PHOENIX - The Sacramento Municipal Utility District's decision to abandon a pumped storage generation project is good for its credit, Moody's Investors Service said Friday.

SMUD, which serves the area around Sacramento, announced early this month that it had decided not to pursue the $1.45 billion, 400-megawatt Iowa Hill project, citing financial risks. The project was originally tagged in 2010 as costing $800 million, and last year that estimate was raised to $900 million.

The latest engineering estimate put the total cost at the $1.45 billion, making it no longer reasonable to pursue it, according to SMUD.

The plan had included a reservoir built in Iowa Hill above the existing Slab Creek reservoir. The project entailed pumping water from the reservoir up the mountain during off-peak hours when prices were low, and then releasing the water through tunnels to flow through the powerhouse to create energy during peak usage periods.

"An updated cost-benefit analysis has led us to conclude that other energy-storage technologies may provide more economical options for reducing peak demand, meeting our renewable-energy goals and reducing carbon emissions," SMUD said in a statement.

Moody's said that the significant cost of the project would have reversed positive steps SMUD had taken to decrease its debt load.

"The decision is credit positive for SMUD because the debt issuance to construct Iowa Hill would have significantly increased SMUD's financial risks and debt leverage," said Moody's which assigns and underlying Aa3 rating to SMUD's electric revenue bonds.

"Alternatives to the pumped storage project that we estimate would be less capital intensive include SMUD's development of a 500-kilovolt transmission line to import clean power from the Pacific Northwest scheduled for completion in 2023, and development of smaller flexible natural-gas-fired generation units," Moody's wrote.

SMUD still owns more than 200 acres in the project area. The utility said that it has no immediate plans for this property but will likely put it up for sale eventually.

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