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Public utilities

Moody's Assigns Aa2 Rating to City of Los Angeles Department of Water and Power's Power System Revenue Bonds

Strategic Insights

— 2 min read

The City of Los Angeles Department of Water and Power (LADWP) has issued $1.36 billion in Power System Revenue Bonds, 2025 Series C. Moody's Investors Service has assigned a Aa2 rating to the bonds, with a negative outlook. The rating reflects LADWP's strong financial metrics, including a fixed obligation charge coverage of near 1.60x and a total adjusted debt ratio below 125%. However, the negative outlook is due to LADWP's exposure to inverse condemnation risks, potential liabilities related to the January 2025 Pacific Palisades Fire, and higher operating costs and capital investments expected for future climate adaptation and mitigation efforts.

Key Takeaways:

  • LADWP has a strong financial profile, with a fixed obligation charge coverage of near 1.60x and a total adjusted debt ratio below 125%.
  • The Aa2 rating reflects LADWP's self-regulation and monopolistic provision of essential electricity to a diverse customer base in the City of Los Angeles.
  • LADWP's ownership of 25% of the state's transmission assets presents opportunities for load balancing and local control.
  • However, the utility's leverage is higher due to the ownership and maintenance of this essential network, which requires significant capital reinvestment.
  • The negative outlook reflects LADWP's exposure to inverse condemnation risks and potential liabilities related to the January 2025 Pacific Palisades Fire.
  • LADWP's credit profile incorporates a view that it can manage the expected higher costs and incremental leverage related to its power transformation plan over the next decade.
  • The utility's rate structure allows for the pass-through recovery of energy and reliability costs, as well as the procurement of renewables to comply with renewable portfolio standards.

Statistics:

  • LADWP has a GMP (Gas, Merit-based Pricing) Infrastructure spending plan of nearly $1.2 billion per year for the next 5 years.
  • The utility's owned transmission provides access to renewables outside the LA Basin and California, which helps LADWP meet the goals outlined in its 2022 Strategic Long-term Integrated Resource Plan (SLTRP).
  • The January 2025 wildfires in the greater Los Angeles region introduced increased risks to LADWP of materially higher costs related to wildfire exposure.
  • LADWP has a total adjusted debt ratio of less than 125%.
  • The utility's DCOH (Days Cash on Hand) is near 200 days.

Sources:

  • Moody's Ratings (Moody's), Power System Revenue Bonds, 2025 Series C.
  • California Independent System Operator Corp. (CAISO).
  • City of Los Angeles Department of Water and Power (LADWP).
  • Moody's Investors Service, US Public Power Electric Utilities with Generation Ownership Exposure, January 2023.
  • Rating Methodologies page on https://ratings.moodys.com.

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