11/4/03 - Douglas PUD gets upgrade in bond rating
Moody’s Investors Service upgraded the rating of Wells Project Revenue Bonds to Aa2 from Aa3. This upgrade comes on the eve of the pricing of the Wells Hydroelectric Project bonds on Thursday.
The factors considered in the upgrade of the credit ratings include Moody's opinion that there remains significant economic and competitive advantages to the Wells Hydroelectric Project. Even during the drought conditions in 2001 the District's financial operations remained sound. The fact that the District has already established fish and environmental standards which should limit new capital expenditures over the forecast period was also a factor in the upgrade.
Moody's believes the credit rating outlook for the District's electric system and Wells Hydroelectric bonds is stable because of the District's strong environmental record, the low cost structure of its power supply and the District's conservative financial management.
Other strengths include:
· The fundamental credit strength provided by the strong competitive and economic importance of the Wells Hydroelectric Project;
· The Wells Hydroelectric Project has had an impressive performance record and has key attributes which should assure a sound future economic record;
· While contractual provisions protect the District, its competitive cost structure remains a key fundamental factor;
· The financial record of the District is sound and has been tested during drought and a regional power crisis.
Standard Poors also confirmed their rating of the District’s Wells Project Revenue Bonds at AA due to these strengths: Historical production costs that are among the lowest in the country, averaging about 0.85 cents per kilowatt-hour (kWh) from 1999 to 2003, and are likely to remain very low even after accounting for gradual cost inflation and the possibility of very low streamflow conditions;
Long-term power supply contracts, which extend through 2018, that include take-or-pay provisions and a 25% step-up provision;
A unique project design that allows the district to meet environmental regulations with negligible capital expenditures;
Conservative management practices, including the use of critical water levels for financial planning purposes; and
Adequate debt service coverage for a wholesale system of 1.1 times, even under the exceptionally poor water conditions experienced in 2001; a conservative balance sheet with equity at 27% of assets; and strong liquidity of $10.3 million, or more than 110 days' operating expenses, and $23.2 million in restricted reserves that are also available to pay debt service.