NEW YORK - (Business Wire) Fitch Ratings assigns an 'A+' rating to Anchorage Municipal Light and Power, Alaska's (ML&P) expected issuance of $130 million of electric system revenue bonds. In addition, Fitch affirms ML&P's $105 million outstanding electric revenue bonds, series 2005A. The Rating Outlook is Stable. The bonds are secured by a senior lien pledge of the net revenues of the Municipality of Anchorage's electric system and will be used to partially fund a portion of ML&P's capital improvement plan, including construction of two replacement generation units, and finance its portion of costs associated with construction of the Southcentral Power Project.
The 'A+' rating primarily reflects ML&P's strong financial metrics illustrated by coverage of debt service and improving equity-to-capitalization ratios commensurate with the rating category, low-cost power resources centered on its ownership of a natural gas field, below-average retail electric rates, and a favorable working relationship with the state's utilities regulator, the Regulatory Commission of Alaska (RCA). Credit concerns include ML&P's sizable six- year capital improvement plan to replace its aging generation fleet, which will be 67% funded ($332 million) with debt.
In 1996, ML&P purchased an interest in the Beluga River Gas Field (Beluga). After the expiration of its long-term gas contracts in 2005, ML&P's gas supply needs have been entirely met by Beluga. Beluga gas is currently below market price and is one of several factors in ML&P's comparatively low electric rates. The revenues associated with off-system Beluga gas sales are not accounted for in ML&P's rates but are restricted for future Beluga capital improvements and future gas purchases. Fitch's expectation of the resulting improvement in ML&P's financial metrics was the rationale for the upgrade to 'A+' in 2006. In fiscal 2008, ML&P's coverage of annual debt service equaled 1.95 times, equity-to-capitalization equaled 58%, and days cash on hand equaled 77 days.
ML&P's rates are regulated by the RCA. The utility's relationship with the RCA is constructive and ML&P has historically received approval for its rate requests. The utility is in the process of preparing a revenue requirement & cost of service study based on a 2008 test year to be filed December 2009. ML&P's last base rate increase occurred in October 2003.
Fitch notes that the electrical infrastructure in Alaska is more limited than the lower 48 states, which exposes utilities to potential service disruptions associated with extreme weather or failed units. The rating takes into account the state grid's isolation from Canada and the 48 contiguous states, which is partially mitigated by ML&P's above-average reserve margin and dense service territory.
Anchorage Municipal Light and Power is a vertically integrated system including distribution, transmission, generation and ownership of natural gas reserves. It serves 24,108 residential and 6,240 commercial customers within a service territory of only 19.9 square miles, as well as military bases within the Municipality of Anchorage, AK (rated 'AA' by Fitch). Generation is 91% gas fired and 9% hydroelectric. Customer growth is limited to 0.44%.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Drake Richey, +1-212-908-0325
Chris Jumper, +1-212-908-1594
Media Relations, New York:
Cindy Stoller, +1-212-908-0526
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