The bonds are scheduled to price on
Fitch also affirms the following outstanding ratings on parity debt issued by ENW,
Fitch also affirms Bonneville's implied non-federal revenue obligations at 'AA'.
The Rating Outlook for all bonds is Stable.
The bonds are on parity with ENW's outstanding
Bonneville's payments are made as an operating expense from the
KEY RATING DRIVERS
BONNEVILLE'S OBLIGATION SECURES BONDS: The ratings on the ENW,
COMPETITIVE REGIONAL SUPPLIER: Bonneville provides wholesale electricity to a population of more than 12 million in the
LOW-RISK POWER SALES CONTRACTS: Bonneville sells power through long-term, take-or-pay contracts through 2028 that recover cost of service from 125 preference customers. New contracts went into effect in fiscal 2012 that limit Bonneville's financial exposure to member load increases and lower-than-expected output from the federal system.
TWO-YEAR RATE SETTING: Bonneville sets rates based on a two-year rate cycle, with mid-period cost adjustments allowed if certain financial thresholds are triggered. Increases in Bonneville's tier 1 power rate (9%) and transmission rate (11%) in fiscal 2014 are expected to stabilize financial performance.
RELIANCE ON NET SECONDARY REVENUES: Bonneville's financial performance relies on net secondary revenues from wholesale market power sales. Lower than expected net secondary revenues have pressured financial margins and reserves in recent years.
DECLINING CASH RESERVES: Declining cash reserves remains a concern but is somewhat mitigated by interim rate-setting options available to Bonneville and a
LIMITED CAPITAL ACCESS: Bonneville's access to capital is limited as it cannot issue debt on its own and has a
FURTHER REVENUE AND RESERVE DECLINES: A continuing trend of net secondary revenues lower than expected and declining cash reserves could pressure the ratings.
ENW, formerly known as the Washington Public Power Supply System, was created in 1957. ENW has 27 members, consisting of 22 public utility districts and the cities of
Bonneville is the largest of the regional federal power marketing agencies within the
Bonneville utilizes the energy from the
BONNEVILLE RATING NOT BASED ON DIRECT FEDERAL SUPPORT
Fitch's ratings on Bonneville's implied revenue obligations and the related ENW,
RELIANCE ON NET SECONDARY REVENUES
Bonneville has faced financial pressure for the past five years resulting from low power-market prices for its secondary sales. Bonneville's net secondary sales result from the portion of the federal system that is excess to the load demand allocated under preference contracts. Cost-based rates for preference customers are established using extensive modeling of potential hydrological conditions but assume some level of net secondary revenues based on average water conditions and forecast market prices. These revenues have been lower than projected due to below-average water conditions and low market prices, requiring the use of cash reserves in fiscals 2009 - 2013 to replace lower revenues. Fitch views the use of average water conditions for financial planning as an optimistic assumption given below-average water conditions in nine of the past 10 years.
Rate setting in fiscal 2014 assumed reduced net secondary sales of approximately
FINANCIAL FLEXIBILITY REMAINS
Bonneville's cash reserves have declined in recent years. However, Bonneville's risk profile has also lessened over this time period with the new power contracts, flexibility to adjust rates through cost adjusters, and reduced reliance on net secondary revenues in its rate setting. Bonneville's reserves for risk, or unencumbered reserves, declined to
Bonneville's forecast in its
For more information, see the Fitch report, '
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope.
--'U.S. Public Power Rating Criteria' (
--'2014 Outlook: U.S. Public Power and Electric Cooperative Sector' (
--'U.S. Public Power Peer Study' (
U.S. Public Power Peer Study --
2014 Outlook: U.S. Public Power and Electric Cooperative Sector (Calm Under Pressure)
U.S. Public Power Rating Criteria
Source: Fitch Ratings
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