Fitch Rates Snohomish Cnty WA PUD NO. 1's $58.3MM 2012 Elec Sys Bonds 'AA-';
NEW YORK -- October 24, 2012
Fitch Ratings assigns an 'AA-' rating to Snohomish County Public Utility
District No. 1, WA's (the district) $58.3 million electric system revenue
refunding bonds, series 2012. Bond proceeds will be used to refund the
districts series 2004 electric system bonds.
In addition, Fitch affirms the ratings on the following district bonds:
--$367 million electric system bonds at 'AA-';
--$230.4 million generation system bonds at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by electric system revenues after payment of operating
expenses of the electric system and costs associated with its generation
KEY RATING DRIVERS
STRONG FINANCIAL PRACTICES: The district has established and adhered to
financial policies designed to achieve debt service coverage (DSC) of at least
2.0x, maintain significant financial reserves and adjust rates in a timely
manner. For 2011, Fitch calculated electric system senior bond DSC was 3.14x.
SUBSTANTIAL CASH AND INVESTMENTS: The board of commissioners established a
comprehensive reserve policy in 2007 to provide a financial cushion, which can
be used to fund capital projects, meet operation and maintenance expenses, and
address hydro and wholesale power market risks. As of Dec. 31, 2011, cash and
temporary investments totaled $396.3 million, with a rate stabilization
account adding another $115 million.
FUNDAMENTALLY SOUND GENERATION: A mix of low-cost, long-term block/slice
contracts with the Bonneville Power Administration (BPA) provides over 85% of
the district's long-term power requirements. BPA contracts, supplemented by
renewable resources, new generation and conservation, enable Snohomish to be
well positioned to meet state mandates and future growth requirements.
SOLID SERVICE AREA: The district's customer base is sufficiently diverse and
is anchored by the Boeing Company, which is the county's largest employer.
Concentration risk exists, but the aircraft company's dominant position in the
global aircraft market and strong local socio-economic factors, provide a
counter balance to this concern.
PROJECT TERMINATION SETTLEMENT: The district reached agreement regarding the
termination of a cogeneration project with Kimberly-Clark Corporation, a large
industrial customer in 2011. The financial impact was not significant.
The district is the largest public utility district and the second-largest
municipally owned utility in the Pacific Northwest region in terms of
customers and energy sold. The district's retail system provided electric
service within the county to 322,228 electric customers as of Dec. 31, 2011.
The county is located 30 miles north of Seattle and includes the city of
Everett, home to the Boeing manufacturing facility and a U.S. naval station,
which are two of the district's largest customers.
The district benefits from low-cost wholesale power contracts with BPA, the
largest power provider in the Northwest. In 2011, BPA provided 85% of the
district's long-term energy resources. Snohomish's average power supply cost
for 2012 is budgeted at $36.82 per megawatt-hour (MWh), roughly in line with
2011's power cost. The district's current and committed resources, combined
with new conservation achievements, are expected to meet forecast customer
loads through 2020.
FINANCIAL PERFORMANCE EXEMPLARY
Fitch believes the district uses conservative assumptions in its financial
modeling. In its financial forecast, the district assumes water years based on
'blend' conditions (midpoint between average and critical), reasonable market
prices, low investment rates, and a slowly recovering economy. Given the
sizeable amount of financial reserves, interest rates can have an important
effect on earned income. Wind generation is based on resource history. This
scenario usually leads to results that exceed the district's forecasts and
Financial results, which will vary due to the district's high reliance on
hydroelectric-based resources, have remained strong in recent years.
Senior-lien DSC totaled 3.14x in 2011 and 2.07x in 2010. The district's base
forecast for operating results for the period 2012?2014 produces DSC
The district's cash position exceeds the amount of reserves suggested in the
utility's financial policies. At Dec. 31, 2011, the electric system had $396.3
million in cash and temporary investments, in addition to $127.6 million in
special funds, available also as a rate stabilization account, for a total of
$471.5 million. The district expects to maintain sizeable future reserves, but
at levels below recent figures
For additional information, please see Fitch's report on the district, dated
Oct. 28, 2011, and available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this
action was informed by information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
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