S&P; Gives DWP a Higher Credit Rating

The Los Angeles Department of Water and Power, the largest municipally owned power utility in the U.S., received a higher credit rating from Standard & Poor’s Corp., reflecting progress in cutting debt and spending.

The credit-rating company raised the department’s bonds one notch to AA-minus from A-plus, affecting about $3.1 billion of power system revenue bonds. The utility plans to sell $400 million of adjustable-rate debt next week to refinance commercial paper.

The utility’s “progress in reducing debt and operating expenses in recent years” and wherewithal to pay for power plant improvements and other upgrades with cash spurred the higher rating, S&P; said.

A higher credit rating often helps cut the cost of a borrower’s bond sales because investors are willing to accept lower interest rates on higher-rated securities.

Most municipal utilities in California, including Los Angeles’, avoided a fiscal crunch during an energy crisis last year that drove the state’s two largest investor-owned utilities to insolvency and lowered their bonds to “junk” status.

The municipal agencies were able to pass higher power costs on to customers, an option the privately owned utilities didn’t have under a flawed state deregulation plan, analysts have noted.

Municipal agencies also benefited from owning more power plants, shielding them from soaring costs for outside power purchases.

“When we looked at our financial situation over the last couple years, we always thought that we should be upgraded” because of the utility’s improved financial standing, Robert Rozanski, the department’s assistant chief financial officer and treasurer, said. The crisis last year “created a lot of uncertainty” that made an upgrade a tougher sell.

Moody’s Investors Service, which rates the Los Angeles utility’s bonds Aa3, said in a report last week that the department had cut its debt tied to generating plants to about $1 billion from $4.1 billion in 1997.