Moody's Investors Service recently affirmed the Aa3 rating on California public power utility Sacramento Municipal Utility District (SMUD) rated revenue bonds. The outlook has been changed to positive from stable.
The rating action “considers SMUD's consistently strong financial metrics including healthy and stable fixed obligation coverage levels supported by solid liquidity,” Moody’s said.
The utility has averaged more than 2.0x coverage of fixed obligations and 216 days cash on hand over the last three audited fiscal years, consistent with prior years and in-excess of district policy, Moody’s said.
SMUD “has also demonstrated a strong and consistent willingness and ability to recover costs through rate adjustments, with a proactive rate setting strategy supported by a diversified power portfolio,” the rating agency said.
Moody’s said that the credit profile “is tempered by a large capital spending program” with roughly $2 billion of expenditures in the 2022-2026 period intended to achieve SMUD's goal of eliminating its reliance on carbon energy sources by 2030, an elevated adjusted debt profile that includes meaningful pension liabilities and exposure to environmental risks including wildfires, “which is mitigated through a robust wildfire management program including recent projects to underground wires in areas of high fire risk.”
“The positive outlook reflects our view of SMUD's exceptional management team and practices that we expect will continue to deliver consistently strong financial results while progressing on SMUD's substantial capital plans to meet an aggressive 2030 Zero Carbon objective,” Moody’s said.
Other examples of SMUD's “forward thinking management include SMUD being first amongst the California publicly owned utilities to increase rates to fund wildfire prevention measures.”
SMUD was also an early adopter of time-of-day rates “which has helped to address the system's reliance on solar generation and has implemented a variety of reserve funds into rates which helps to manage the district's reliance on hydrology as a power resource,” Moody’s said.
SMUD established a facilities charge seven years ago and has gradually phased it in so it is largely indifferent to distributive generation, it added.
