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Rating Action:

Moody's revises outlook to negative; Affirms A1 on Intermountain Power Agency (IPA), UT's outstanding revenue bonds

21 Mar 2019

Approximately $659 million revenue bonds affected

New York, March 21, 2019 -- Moody's Investors Service revises outlook to negative from stable and affirms the A1 rating on Intermountain Power Agency's ("IPA") outstanding revenue bonds.

RATINGS RATIONALE

Today's rating action to change IPA's outlook to negative reflects the negative outlooks recently assigned to three of the largest project participants in the project that collectively represent 53.7% of revenues, including the Los Angeles Department of Water and Power, CA Electric Enterprise (LADWP Elec. Ent., Power Revenue Bonds Aa2, negative) (48.6% of total project), Burbank (City of) CA Combined Utility Enterprise (The City of Burbank: Aa3, negative) (3.4% of total project), and Glendale (City of) CA Electric Enterprise (The City of Glendale: Aa3, negative) (1.7% of total project).

The rating action at LADWP Elec. Ent., Burbank, and Glendale reflects our view that the electric utility operating environment in California has become more challenging as legislators and other policy makers look for viable alternatives to address wildfire risk including the application of inverse condemnation while simultaneously balancing the potential impact on municipal utilities and ratepayers.

The A1 rating is based on the strong take-or-pay power sales contracts with 35 municipal electric utilities that collectively have A1 credit quality, including LADWP Elec. Ent. as the largest participant, and an unlimited "step-up" provision, as well as the participants' unregulated ability to recover costs on a timely basis. The rating also reflects the weaker financial covenants with sum-sufficient rate covenant, no additional bonds fiscal test and a low 50% of maximum annual interest debt service reserve requirement.

RATING OUTLOOK

IPA's rating outlook is negative reflecting the negative outlooks that exist at three of the largest participants that represent the majority of IPA's revenues.

FACTORS THAT COULD LEAD TO AN UPGRADE

- In light of the negative outlook that exists at three of the largest participants, the transition risk that exists at the project, and the continued uncertainty regarding greenhouse gas regulation there are limited prospects for the rating to be upgraded

- A material improvement in the weighted average credit quality of the participants

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

LEGAL SECURITY

IPA has unconditional take-or-pay power-sales contracts with the unlimited "step-up" provisions that permit IPA to discontinue the delivery of project capacity and energy to any defaulting participant, to offer to the non-defaulting participants the right to assume their respective pro rata shares of the defaulting participant's entitlement share of project capacity and energy and to sell any portion of the defaulting participant's entitlement share not so assumed on the best terms available in the marketplace. In the event that any such default results in a deficiency in the amount on deposit in any fund established under IPA's bond resolution, IPA is required to amend its budget to increase billings to all participants (including the defaulting participant) in order to obtain funds to make up the deficiency.

The take-or-pay contracts, which expire June 15, 2027, provide for the several and not joint pledge of participants to make required payments for allocated power, and this is not subject to reduction or offset if the project is inoperable or its output is interrupted or curtailed. The California municipal utility take-or-pay contracts have not been validated or tested in the courts, but the utilities have authority rooted in the State Constitution to purchase capacity and energy.

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 LADWP Elec. Ent..

METHODOLOGY

The principal methodology used in these ratings 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.

John Medina
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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