SAN FRANCISCO — Standard & Poor’s yesterday upgraded the underlying rating for $10 billion of outstanding California Department of Water Resources power revenue bonds to A from A-minus, and revised the outlook to positive from stable. The power revenue bonds were issued in 2002 to clean up the financial mess left by the California power crisis of 2001 and 2002, and as time goes on, the DWR program’s responsibilities are declining and its exposure to market volatility is being reduced, according to Standard & Poor’s.The rating could be raised further as the size of the power program continues to wind down, so long as operating reserves are maintained at sufficient levels to offset exposure to unhedged volumes of natural gas, according to the ratings agency.“A failure on the part of CDWR to maintain rates to customers in line with operating costs, or an increase in risk brought about by a discontinuation of the hedging program, could cause the outlook to return to stable,” analyst Peter Murphy said in a news release. “Barring extreme volatility, bondholders should continue to be shielded by the protections provided by the operating account and the operating reserve account.”More than $11.2 billion of bonds were issued to reimburse the California general fund and repay private bank loans made to the department to purchase power during the crisis, when surging wholesale electricity prices outstripped the ability of California’s major investor-owned utilities to pay them.The debt is secured by a surcharge on power bills of the customers of those utilities, which is a very broad base that helps the credit, according to Standard & Poor’s.When they were issued in 2002, the DWR power bonds had ratings of BBB-plus from Standard & Poor’s, A3 from Moody’s Investors Service, and A-minus from Fitch Ratings.Following subsequent upgrades, the debt now carries ratings of Aa3 with a stable outlook from Moody’s and A with a positive outlook from Fitch.
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