SMUD Claims Credit Stability

Avoiding the credit problems plaguing many, the Sacramento Municipal Utility District is considered “stable,” according to a new monitoring report approved by the district’s Board of Directors at its January 22 meeting. The glitch is that the ratings were made before this past fall’s financial market meltdown. Two credit agencies, Standard & Poor’s and Fitch Ratings, rate SMUD an A. Moody’s rates the muni an A1. All the ratings are the same as last year, said SMUD treasurer Noreen Roche-Carter. “We are a stable outlook from all three of the entities,” said the treasurer. However, the rating agencies did their last complete review of SMUD in May 2008, well before the financial meltdown that occurred in September. Furthermore, the single A ratings put SMUD in the bottom third of public power entities throughout the country, Roche-Carter said. Credit ratings are important to the utility’s ability to borrow money. The ability to borrow money allows the utility district to expand and improve its infrastructure and can help mitigate higher power rates. They also determine the cost of borrowing, how expensive the debt is going to be and an entity’s ability to access new debt. Over the past five years they’ve also been used by SMUD trading partners to determine their willingness to do business with the muni and on what terms, Roche-Carter said. Among the muni’s strengths, as determined by the credit rating agencies and outlined in the monitoring report, were its service territory, business strategy, risk management practices, commodity hedging, autonomous ability to raise rates, and competitive rates. Perceived weaknesses were SMUD’s large overall debt burden, lower forecasts of cash balances, and its lower coverage ratios compared to other entities. Particularly mentioned was that the utility missed a 2007 target of getting its equity ratio to 20 percent. Roche-Carter said the credit agencies like the diversification of the muni’s resource portfolio, but are concerned about SMUD’s natural gas purchase power and the uncertainties of hydro and wind production. “They will be watching to see how we meet our renewable standards and carbon reduction mandates and at what cost--mostly at what cost,” she added. In the muni’s business meeting last week, staff provided data on a weakening consumer base. They reported lower energy consumption and fewer customers as 2009 began. That resulted in 3 percent income reduction below forecast. At the same time, the muni increased its assets by $50 million and bulked up its use of the California-Oregon transmission line. SMUD took over the rights to the space on the line formerly reserved by the city of Roseville.

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SMUD Claims Credit Stability

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