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Rating Action:

Moody's assigns A1 to Intermountain Power Agency's (UT) $102.5 million subordinated power supply revenue refunding bonds. Outlook stable

09 Feb 2018

Approximately $213.6 million of existing debt affected

New York, February 09, 2018 -- Moody's Investors Service, ("Moody's") today assigned an A1 rating to Intermountain Power Agency's (IPA)$102.5 million Subordinated Power Supply Revenue Refunding Bonds, Series 2018A. Concurrent with this rating assignment, Moody's affirms the A1 rating on the outstanding $213.6 million revenue refunding bonds. The rating outlook is stable.

RATINGS RATIONALE

The A1 rating is based on strong take-or-pay power sales contracts with municipal electric utilities, with a weighted average credit quality of Aa3, including Los Angeles Department of Water and Power (LADWP, rated Aa2), the largest participant, as well as the participants unregulated ability to recover costs on a timely basis.

Moody's views favorably IPA's current plans to repower its existing coal units into combined cycle natural gas units by July 1, 2025, as contemplated under the Second Amendatory Power Sales Contract signed among IPA and its 35 participants in March 2016. Additionally, IPA and its participants have agreed to extend the term of the existing power sales contracts that expire in 2027 by another 50 years through the Renewal Power Sales Contract (RPSC). The RPSC will provide energy generated by the natural gas units following the conversion from 2025 to 2077.

The decision to move forward with this conversion and repowering provides a roadmap for IPA to follow since California's cap and trade program and renewable energy standards are likely to cause California municipal electric participants to eliminate coal exposure from their resource mix. Still, this transition risk to convert the coal units to natural gas fired units remain an important credit consideration. Moreover, the potential for capital requirements to comply with future federal environmental regulations remain. Moody's views the involvement by LADWP as a mitigant during this transition period.

While not contemplated, existing bondholder security could be affected negatively if the bonds for financing the repowering were to be issued through a senior lien ahead of IPA's existing subordinate bonds. That said, the 2023 maturity date and the planned amortization of the existing subordinate bonds limits this potential risk. We also note that the lack of a maximum annual debt service reserve remains a weakness, though it is mitigated by IPA's strong liquidity position.

RATING OUTLOOK

IPA's rating is stable reflecting the strong take-or-pay contracts, sound project management, strong financial performance, and the still reliable resource.

FACTORS THAT COULD LEAD TO AN UPGRADE

- In light of the transition risk that exists and continued uncertainty regarding greenhouse gas regulation and renewable energy standards, limited prospects exist for the rating to be upgraded.

FACTORS THAT COULD LEAD TO A DOWNGRADE

- A decrease in the overall credit quality of the participating municipalities;

- A weakening of the project's available liquidity;

- Increased regulatory pressure from Federal or California agencies on municipal electric utilities to reduce GHG emissions in the near-term

USE OF PROCEEDS

Approximately $102.54 million of the bond proceeds will be used to refund existing eligible Series 2013A debt and pay for transaction costs.

PROFILE

The primary purpose of IPA is the operation of the two-unit 1,800 MW Intermountain Power Project (IPP) coal-fired generation facility. IPP is located in Millard County, Utah and a significant portion of the energy is transmitted about 490 miles from the Intermountain Converter Station to the station at Adelanto, California via the Southern Transmission Line (STS). The STS line is owned by IPA with the improvements finance by the Southern California Public Power Authority (SCPPA). The generation and transmission facilities are operated by the LADWP.

METHODOLOGY

The principal methodology used in this rating was US Municipal Joint Action Agencies published in October 2016. Please see the Rating Methodologies 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.

Gaurav Purohit
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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