LOS ANGELES -- Some of California's public power agencies could be financially pressured in 2014 by the ongoing drought's impact on hydropower production, according to a recent report from Fitch Ratings.
Analysts said there is sufficient time for water conditions to return to more normal levels in 2014, but the state is currently experiencing record low water conditions, with almost one-third of the water year, which starting in September, passed.
"While the financial impact is expected to be manageable, utilities with a greater reliance on hydroelectric generation may be forced to use more expensive generation and purchased power to replace to the potential shortfall in hydropower output for the third year in a row," analysts said.
Eight of the rating agency's 14 rated public power issuers receive between 10% and 32% of their power supply from hydroelectric resources.
Public power utilities in the state have experienced prolonged periods of dry water conditions before the current cycle and have undertaken measures to reduce their vulnerability, analysts said. Measures include improved rate design, the broader use of automatic recovery mechanisms, the collection and use of rate stabilization funds, and more conservative budgeting.
The fuel mix for electricity generation in California has generally shifted away from lower cost hydropower toward natural gas-fired resources during below-average water years, analysts said. Figures are not yet available for 2013, but Fitch expects the contribution from hydropower to remain relatively low based on observed water levels.
