Fitch Ratings said April 25 that the City of Glendale in California is considering, besides whether it will take a stake in the gas-fired repowering of the coal-fired Intermountain Power Project, whether it will repower the aging, gas-fired Grayson power plant.
Fitch said it has assigned a ‘A+’ rating to certain electric system revenue bonds issued by the City of Glendale on behalf of Glendale Water & Power (GWP). Proceeds of these series 2016 bonds will refund outstanding series 2006 and 2008 bonds for savings and pay costs of issuance. The 2016 bonds are expected to price on May 4, 2016, via competitive sale.
In addition, Fitch has affirmed the ‘A+’ rating on certain outstanding parity debt. The Rating Outlook is Stable.
GWP has been diversifying its power supply portfolio towards renewable energy and away from coal-fired generation, as required by state legislation, Fitch noted. Recent investments have reduced GWP’s energy supply from coal-fired generation to less than 4% in 2015 while renewables provided approximately 30%.
GWP is considering the replacement of its local 238-MW Grayson power plant with new, more efficient gas-fired generation capacity. The Grayson repowering decision is expected to occur in the next couple of years, at the same time GWP considers whether it will take an allocation of the proposed gas-fired repowering at the Intermountain Power Agency‘s (IPA) coal plant in Utah.
The city of Glendale, operating through GWP, provides retail electric service to 86,782 customers within the city’s borders. The city is adjacent to Los Angeles and benefits from a diverse employment base although wealth levels are below the state average.
The electric system is fully integrated and includes generation, transmission and distribution facilities. GWP owns or has secured through purchased power agreements, 466 MW of generation capacity that is ample to meet GWP’s 337 MW peak demand in 2015. Much of the capacity is secured through participation in two joint power agencies (JPAs) – the Southern California Public Power Authority (SCPPA) and IPA. Of the 466 MW of capacity, 220 MW is locally-owned steam and gas generation units at the Grayson plant. These units are older, inefficient units and represented only 8.8% of the energy supply in fiscal 2015. Lower cost generation available through market purchases has provided much of the energy supply in recent years.
GWP has made significant progress in recent years to reduce energy provided by coal-fired resources and increase renewable generation, as required by California legislation. In 2015, coal-fired generation had already declined to 4% of energy supply from 29% in 2013. Renewable energy had increased to 30% in 2015. GWP is well positioned to meet California’s most recent legislative increase in the renewable portfolio standard to 50% by 2030, which is required of all retail utilities in the state, Fitch noted.
GWP’s coal-fired resources include the IPA project located in Utah (GWP’s share is 38 MW) and the San Juan plant in New Mexico (20 MW). GDWP is pursuing strategies to mitigate the carbon impacts of both resources in order to comply with California’s greenhouse gas reduction legislation, including the planned divestiture of its share of the San Juan plant in 2017.
GWP and other project participants are planning to rebuild the 1,800-MW IPA coal plant as a gas-fired generation project. GWP has not made a final decision and has until 2019 to decide how much, if any, capacity of the repowered IPP it will purchase. GWP is under no obligation to participate in the repowered project, Fitch noted.
GWP is also considering the rebuilding of the Grayson plant as a modern natural gas-fired plant, consisting of both a combined cycle component and two simple cycle units for a combined total of 250 MW. City council has authorized funding for initial design studies on the project but has not yet determined whether or not the rebuild will occur. Very early estimates are approximately $450 million ($1,800 per MW installed capacity), which could represent a large addition to GWP’s debt position, Fitch said.