Fitch Ratings has upgraded the Issuer Default Rating on Washington State’s Grays Harbor County PUD No. 1 and the rating on certain bonds issued by the PUD to "A+" from "A."
The bonds upgraded by Fitch are $72.8 million electric revenue bonds, series 2010, 2015A and 2016.
The Rating Outlook is Stable.
The upgrade “reflects strengthening in the district's financial profile, including increased cash reserve levels, a power supply contract change that reduces revenue risk, and structural cost reductions that will be used to pursue various financial strategies including increasing reserves, funding capex and retiring debt early,” Fitch said on Oct. 30.
The 'A+' rating reflects the PUD’s very strong financial profile assessment of 'aa' in the context of its strong revenue defensibility and very low operating risk, Fitch said.
Fitch said that the scheduled transition in power supply contract terms that occurred on Oct. 1, 2023 with the Bonneville Power Administration should improve revenue stability in the future.
It said that the PUD’s decision to move to a load following power supply contract from a block and slice contract will reduce hydro variability in the PUD’s power supply.
“The change requires the district to forego the opportunity for above budget wholesale revenues in the future, but reduces the risk of below average water conditions to the district's power supply and the commensurate costs associated with balancing supply with demand throughout the year,” Fitch noted.
Financial performance in 2022 “was exceptionally strong as a result of favorable hydrological conditions that generated higher wholesale sales, and favorable market energy prices. However, water conditions in 2023 are much lower and wholesale sales for the portion of the year prior to the contract change resulted in below budget wholesale revenues,” the rating agency said.
“This is the type of upside and downside variability that will be reduced with the contract change. Even with the lower net income to budget expected in 2023, the structural cost savings should allow the district to continue to pursue its financial strategies and maintain its very strong financial profile,” Fitch said.
