Fitch Affirms Pasadena Water and Power’s Electric Revenue Bonds at ‘AA’

Fitch Ratings affirmed its ‘AA’ rating on approximately $217.6 million in electric revenue and refunding bonds issued by the city of Pasadena on behalf of Pasadena Water and Power, citing the utility’s “very strong” financial profile and revenue defensibility.

The rating agency also assessed PWP’s Standalone Credit Profile (SCP) at ‘AA’ and maintained a stable outlook for the bonds, which include $98.2 million in series 2024A and $119.4 million in series 2016A electric revenue and refunding bonds.

“PWP’s financial profile is ‘Very Strong’, supported by very low leverage and ample cash reserves,” Fitch stated in its report, released Wednesday.

The affirmation reflects PWP’s ability to maintain strong financial metrics while transitioning its power supply portfolio away from coal toward renewable energy sources, Fitch said. The utility aims to provide carbon-free power by 2030, ahead of California’s requirement for 100% zero-carbon energy by 2045.

Fitch noted that PWP’s operating costs have risen to an average of 21 cents per kilowatt hour over the past five years due to increasing operating costs, higher energy demand and volatile natural gas prices.

Despite these challenges, the utility maintained very low leverage, with its leverage ratio, measured by Fitch as net adjusted debt to adjusted FADS, decreasing to 0.6x in fiscal 2024 from 2.3x in fiscal 2023.

“Based on Fitch’s scenario analysis, PWP’s leverage is expected to increase as the electric system progresses through a heightened capital cycle but should remain below 5.0x,” according to the report.

The Fitch commentary said PWP plans significant capital improvements totaling $673.1 million from fiscal 2024-2029, compared with $182.1 million in capital spending over the previous five years. The utility expects to fund these improvements through a mix of debt, revenues, grant funding and reserves.

The rating agency highlighted PWP’s strong liquidity position, with approximately $380 million in unrestricted cash at the end of fiscal year 2024, providing an estimated 818 days of liquidity.

The utility’s contract with the coal-fired Intermountain Power Project (IPP) will terminate after June 2027. The plant will transition to natural gas in summer 2025, meaning PWP won’t receive coal-fired power after 2025, according to Fitch.

PWP has already contracted over 200 MW of geothermal, solar, battery and wind power purchase agreements scheduled to begin in 2027 or 2028.