Moody’s Investors Service said it has downgraded the Bonneville Power Administration’s issuer and related ratings to Aa1 from Aaa.
The BPA-related ratings include Energy Northwest Project 1, Energy Northwest Project 3, the Energy Northwest Columbia Generating Station, the Conservation and Renewable Energy System Project, the Cowlitz Falls Hydroelectric Project, the McNary Dam Fishway Hydroelectric Project, the Northwest Infrastructure Financing Corp. Transmission Facilities Lease, and conservation system project revenue bonds. The outlooks are stable.
The rating action reflects significant hydrology and market price risk in the BPA’s power services business that has led to credit quality deterioration over the last few years. Driven by low regional hydrology, low wholesale market prices and rising non-federal debt service, total reserves available for risk dropped a cumulative 36% over a two-year period ending in fiscal 2010 while non-federal debt service coverage dropped to 1.8-1.9 times in 2009 and 2010 compared to a 4.4 times average from 2004 to 2008.
In Moody’s view, challenging wholesale market conditions are expected to continue over the next several years given low natural gas prices, sustained lower demand, and increasing amounts of wind generation during the BPA’s peak surplus energy sales season. That said, the agency’s financial performance achieved relative stability in fiscal 2011 due to extraordinary high water flows estimated at 133% of the average.
For fiscal year-end September 2011, total reserves for risk are expected to decline by $35 million compared to the $253 million reduction in fiscal 2010 and $200 million reduction in fiscal 2009. Total reserves at risk for fiscal 2010 were around $815 million.
