Fitch Ratings said Feb. 4 that the gas-fired Apex power plant in Nevada is a key component of the Los Angeles Department of Water and Power‘s plan to exit coal-fired generation and also to support new, highly-variable renewable power output on its system.
Fitch affirmed its ‘AA-‘ ratings on various bonds issued by the Southern California Public Power Authority (SCPPA). The Rating Outlook is Stable. The bonds are payable solely from revenues received by SCPPA under a power sales agreement (PSA) with the Los Angeles Department of Water and Power (LADWP).
The rating reflects the credit quality of LADWP (power revenue bonds rated ‘AA-‘/Outlook Stable), the sole participant in the Apex Power Project. Bondholders are secured by an absolute and unconditional take-or-pay obligation from LADWP’s power system with payments made as an operating expense, as outlined in the power sales agreement that remains in effect until the bonds are fully repaid. Payments are on parity with LADWP’s own $8 billion of outstanding on-balance sheet debt.
California legislation adopted over the past decade requires costly changes to the state’s power supply mix. LADWP continues to acquire renewable resources and replace existing coal-fired capacity with lower carbon emitting resources, as evidenced by the Apex Power Project contract with SCPPA signed in 2014.
SCPPA is a joint-action agency that owns and operates electric generation, transmission, and physical gas assets on behalf of its 12 members, consisting of 11 municipal electric utilities and one irrigation district all located in southern California. All of SCPPA’s projects are financed and secured on an individual-project basis. There is no other source of revenue for each of the SCPPA projects than the payments made directly from members that participate in each specific project. In the case of the Apex Power Project, LADWP is the only member participant.
SCPPA sells 100% of the output of the Apex Power Project to LADWP. The PSA is an unconditional, take-or-pay obligation. LADWP is required to make payments to SCPPA for the fixed and operating costs of the project, which include debt service, whether or not the project is operational. LADWP bears all operational and delivery risk.
The Apex Power Project is a natural gas-fired, combined-cycle facility with a nameplate rating of 531 MW. The plant’s availability factor was 94.04% in fiscal 2015 with a competitive heat rate of 7,152 Btu/kWh.
Fitch noted: “The Apex Power Project is a key component of LADWP’s power resource strategy. LADWP needs additional gas-fired generation capacity to support its growing renewable energy portfolio, as required by California law. LADWP generates approximately 20% of its power supply from renewable sources and this will increase to 33% by 2020. Natural gas-fired generation provides a competitively priced balancing resource to back-up renewable energy sources, thereby enhancing the overall reliability of LADWP’s resource portfolio. In addition, LADWP is planning to divest its 477 MW share of the Navajo coal-fired generating station, given the higher greenhouse-gas emissions of coal-fired generation as compared to gas-fired. The acquisition of Apex will replace the lost Navajo capacity. Apex accounts for around 9% of LADWP’s power supply.”