LOS ANGELES — A proposal to impose more oversight on Los Angeles Department of Water and Power rate decisions would be a credit negative if implemented, according to Moody's Investors Service.
Timely, independent rate setting — a key credit strength for municipal enterprises — could be impaired by a more complex process, analysts said.
"We place a pretty heavy weight on timeliness of rate setting," said Dan Aschenbach, a Moody's analyst. "If you are regulated that is viewed negatively."
Moody's analysts issued a short comment May 1 on the Los Angeles 2020 Commission proposal by the that calls for external rate regulation and greater oversight of the department.
LADWP already is seen as having an arduous rate setting process for a municipality, analysts said.
"They have a ratepayer advocate now, so the process is already longer than what is typically seen for municipal electric and power utilities," Aschenbach said. "Anything that further extends that process would be of concern."
Los Angeles City Council President Herb Wesson formed the commission in early 2013 to study and report on fiscal stability and job growth in the city.
The commission's April report was its second. Its first, issued in January, painted a bleak picture of the city's finances and leadership.
The April "A Time for Action" report, advisory in nature, covered numerous topics. Changes to LADWP's rate review process would require a charter amendment.
Rates for LADWP, the nation's largest municipal water and electric utility, are currently established on a relatively timely basis within parameters designed to provide sound financial metrics and security for bondholders, Aschenbach said.
LADWP has demonstrated an ability to navigate current procedures to produce a solid credit profile consistent with its Aa2 rating and stable outlook on the water revenue bonds and Aa3 rating and stable outlook the power revenue bonds, according to the report.
The municipal utility has been responsive to rate changes from its wholesale water supplier, the Metropolitan Water District of Southern California; and is managing the impacts of the drought in California, analysts said.
Analysts said the proposed requirement to gain external approval of base water and electric rate changes would add another level of complexity to the rate setting process. It would also be a negative credit distinction compared to other Moody's-rated municipal utilities that have sole discretion over rates.
LADWP officials could not be reached for comment.
