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Citing debt, ratings agency gives Glendale water utility negative outlook

July 17, 2012
(Times Community…)

The water side of Glendale Water & Power is so in debt, a bond rating agency downgraded the utility’s rating and gave it a negative outlook because the score is expected to drop again in the future.

Dropping the rating from AA to A+ could lead to higher interest rates when Glendale Water & Power asks for $35 million in water bonds, but the negative outlook issued by Fitch Ratings won’t necessarily stop the utility from possibly incurring the debt.

That’s because interest rates in general are at an all-time low, making this a “very opportune time to issue debt,” said Steve Zurn, the city’s public works director who was also recently appointed interim general manager of Glendale Water & Power.

He called the Fitch Ratings report, released on Friday, a “fair assessment” of a system that needs to cut costs to dig out of a $21.8-million deficit — all of which was covered by borrowing from the utility’s electrical side.

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The A+ rating is still teetering along the edge of the top tier.

“It just really means we really have to be cost conscious,” Zurn said.

To do that, everything is on the table, from freezing vacant positions to potential layoffs in the future, he added.

In March, the City Council agreed to increase water rates over the next four years by charging customers who use more water — or who have a larger meter — a higher rate.

The extra revenue will be used to pay back the $21.8 million owed to the utility’s electrical side, Zurn said.

Water officials borrowed the money from their electrical counterparts to cover expensive capital projects, including improving the city’s largest reservoir and new meters, according to Fitch, which said it was concerned that the utility did not instead decide to temporarily table the work.

In hindsight, Zurn agreed that perhaps that extra work should have been put on hold.

Unlike the water rate increases, the proposed bonds — which still must be approved by a skeptical City Council — would not be used to cover the electricity debt, but would instead fund cover capital improvements.

Paying back the electricity side over the next five years will likely eat up the water system’s excess cash. and

Glendale Water & Power “has no liquidity and a large liability to retire,” according to the Fitch report. In fact, the utility’s water side isn’t expected to see a positive cash flow until 2017.

The utility’s electrical side may also be raising its own rates over the next four years.

Next month, Glendale Water & Power officials plan to pitch the City Council a proposal to raise electricity rates by 3% in 2013 and 2014, and then by 4% in 2015 and 2016.

-- Brittany Levine, Times Community News

Follow Brittany Levine on Twitter and Google+

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