NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed the 'A-'rating on Boise Kuna Irrigation
District ADA and Canyon Counties, ID's $39.3 millionArrowrock
Hydroelectric Project (Arrowrock) revenue bonds series 2008 at 'A-'.
The Rating Outlook is Stable.
The series 2008 bonds are non-recourse revenue obligations of the issuer
(Boise Kuna Irrigation District) and are payable solely from, and
secured solely by, the funds pledged under the long-term take-or-pay
power sales contract with Clatskanie People's Utility District
(Clatskanie), and other reserve funds available pursuant to the
KEY RATING DRIVERS
Efficient Hydroelectric Project: The Arrowrock Hydroelectric Project
(Arrowrock) is an 18 MW hydro unit owned and operated by five irrigation
districts (the districts), four of which are located in southwest Idaho
and one in southeast Oregon. Project construction was completed in 2010
ahead of schedule and within budget. Since commercial operation, project
performance has been sound.
Long-Term Take-or-Pay Contract: Clatskanie People's Utility District
(Clatskanie) is the sole off taker of 100% of Arrowrock's output and
thus the power sales contract hinges on Clatskanie's financial
performance and ability to meet the project's operations and maintenance
(O&M) expense and debt service obligations. Fitch believes that
Clatskanie's standalone financial and overall credit profile is
supportive of the 'A-' rating on the bonds.
Single Large Industrial Customer: Clatskanie's operating revenues are
highly concentrated in a single large customer, Georgia Pacific, a paper
mill accounting for 80% of retail sales during 2013. While the loss of
this single customer can be partially offset by the remarketing of low
cost Bonneville Power Administration (BPA) surplus power, the customer
concentration remains a risk.
Stable Financial Metrics: Clatskanie's metrics are supportive of the
project's 'A-' rating. Strong debt service coverage (DSC) of 2.6 times
(x) in 2013 is balanced by weak liquidity of 29 days cash on hand (DCOH).
Significant Off-System Sales: Clatskanie's financial performance is
supported by off-system sales which have generated about 20% of total
sales historically. Clatskanie's high DSC provides the utility with the
flexibility to absorb the financial impact in years of adverse
hydrological conditions and reduced off-system sales.
Low Retail Electric Rates: Residential and industrial rates are among
the lowest in the state; however, there is limited rate flexibility due
to a price sensitive service area.
Underperforming Arrowrock Operations: Payments by Clatskanie are
dependent on the successful long-term operation of the project and
minimum water flows through the dam.
Weaker Off Taker Financial Metrics: Clatskanie's ability to meet its
obligations pursuant to the power sales contract will remain an
important trigger to the rating.
Loss of Single Industrial Customer: The loss of Georgia Pacific is an
ongoing concern, as it would leave Clatskanie long power with market
risk until they are able to remarket the power.
Long-term Power Sales Contract
In conjunction with the issuance of series 2008 bonds, Clatskanie
entered into a power sales contract with the Districts on Sept. 2, 2008
for purchase of the net output generated by the project. The contract
will expire on March 1, 2039, coterminous with the date of the
expiration of the FERC license. Fitch notes that the debt matures on
June 1, 2040 resulting in minimal project tail risk of one year.
Clatskanie agrees to purchase all net output at a price equal to 90% of
the monthly average Dow Jones Mid-Columbia Index. Clatskanie is also
required to maintain electric rates sufficient to meet O&M and debt
service obligations on the project. In the instance where the payments
are insufficient to meet project obligations, Clatskanie is required to
step up and make prepayments to cover the shortfall if reserves are
Stable Off-Taker Financials
Clatskanie's financial metrics are adequate, supported by operating
margins averaging 4.6% over the last five years. The utility's metrics
are supportive of the project's 'A-' rating balanced by continued
weakness in liquidity of 29 DCOH in 2013. The utility is well
capitalized at 60.7% and has a relatively low leverage metric of 5.2x
debt to funds available for debt service (FADS).
DSC deteriorated moderately in 2012 and 2013 due to the absence of
colder winter weather conditions but nonetheless remains solid at more
Single Customer Concentration
Clatskanie's distribution system serves approximately 4,600
predominately residential customers. However, these customers only
account for a small portion of the utility's operating revenue. The bulk
of Clatskanie's revenues, approximately 80%, is generated from sales to
a single large industrial customer, Georgia Pacific, which operates two
paper consumer product mills.
Clatskanie sells more than two-thirds of its power to industrial
customers directly exposing it to the pulp and paper market and mill
operations. Services are provided under the terms of an ongoing contract
that may be terminated by either party one year from the date of
While the industrial load has been stable over the last several years,
the potential loss of Georgia Pacific is an ongoing concern, as it would
leave Clatskanie with excess power subject to market risk until they are
able to remarket or reduce the excess power. This concern is partially
offset by the low cost of Clatskanie's surplus BPA power, which would
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. Public Power Peer Study', June 13, 2013;
--'U.S. Public Power Rating Criteria', March 18, 2014.
Applicable Criteria and Related Research:
U.S. Public Power Peer Study -- June 2013
U.S. Public Power Rating Criteria
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Source: Fitch Ratings