SAN FRANCISCO - (Business Wire) Fitch Ratings assigns an 'A' rating on the Public Utility District (PUD) No. 1 of Grays Harbor County, Washington's (the District) series 2008, $26,700,000 electric revenue bonds. In addition, Fitch affirms the 'A' rating on the outstanding $108.3 million of parity electric revenue bonds. The Rating Outlook is Stable. Proceeds from the 2008 bonds will finance the acquisition of 15 MW of existing renewable generation located at a local pulp mill and construction improvements to the facility, including a new substation. The bonds are scheduled to price on May 22.
Grays Harbor's credit rating of 'A' reflects the District's solid historical financial performance (although debt service coverage was unusually low in fiscal 2007 at 1.59x due to a severe storm outage), attractive power supply position with sufficient resources to meet native load in low water years, prudent risk management practices, and a primarily residential customer base with limited growth pressure.
Credit concerns center on fuel concentration with 85% of its supply in 2007 provided by hydroelectric resources from the Bonneville Power Administration (rated 'AA-'/Positive by Fitch Ratings), heavy reliance on wholesale revenues, and an increasingly high debt burden.
Grays Harbor purchases the majority of its power resources from Bonneville through a 10-year Block and Slice power sales agreement that expires October 1, 2011. The Slice product is a percentage of the federal system that requires active power management of the resource and has the potential to provide excess energy in high water conditions. Therefore, the regional water conditions have a direct impact on the District's operations and financial position. Grays Harbor mitigates the revenue volatility associated with its BPA allotment by: budgeting based on conservative water conditions, creating a rate stabilization fund in fiscal 2006, and engagement of a professional power manager to oversee forward sales contracts and the purchase of financial options backed by physical positions.
The district is in final negotiations regarding the purchase of 15 MW of biomass generation. The series 2008 bond proceeds will be used to purchase the assets ($17 million) and complete any needed repairs and additions to the assets ($10 million). The assets are located at a pulp mill in Cosmopolis, WA. The pulp mill was closed by Weyerhauser in 2006 and is being purchased by Evergreen Pulp. It is expected that Evergreen will own and operate the mill and the district will own the generation assets located at the mill and execute an operating agreement with Evergreen for the generation assets. The generators operate on a mix of fuels that are waste by-products of the pulping process. While the district is currently in a long power supply position, the assets are attractive on a cost basis and provide renewable energy that the district will need eventually to meet the state's mandated renewable targets. The additional debt adds to an increasingly high debt load for the utility, with debt to funds available for debt service at 10.3x in fiscal 2007, which is above the median of 4.8x for similar utilities in the 'A' rating category.
Grays Harbor is an retail electric system that provides electric service to nearly all of Grays Harbor County, WA, located on the coast of Washington about 110 miles south of Seattle. The district's customer base is largely residential, following the loss in 2005 and 2006 of three of its ten largest customers. However, the reopening of the Cosmopolis pulp mill as expected would result in that mill becoming the largest customer and accounting for over 10% of district revenues. The PUD serves approximately 41,600 customers. The system is a winter peaking system with a peak in 2007 of 237 MW. Load growth has been flat over the last five years with residential growth compensating for recent losses in industrial load.
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Fitch Ratings
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