Fitch Ratings said Oct. 20 has assigned a ‘AA’ rating to bonds issued by Pasadena, California, on behalf of Pasadena Water and Power (PWP), which is currently wrapping up a major repowering project.
Bond proceeds will be used to fund approximately $30 million of the system’s capital needs, refund an estimated $47 million in outstanding 2008 bonds for savings, refinance a $60 million line of credit and pay costs of issuance. Bonds are expected to price via competitive sale on Nov. 7, 2016. In addition, Fitch affirmed its ‘AA’ rating on certain outstanding parity bonds. The Rating Outlook is Stable.
PWP provides retail electric service to 65,318 customers within the city of Pasadena. The service area is located within the greater Los Angeles region and exhibits strong economic indicators and ongoing in-fill development.
Fitch noted that PWP is well positioned to meet California’s renewable mandate and greenhouse gas legislation that require PWP to shed its predominately coal-based power supply by 2026 and meet a 50% renewable portfolio supply by 2030. However, PWP will need replacement energy and/or capacity to replace its coal resource.
Following completion later this year of the 71-MW GT5 repowering project, PWP’s capital needs are moderate and limited to distribution system investments until a decision is made regarding the replacement of Intermountain Power Agency (IPA) coal capacity. PWP’s low direct debt burden and robust reserves, including the stranded investment reserve, should provide financial flexibility to accommodate the next generation investment.
In addition to its owned and operated generating units, PWP receives a majority of its total energy needs through ownership participation in various joint power agency agreements. Of 327 MW of non-renewable generation capacity, approximately half is local gas generation and the other half is long-term purchase arrangements from a variety of generation sources, including coal-fired, hydroelectric and nuclear-generating units. PWP also has 36 MW of renewable project capacity under contract in 2015 with additional solar projects coming on-line in 2016. PWP was an early adopter of renewable energy with a municipal renewable target that, until 2015, was more ambitious than the state target, Fitch reported.
The Intermountain Power Project (IPP) in Utah is PWP’s largest source of power (107 MW share), and accounted for approximately 36% of PWP’s energy resources in 2015, but it is also the utility’s largest source of carbon emissions. The IPP agreement is set to expire in 2027 and California mandate prohibits renewal if the resource continues to be coal-fired generation. The 35 project participants have agreed to a process by which the project will be repowered, or rebuilt, as a gas-fired plant. PWP is evaluating its options as to whether it will participate in the repowering but has initially indicated its intent to participate for a maximum of 40 MW. PWP estimates that it will require a smaller share than its current 107 MW due to increased renewable purchases.
The GT5 Repowering Project will be completed in 2016, which provides PWP with a new, efficient 71 MW (68 MW net) combined-cycle plant to replace the existing Broadway 3 steam plant. The $135 million project was built within budget, with commercial operation originally expected in May 2016 but now expected by the end of this calendar year, Fitch said. Construction is complete and final testing is in progress.
In 2009, the City of Pasadena adopted the Integrated Resource Plan (IRP), a blueprint for the Pasadena Department of Water and Power (PWP) to ensure reliable, environmentally responsible electricity service, competitive rates, and energy independence through 2030. A key feature of the IRP is the replacement of inefficient local generating units at PWP’s Power Plant. This constitutes the Glenarm Power Plant Repowering Project.
The city’s power plant consists of two facilities flanking the Metro Gold Line tracks: the Glenarm site to the west and the Broadway site to the east. The Glenarm facility has four natural gas turbine generators (GT-1 through GT-4). The city is replacing Unt 3 on the Broadway site with the new combined-cycle 71 MW (gross) power generating Unit GT-5 on the Glenarm site. It is similar to the existing Units GT-1 through GT-4 at that site.
PWP had annouced on May 19 that it is now receiving 20 MW from a large-scale commercial solar project in Kern County, Calif., known as the Kingbird “A” Solar Project. The Kingbird development covers nearly 325 acres with more than 460,000 First Solar panels, and overall will produce 40 MW of which Pasadena will be receiving half, or 20 MW. Located near Rosamond just across the Los Angeles County border, the Kingbird development is an ideal project site since it is relatively close to PWP’s electric load center, PWP said. With the Kingbird A project and two additional new utility-scale solar projects in the works, solar power is expected to make up approximately 20% of PWP’s renewable portfolio by the end of 2016 and 35% in 2017.
Owned and operated by 8point3 Energy Partners and developed by First Solar, the Kingbird project eliminates the need for upfront capital costs and annual fixed costs from PWP. The power purchase agreement includes an option for PWP to purchase the facility at various points during the contract term.