LOS ANGELES — The Los Angeles City Council’s approval of a five-year rate increase for its electric utility is a credit positive, according to Moody’s Investors Service.
The City Council unanimously approved the 3.86% increase for the Los Angeles Department of Water and Power last week after an extended series of public hearings.
LADWP expects to maintain debt service and equity ratios similar to 2015 levels, even as it moves forward on $8 billion in projects to help it meet environmental mandates over the next five years, Moody’s said.
It will fund 55% of the projects by issuing debt.
“The decision to establish new rates in advance of implementing this strategy is credit positive for LADWP because it helps to maintain the electric utility’s sound fixed-obligation charge coverage and liquidity during a period of higher capital spending,” Moody’s analysts said.
The city will use the additional revenue to reduce its dependence on coal-fired generation with the aim of reducing its carbon footprint. The increase will also pay for system reliability efforts to improve customer service.
The city’s ratepayer advocate found the utility’s proposal to be reasonable.
The city council also approved a 4.7% annual water rate increase for the next five years.
State regulations require LADWP to generate 33% of its energy using renewable resources by 2020 and 50% by 2030.
“Meeting these objectives remains a major challenge for the utility from both a transmission system reliability and cost perspective,” Moody’s analysts said.
LADWP has been working to shift the Intermountain Power Plant, an 1,800-megawatt coal-fired plant in Utah, from coal to a natural gas powered unit. The plant is a significant source of energy for Los Angeles.
LADWP serves 3.9 million customers in a territory covering a 465-square-mile area in Los Angeles and much of the Owens Valley to the east of the Sierra Nevada Mountains. Annual supply exceeds 26 million megawatt-hours.