Fitch Ratings said Sept. 13 that it has assigned an ‘AA-‘ rating to certain qualified obligation bonds, issued by the Anaheim Housing and Public Improvements Authority (AHPIA) on behalf of Anaheim Public Utilities (APU).
The bonds are scheduled to price on Sept. 28. Proceeds will be used to: finance a portion of the utility’s capital improvement plan; refund all or a portion of the outstanding series 2007A, 2009A and 2011A revenue bonds; fund the debt service reserve fund for the bonds; and pay cost of issuance. In addition, Fitch affirmed the ‘AA-‘ ratings on existing bonds. The Rating Outlook on all bonds is Stable.
The 2016 bonds will be issued by AHPIA and secured by purchase payments made by APU, an enterprise fund of the city of Anaheim, California, in accordance with the installment purchase agreement. Payments from the city to AHPIA are absolute and unconditional and are made from surplus revenues of the city’s electric utility system. The rating reflects the payment obligation of the city’s electric system. APU provides retail electric service to 115,682 customers within the city of Anaheim.
Fitch noted that the state’s renewable mandate and greenhouse legislation require APU to implement changes to its predominately coal-based power supply in favor of renewable generation to meet a 50% renewable portfolio supply by 2030. APU is on schedule to meet the state requirements, although similar to other southern California municipally owned utilities, the utility will need replacement energy and/or capacity after 2027.
APU’s resource mix consists primarily of jointly-owned resources. The resources are predominately coal-based, which accounted for 48% of total energy supplies, including wholesale sales, in fiscal 2015. The remainder of fiscal 2015 total energy supply was natural gas (23%), renewable (22%), large hydro (1%) and market purchases (6%). When only retail sales are considered, APU generated 33% of its energy from renewable resources in calendar 2015.
Combined generation capacity of 811 MW is more than enough to serve APU’s system peak demand of 549 MW, although the 811 MW of capacity includes 246 MW of peaking capacity (including the Canyon power project owned by the Southern California Public Power Authority (SCPPA)) that is only used to generate during short peak load time periods each summer and 63 MW in purchased power wind contracts. APU also owns 118 MW of the Magnolia Power Project, a combined cycle natural gas plant owned and operated by SCPPA. Magnolia provided 19% of APU’s energy requirements in 2015. APU has no nuclear generation and very limited large hydroelectric generation.
California state legislation enacted in 2006 limits new long-term contracts for coal-fired resources. APU is working towards replacing its coal-fired generation resources with renewable energy and gas-fired generation. APU negotiated an early termination in 2017 from its 50 MW ownership position in the San Juan coal plant in New Mexico, Fitch noted. The 50 MW will be replaced by renewable contracts already in place. Since 2014, APU has entered into long-term contracts for 46 MW of landfill gas and biomass renewable energy.
APU’s largest single-generation resource is its entitlement share in the two-unit, coal-fired Intermountain Power Project (IPP) in Utah, operated by the Intermountain Power Agency (IPA). Anaheim is the second largest project participant (after the Los Angeles Department of Water and Power) with a 13.2259% entitlement (237 MW), pursuant to a power sales contract that terminates in 2027. IPP remains APU’s largest source of power, accounting for almost 40% of fiscal 2015’s total energy supply.
The IPP participants are exploring options to repower the project as a gas-fired resource near the end of the contract to comply with California legislation prohibiting coal resources, Fitch reported. Although APU does not expect to participant in the repowering, it will continue to receive its 13.2259% share in the plant through the termination date of its power sales agreement through 2027, whether or not the plant is repowered. APU expects to replace the baseload capacity from IPP after 2027 with a purchase contract, although land is owned within the service area to construct additional generation capacity, if that option is deemed more economic closer to 2027.