Fitch Rates Energy Northwest's
NEW YORK -- Fitch Ratings has assigned an 'AA-' rating to the following issuances for Energy Northwest (ENW):
The 2008D and E financings consist of tax-exempt and taxable bonds and involve three nuclear projects. The 2008 bonds are payable on a subordinated basis to outstanding Energy Northwest prior lien bonds. The prior-lien resolution was previously closed. Bonneville Power Administration (BPA) is obligated to pay debt service on Energy Northwest's Project 1, Columbia Generating Station (CGS) and Project 3 bonds ahead of U.S. Treasury repayments.
Providing solid support for the rating and the Positive Rating Outlook is BPA's position as a leading provider of electricity and transmission in the Pacific Northwest and its highly competitive wholesale power rates, which have recently approximated $27/MWh to preference customers. BPA continues to work to put in place more certain contractual and pricing arrangements with its diverse customer base, that could help support an upgrade to 'AA' in the near term.
Financial results have improved in recent years, helped by reasonable hydro conditions, and going forward should benefit from BPA's renewed focus on meeting its customer power requirements from existing, lower cost hydro and nuclear dedicated generating resources, while working to firm up longer-term power sales agreements with its major customers, which should add to rate stability.
Credit concerns include the risk inherent in a hydro-based system where available energy and wholesale costs are dependent upon weather conditions (precipitation and water flow), and ongoing capital expenditures related to fish management issues. For the first six months of fiscal year 2008, BPA's net revenues are lower versus the comparable prior year period, at $123 million as of March 31, 2008 compared to $293 million for the prior year. The variability in net revenues is a function of the hydrological conditions in the region. Even though there is ample snowpack in and around the Columbia River basin, the snow has melted at a slower pace than last year, resulting in lower stream flows. Favorably, BPA maintains considerable unrestricted reserves, at $1.77 billion currently, to effectively manage the variability in hydroelectric production and secondary sales.
Fitch also recognizes that despite the accelerated pay-down of current obligations to the U.S. Treasury, BPA is expected to reach its borrowing cap (established by Congress) in the next nine-ten years. Over the long term, an essential component of BPA's credit will be its continued ability to fund the increasing capital needs for transmission, conservation, renewable resources and to maintain the existing system.
Key Rating Drivers:
BPA utilizes the energy from CGS as part of its overall power supply portfolio (12% of capacity) and is obligated to pay debt service on the Energy Northwest CGS related bonds. BPA is the largest of the regional federal power marketing agencies within the DOE. BPA was created by Congress in 1937 to market electric power from the Bonneville Dam. Congress has since designated BPA to market power from all of the federally owned hydro projects (31) in the Pacific Northwest. BPA sells electric power sold in a 300,000 square-mile service area and accounts for approximately 35% of the electric power consumed in the region. Total population served approximates 11 million.
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