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TEXT-Fitch affirms Alameda Muni Power, Calif. rating
July 2, 2012 / 8:21 PM / 5 years ago

TEXT-Fitch affirms Alameda Muni Power, Calif. rating

July 2 - Fitch Ratings affirms at 'A+' the following Alameda Public Finance
Authority (APFA), CA's Alameda Municipal Power (AMP) refinancing 
revenue bonds:

--$8.700 million series 2010A;
--$22.985 million series 2010B (taxable).

The Rating Outlook is Stable.

The 2010 bonds are issued by the APFA, a financing conduit for various 
departments within the city of Alameda, including AMP's Bureau of Electricity. 

SECURITY 

The bonds are secured by installment payments from AMP to APFA, pursuant to an 
installment sale agreement dated August 1, 2010. AMP's installment payments are 
secured solely by a pledge of the electric system's net revenues. AMP's payments
to APFA are absolute and unconditional.

KEY RATING DRIVERS

REFOCUSED ON CORE ELECTRIC BUSINESS: AMP returned to the more traditional (less 
risk) public power role of providing retail electricity service in 2009, with 
the sale of the telecommunications division. 

FINANCIALLY SOUND ALTHOUGH SALES LOW: Electric sales have declined by 2.6% since
2008. Financial performance, however, has remained solid due to the 
implementation of annual rate increases that began in 2010 and extend to 2015. 
Coverage is projected to remain in excess of 2.4x prospectively following AMP's 
2010 debt restructuring. 

SOLID LIQUIDITY AND LOW LEVERAGE: AMP's annual rate increases are generating 
added cash flow as exhibited by the rising days operating cash to 272 days at 
fiscal year-end 2011. Leverage is modest, at 2.9x debt to FADS for fiscal year 
2011, compared to the rating category median of 3.9x. No additional debt 
anticipated through 2016.

FAVORABLE POWER SUPPLY: As a power purchaser, AMP benefits from a diverse mix of
mostly renewable resources, accounting for about 80% of power supply in 2011. 
AMP's largest concentration of power supply is derived from Northern California 
Power Agency's (NCPA) geothermal project (36% of power supply). AMP is well 
positioned to exceed the renewable and greenhouse gas reduction targets in the 
state.

  

COMPETITIVE RATES: AMP's average electric rates are in-line with neighboring 
utilities, both public and corporate. AMP's rates are 15%-20% lower than its 
nearest competitor - Pacific Gas & Electric Co. AMP's customers should retain 
their rate advantage with modest rate increases planned for the foreseeable 
future.

EXPRIRING PURCHASE POWER CONTRACT: AMP has an expiring, low-cost purchase power 
contract with Morgan Stanley Capital Group, which terminates Dec. 31, 2014. This
contract represents 16% of AMP's power supply. AMP recently purchased a 
replacement contract, but at 20% higher cost and relatively short duration of 2 
years. 

BOARD WILLINGNESS TO RAISE RATES: A key credit strength is the Public Utility 
Board's willingness to moderately but regularly raise rates in advance of 
projected cost increases. Rising expenses are mainly due to lower kWh sales, 
higher purchased power and transmission costs, and pay-as-you-go capital 
expenditures.   

WHAT COULD TRIGGER A RATING ACTION

FAILURE TO MAINTAIN SOLID FINANCIAL METRICS: The adoption of adequate annual 
rate increases -- particularly if kWh sales continue to be sluggish -- is 
essential to meeting AMP's projected financial performance and maintaining the 
current rating level.

MATERIAL ADVERSE DECISION IN PENDING LITIGATION: The sale of the telecom system 
resulted in litigation by investors in the system. Two lawsuits are outstanding 
which could result in legal damages to be paid by the electric system even 
though the telecom debt obligations were not secured by electric system 
revenues. Fitch believes the potential costs should be manageable by AMP, but it
remains an ongoing credit concern. 

CREDIT PROFILE

AMP provides electric distribution service to the entire city of Alameda, a 22.8
square mile island across the bay from San Francisco. AMP serves a population 
base of just under 75,000, primarily residential and commercial users. 

ADEQUATE POWER SUPPLY

AMP does not own any generation, but purchases 100% of power requirements from 
varied suppliers of largely renewable resources (geothermal, hydro, wind, and 
landfill gas). As a result, AMP is well ahead of the state's renewable and 
greenhouse gas reduction targets through 2020.

Its largest power purchase (48% of net power supply) is from NCPA, a joint power
agency. AMP is a member and participant in most of NCPA's generation projects 
pursuant to long term, take-or-pay purchase power contracts. AMP's power supply 
is sufficient to meet load forecasts at least through 2017. However, AMP will be
replacing an existing power supply contract (15 MW from Morgan Stanley Capital 
Group) that is expiring in 2014, with a shorter duration (2 years) higher cost 
contract through NCPA's market purchase program. 

FINANCIAL PERFORMANCE SINCE LAST REVIEW

Fitch upgraded AMP's rating in 2010 to 'A+' for several reasons including: the 
sale of the underperforming telecom system; the restructuring of their debt 
profile (which advance retired portion of debt and lowered annual debt service 
payments); the board's conceptual approval of a 5-year rate increase plan; 
management's adoption of stronger financial targets; and stronger projected 
financial performance. 

Each of the rating upgrade factors noted above have been attained with the 
exception that projected debt service coverage levels are somewhat lower than 
originally expected primarily due to unanticipated decline in kWh sales in 
fiscal years 2010 and 2011. AMP is currently projecting debt service coverage 
will fall to 2.49x in fiscal 2013, as opposed to remaining above 3.0x in the 
prior rating review, due to revised lower kwh sales forecast. Coverage is 
projected to return to 3.0x or better in the following fiscal year.

Our Standards:The Thomson Reuters Trust Principles.
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