SAN FRANCISCO — The Los Angeles Department of Water and Power, the nation's largest municipal utility, said its finances remain strong, even amid a stalemate between local elected officials that has held up a planned electricity rate increase.
"Existing bondholders should not be worried," LADWP spokeswoman Carol Tucker said in a statement in response to questions from The Bond Buyer. "LADWP will have adequate resources to service the existing bond debt."
The department said it has delayed some new renewable and energy efficiency projects because the rate hikes were rejected by the Los Angeles City Council earlier this month.
"We are quickly evaluating several cost-cutting measures and will make decisions very soon on what steps we will take to ensure our near- and long-term fiscal health," Tucker said.
LADWP has also delayed a $720 million power revenue bond deal that had been ready to go for "a few weeks" prior to the rate hike rejection.
Fitch Ratings pulled its rating on the deal, saying it was contingent on the department's plan to raise rates. The city utility planned to implement the first installment of a 22% rate increase on April 1. The new rate structure was to be implemented over the course of a year.
The LADWP board is now reconsidering how much of an operating subsidy it can offer the city's general fund without the rate hike. Last week, it said it wouldn't be able to give the full $73.5 million scheduled for this year, prompting a downgrade of the city's credit rating.
The department's outstanding power revenue bonds are rated AA-minus by Fitch and Standard & Poor's and Aa3 by Moody's Investors Service.
LADWP, which has $5.1 billion of power revenue bonds outstanding, has almost $1 billion in reserves that provide a big buffer against any delay. City Council leaders say they are willing to hike rates as much as necessary to maintain the utility's credit ratings, but they have balked at starting a new environmental fund championed by Mayor Antonio Villaraigosa with the local jobless rate at almost 15%.
The agency has about $445 million in unrestricted operating cash and $547 million in a debt reduction fund, according to a Fitch report.
"We are closely monitoring cash balances to ensure alignment with financial metrics adopted by our commission and will take all necessary steps to ensure we meet these metrics," Tucker said.
Board policy requires the utility to maintain an unrestricted cash reserve of at least $300 million, a debt-service coverage ratio of 2.25 times and a debt-to-capitalization ratio of less than 60%.
"LADWP is prepared to ensure the utility will continue to meet its financial obligations," Tucker said.