Moody's Investors Service said it has downgraded the credit rating to A1 from Aa3 on the Southern California Public Power Authority's (SCPPA) outstanding Natural Gas Project A, 2008 revenue bonds.
The outlook is stable.
The A1 rating takes into consideration the A1 rating on the only participant, Anaheim's electric enterprise; the strong take-or-pay legal security and the value of the project to the participant.
While Anaheim's Natural Gas Project A obligation is payable by Anaheim Electric as an O&M expense of the electric system, the take-or-pay obligation is a direct obligation of Anaheim Electric rated A1 by Moody's.
The bonds financed Anaheim's share of the costs of acquisition and development of their share of Natural Gas Project A. SCPPA acquired then sold the entire production capacity of its leasehold interests (Natural Gas Project A) by entering into gas sales agreements with several of its member utilities.
The Natural Gas Project A is certain natural gas resources, reserves, fields, wells and related facilities located near Pinedale, Wyoming and the Barnett Shale formation in Texas.
The project represents one of the strategies SCPPA and its participants have undertaken to diversify and provide some certainty to its natural gas acquisition for use in electric generating units.
The natural gas supply from Natural Gas Project A represents about 15% of the natural gas utilized by the Magnolia natural gas fired generation facility. The 2012 price of natural gas from the project has averaged about $4.00/mcf versus the spot market price that has dropped to the $3.50 range.
However, as a part of the fuel mix SCPPA believes the attributes of the long term certainty of deliverability to southern California and the diversity of the source are still positive features of the transaction.
