PHOENIX – Arizona's Salt River Project Agricultural Improvement and Power District plans to price about $700 million of tax-exempt fixed-rate revenue bonds the week of Nov. 6, its first long-term debt issuance since a court ruling that analysts warn could have credit repercussions for SRP and other electric utilities nationwide.
The deal, to be senior managed by Goldman Sachs & Co., will finance capital improvements of the district's electric system and refund all or a portion of the district's outstanding 2009 revenue bonds.
SRP is a relatively infrequent issuer of long-term bonds, but generally issues large amounts when it does come to market. It issued $760 million in December 2016, and prior to that had not issued long-term debt since a more than $900 million deal in June 2015. SRP is rated Aa1 by Moody’s Investors Services and AA by S&P Global Ratings.
The upcoming pricing will happen against the backdrop of a lawsuit originally filed in early 2015 which has not gone well for SRP.
The suit was filed by a rooftop solar panel company called SolarCity Corp., which challenged SRP’s rate plan for customers generating their own electricity via rooftop solar panels.
SolarCity became a subsidiary of Tesla, the electric car maker Elon Musk heads, in late 2016.
SRP said the rate plan was designed to charge solar homes their “fair share” of the use of SRP’s electrical transmission infrastructure, but SolarCity argued that the utility was acting illegally to protect its monopoly. SRP provides electric service, water supply and irrigation service to more than one-half the population of the Phoenix metropolitan area, including 957,000 electric customers.
The new pricing plan affecting SolarCity customers was authorized by the SRP governing board after public notice, public hearings and an SRP board vote, Moody’s noted. The rate charges have added an average of $50 per month to the average solar customer bill, through a demand charge based on peak power demand, which is then offset by the value of the electricity produced from the solar panels.
SRP said it was immune to antitrust rules under the “state immunity doctrine,” because it is a governmental entity, but so far courts have not seen it that way. After a federal district court rejected SRP’s immunity claim, SRP took the case to the 9th Circuit Court of Appeals, which declined to hear the challenge to the lower court’s ruling.
The court reasoned that the type of immunity SRP was asserting was actually immunity from liability resulting from a lawsuit, not a liability from being sued, and therefore the court had no authority to hear the appeal.
SRP attorneys asked the 9th Circuit judges to issue a stay of their ruling pending an appeal to the U.S. Supreme Court, but that motion was denied. SRP did file last month a writ of certiorari asking the nation’s top court to hear the case, and that application is pending. Meanwhile, lacking a ruling that SRP is immune from suit, a trial is set to go ahead at the district court level, which has scheduled a two week bench trial to commence on April 17, 2018.
“While it is too soon to predict the outcome of this matter at either the district or appellate courts, the district believes the lawsuit is without merit and will continue to aggressively defend the lawsuit,” SRP said in a disclosure document filed with the Municipal Securities Rulemaking Board in September.
Analysts have said the outcome of the legal challenge is important for the credit quality not only of SRP, but of other public utilities as well.
“If the case is heard, it would draw into question SRP’s unfettered ability to self-rate regulate, which if successful could establish a precedent for future challenges to the self-regulated nature of cost recovery for the US public power electric utility sector,” Moody’s said in a June comment. “As customers seek to leave the electrical grid and use renewable energy such as rooftop solar, utilities face challenges in recovering costs. Any successful attempt to impede public power providers’ unfettered rate-setting authority could result in more frequent court challenges and, in the worst case, weakening credit metrics for utilities.”
Despite the legal dust-up over the rates charged to SolarCity customers, SRP acknowledges the reality that more and more homeowners are installing solar panels and announced last month that it was launching an advanced power inverter pilot study to “to investigate how solar and other types of customer-generated energy sources impact the grid.”
Advanced inverters offer additional functionalities compared to traditional inverters that can support power quality and enable the ability to be controlled remotely, SRP said. SRP has installed more than 750 advanced inverters on new and existing residential solar installations, and began collecting data in July.
“As more customers turn to solar or other generating sources, we will see an impact on our grid as the energy they generate tends to operate differently than traditional generation resources,” said Jim Pratt, SRP’s senior director of grid modernization services.
SRP has a debt portfolio of some $5 billion between its long-term bonds and its commercial paper program. The upcoming sale is subject to change with market conditions.