LOS ANGELES - California's water and public power utilities remain strong for now, but the state's record drought could eventually pressure ratings down the road, according to Fitch Ratings.
The agency expects the statewide call for conservation to lead to a drop in water sales, which could impact water utilities in fiscal year 2015.
"However, most California utilities have mechanisms in place to buffer the financial impacts of lower water sales," Kathy Masterson, senior director at Fitch, wrote in a report released March 28. "Ratings could eventually be pressured if the severity and duration of this drought were to result in sustained weakness (i.e. more than one year) in utility credit quality."
Over the next year, however, Fitch expects the state's utilities to maintain strong operational and financial performance, despite effects from the drought.
Gov. Jerry Brown declared a state of emergency because of a record drought on Jan. 17, urging Californians to lower water usage by 20%.
"Historically, annual snow and rainfall in California fluctuates, so the state is accustomed to recurring droughts and many utilities have made reasonable investments to prepare themselves," Masterson said. "With California in its third year of below-average water conditions, utility financial performance will be determined by individual utilities' investments to date in water supply diversity, rate structure mechanisms, and their ability and willingness to offset lower sales with rate increases when needed."
The drought is spurring support for needed infrastructure investments in the state, particularly water storage projects.
While southern California utilities have taken measures in the last 20 years to increase storage capacity, making them better prepared, utilities in the Northern and Central Valley have fewer storage facilities, Fitch said. As a result, they have become more reliant on non-adjudicated groundwater supplies, which continue to decline.
