Moody’s affirms A3 credit rating on the California Department of Water Resources power supply bonds

Credit confirmation given despite PG&E’s challenge of DWR’s revenue requirements

NEW YORK, October 22, 2002 — Moody’s Investors Service has affirmed the credit rating of A3 on the California Department of Water Resources Power Supply Revenue Bonds which are scheduled to begin pricing the week of October 21.

A lawsuit was filed by Pacific Gas and Electric Company (PG&E) on October 17 in Sacramento County Superior Court challenging the California Department of Water Resources (DWR) determination that its revenue requirements are “just and reasonable.”

PG&E also contends in the suit that the DWR did not comply with the Administrative Procedures Act in making its “just and reasonable” determination, and that the bond charges included in the revenue requirement are “unjust and unreasonable.”

Moody’s evaluated the risks associated with the litigation and has affirmed the A3 credit rating. The rating on the bonds factors in the expectation of continued litigation involving PG&E, as well as legal opinions regarding the enforceability of the Rate Agreement with the CPUC.

The CPUC and the California Electricity Oversight Board have filed complaints with FERC challenging the just and reasonable nature of some of the power contracts and we expect that process to be the primary forum in which the just and reasonableness of the contracts is determined. The outcome of this process cannot be predicted.

Language in the state statute authorizing the bonds gives clear responsibility and authority to DWR to establish its revenue requirement to cover its costs and to determine whether its costs are just and reasonable. In Moody’s opinion, it is unlikely that DWR would remain obligated under power contracts the cost of which cannot be recovered in its revenue requirement.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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