energy transition mandates is an evolving credit challenge. Increasing operating cost pressure and leverage are likely as the Department works to meet myriad and evolving federal, state and local mandates relating to energy efficiency, GHG emissions, renewable energy standards, and environmental stewardship.
- 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.
- Adoption of a new rates ordinance, though overdue, could trigger lawsuits relating to CA Proposition 26 and/or Initiative 35, ballot measures that, if successful, would prohibit the Department from charging more than the cost of service provision. An ongoing inability to modernize the base rate ordinance that limits rate flexibility is a credit challenge.
- Demonstrated progress in implementing the 2022 Power Strategic Long-Term Resource Plan with minimal adverse rate impact.
- Evolving state and local directives relating to the transformation of power system resources that pressure the leverage ratio, financial metrics and customer rates.
- Revenue decline that results in a sustained weakening in debt service coverage or liquidity.
To access rating and relevant documents, click here.