The upgrade to 'A' reflects solid financial performance, a demonstrated trend by the district of successfully managing its surplus power position, and enhanced risk management practices provided by The Energy Authority (TEA), the district's power scheduler. Additional credit strengths include the district's moderate growth, sufficient power supply resources to meet growth, and a modest capital plan with no new debt issuance planned over the next five years.
Credit risks include the inherent variability of the district's wholesale revenues and power supply costs that result from the dependence on hydroelectric generation, and moderate customer and sector concentration. Financial performance remains somewhat dependent on wholesale revenues, although the district uses conservative assumptions for budgeting and rate setting purposes. Similar to most other utilities in the northwest region, long-term uncertainty remains regarding the district's power supply contract with Bonneville Power Administration (Bonneville; rated 'AA-', with a Positive Outlook by Fitch) after the current contract expires in 2011. As a preference customer, Benton PUD is assured it will continue to receive most of its power from Bonneville. The uncertainty is not whether the district will receive another contract but what structure, terms and pricing adjustments the next contract may contain.
Benton PUD does not own generation, but purchases the majority of its needs from Bonneville (81% in fiscal 2006). Bonneville's power is primarily derived from 30 federal hydroelectric projects. To supplement its power supply from Bonneville, Benton PUD has a long-term tolling agreement for 50-MW (megawatt) capacity in a natural gas combined cycle plant, providing some diversity away from hydroelectric power. Benton PUD's business strategy is to remain in a long power position even under low water conditions. This conservative power supply strategy results in ongoing surplus power sales and revenues for the district, which fluctuate depending on hydrological conditions and regional wholesale electricity prices. The district uses conservative assumptions for budgeting and rate setting purposes and has exceeded projected wholesale revenues during the past four fiscal years. TEA was engaged as the district's power scheduler in 2006 and has brought additional sophistication to the district's risk management and hedging practices. Further enhancing power scheduling is a joint scheduling agreement Benton PUD has with two other regional PUDs, Gray's Harbor (rated 'A' by Fitch) and Franklin PUD (not rated by Fitch). The agreement allows the resources of the three to be dispatched across the three utilities by TEA, who acts as the power scheduler for all three. Past performance and the hedging practices currently in place provide Fitch with comfort that projected financial performance, specifically projected wholesale revenues, is likely to be achieved or exceeded.
Financial performance in the past two years was very strong, in part based on better than average water conditions that resulted in wholesale revenues significantly above initial expectations. Debt service coverage in fiscal 2006 was 2.89 times (x), excluding fees paid by developers to connect to Benton's electric system (i.e. capital contributions). The district has an internal policy to maintain 1.75x debt service coverage without capital contributions, and 2.0x debt service coverage with capital contributions. Going forward, projections indicate that debt service coverage should exceed 2.5x without capital contributions for the next five years. With the exception of fiscal 2007, for which much of the wholesale revenues have already been earned, projected wholesale revenues in fiscals 2008-2011 are below those experienced during the last four years. The district assumes water conditions that are 92% of average and wholesale market prices that are substantially below the current forward curve. Liquidity levels are adequate with unrestricted cash at the end of fiscal 2006 of $26.3 million, or 77 days cash. The district also maintains a $10 million line of credit to provide additional operating liquidity.
Prospective capital expenditures for the years for 2007 through 2011 are approximately equivalent to historical levels. The district anticipates financing approximately 100% of its five-year capital plan from ongoing revenues. With little need for debt financing of capital projects going forward, the district should maintain its low debt burden, as measured by debt to funds available for debt service at just 2.79x for fiscal year-end 2006. The debt amortization is very rapid, with the remaining debt fully repaid within the next 16 years.
Benton PUD encompasses 948 square miles of Benton County and provides electric service to 44,855 customers in the incorporated cities of Benton, Prosser and Kennewick, WA. Residential and small commercial users account for the majority of Benton's revenue at 80% and irrigation accounts for another 17%. Benton PUD experienced an average retail demand of 178 MW and a record system peak of 372 MW in the summer of 2006.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
< H R > < s t r o n g >Staff< / s t r o n g > < b r > < A h r e f = "http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20070706005433&newsLang=en" > < I >Fitch Upgrades Benton County Public Utility District, WA Electric Rev Bnds to 'A'< / I > < / a > < B R > < s t r o n g >Business Wire< / S T R O N G > , July 6, 2007 < H R > < P a l i g n = " c e n t e r " > < C E N T E R > < B I G > < s t r o n g > S e e w h a t y o u c a n l e a r n < / S T R O N G > < / B I G > < P > < A h r e f = " t o p i c . h t m " > l e a r n m o r e o n t o p i c s c o v e r e d i n t h e f i l m < / A > < B R > < A h r e f = " h t t p s : / / s g i 2 5 . n e t s e r v e r s . n e t / b l u e f i s h . o r g / v i d e o . h t m " > s e e t h e v i d e o < / A > < B R > < A h r e f = " s c r i p t . h t m " > r e a d t h e s c r i p t < / A > < B R > < A h r e f = " s o n g s . h t m " > l e a r n t h e s o n g s < / A > < B R > < A h r e f = " f o r u m . h t m " > d i s c u s s i o n f o r u m < / A > < B R > < I M G s r c = " s a l m o n _ s w i m m i n g _ m d _ w h t . g i f " w i d t h = 1 5 0 h e i g h t = 7 0 a l t = " s a l m o n a n i m a t i o n " > < / C E N T E R > < / b a s e f o n t > < / b o d y > < / H T M L >