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Rating Action:

Moody's Upgrades SCPPA- City of Anaheim Natural Gas Project A Revenue Bonds to Aa3 from A1; Outlook Stable

22 Dec 2015

New York, December 22, 2015 -- Summary Rating Rationale

Moody's Investors Service has upgraded the credit rating to Aa3 from A1 on the Southern California Public Power Authority's (SCPPA), CA's estimated $43 million outstanding Natural Gas Project A, 2008 Revenue Bonds (Taxable)(City of Anaheim). The outlook ihas been revised to stable.

The rating upgrade reflects Moody's recent upgrade on the City of Anaheim Electric Revenue Bonds. Anaheim is the sole participant in the SCPPA Natural Gas Project A (Anaheim). The City of Anaheim Electric has a record of sound financial metrics, see Exhibit 1 below. The rating also considers the strong take-or-pay contract between SCPPA and Anaheim; the importance of the project to Anaheim's fuel supply for its participation in the Magnolia gas fired generating unit; and the fully funded maximum annual debt service reserve.

The Natural Gas Project A bonds financed Anaheim's share of the costs of acquisition and development of their share of SCPPA's Natural Gas Project A. (Anaheim' share is 35.7% of the Pinedale subproject and 45.4% of Barnett subproject).

SCPPA acquired then sold the entire production capacity of its leasehold interests (Natural Gas Project A) by entering into gas sales agreements with several of its member utilities. The Natural Gas Project A is certain natural gas resources, reserves, fields, wells and related facilities located near Pinedale, Wyoming and the Barnett Shale formation in Texas. The project represents one of the strategies SCPPA and its participants have undertaken to diversify and provide some certainty in its natural gas acquisition for use in electric generating units. The natural gas supply from Natural Gas Project A represents about 15% of the natural gas utilized by the participants in the Magnolia natural gas fired generation facility. The project is a source of long-term, level-priced natural gas.

Rating Outlook

Our outlook is based on our expectation that management will continue in manage this project as it has throughout it's track record on prior joint power agency projects and our view of the credit rating on Anaheim electric revenue bonds.

Factors that Could Lead to an Upgrade

Project's performance record remain sound and the credit quality of the project's participant improves.

Factors that Could Lead to a Downgrade

The economics or value of the natural gas project to the participant significantly weakens

Credit quality of the participant is downgraded.

Legal Security

By Indenture of Trust, the bonds are secured by the net revenues of SCPPA with revenues derived from deposits with the Trustee by Anaheim pursuant to a take-or-pay agreement with SCPPA through the life of the bonds. Anaheim is responsible for 100% of its Project A Gas Sales Agreement Cost Share. Anaheim's project entitlement is 35.7% of the overall Wyoming Pinedale Subproject and 45.4% of the overall Texas Barnett Subproject.

There are separate indentures for Burbank and Colton, California, who are the other participants in SCPPA's Natural Gas Project A. There is also a Project B that includes only Glendale and Pasadena as participants. Glendale Electric Enterprise (rated Aa3) and Pasadena (NR electric revenue) have a take-or-pay obligation only for the project O&M expenses (they did not issue debt for their interest). Combined Natural Gas Project A and Natural Gas Project B represents 100% of the SCPPA leasehold interests. Each indenture separately secures the utility's financing of their individual project entitlement. SCPPA also issued Natural Gas Project A Revenue Bonds (Taxable) (City of Colton) and Natural Gas Project A (Taxable) (City of Burbank) Bonds.

There is no cross default between the three series of bonds nor is there any step-up provisions.

Anaheim is required to pay debt service on the bonds whether or not the Natural Gas Project is operating or is operable, or its output is suspended, interfered with, reduced or curtailed or terminated in whole or in part. Anaheim's payment obligations constitute O&M expenses of their electric system. Since issuance Anaheim has met its obligations under the indenture.

While the contracts have never been court tested, the utility's authorization to enter into the contracts is found in the state's constitution. Anaheim has pledged to establish, maintain and collect rates and charges sufficient to meet its obligations under the Project A Gas Sales Agreement, which include paying operating costs, interstate transportation costs, operating reserve and debt service. The O&M expenses paid by Anaheim are in proportion to their entitlement share of project. A shortfall in revenues with respect to the operating accounts (not the debt service component) will be allocated proportionately among the non-defaulting participants. The debt service reserve account shall equal an amount equal to 10% of sale proceeds; 125% of average annual debt service or maximum annual debt service.

Use of Proceeds

Not applicable.

Obligor Profile

SCPPA is a joint powers authority whose primary purpose has been to provide joint financing for its member municipal utilities. SCPPA was organized under California statutes and formed by a joint powers agreement dated November 1, 1980.

Methodology

The principal methodology used in this rating was US Municipal Joint Action Agencies published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Regulatory Disclosures

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Daniel Aschenbach
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Chee Mee Hu
Additional Contact
Project Finance
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Upgrades SCPPA- City of Anaheim Natural Gas Project A Revenue Bonds to Aa3 from A1; Outlook Stable
No Related Data.
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