One of the nation’s top bond rating agencies Monday announced it would reassess its bond rating of the Los Angeles Department of Water and Power, a move that Mayor Antonio Villaraigosa blamed on the City Council’s failure to approve electricity rate hikes last week.
Fitch Ratings withdrew a “AA-” rating it had given on two DWP bonds worth $720 million. That action can lead to a rating downgrade which, if that occurs, could make it more expensive for the DWP to borrow money.
“Today we are facing the consequences of the city’s failure to enact the necessary rate increases with Fitch Ratings, a major credit rating agency, withdrawing the DWP’s AA- bond rating, thereby costing the ratepayers more in the long run,’’ Villaraigosa said in a statement released Monday evening.
Villaraigosa said the rate hike, which he supported, would have protected the DWP’s credit rating and helped “avoid the very situation in which we now find ourselves.” The mayor had pushed for the hike to cover an increase in the cost of coal, and also for his renewable energy agenda.
In a statement, Fitch explained that it withdrew its initial rating because the rating agency had assumed the rate increase would be approved.
Earlier on Monday, City Controller Wendy Greuel declared an “urgent financial crisis” when DWP officials announced that — due to their inability to get higher rates — they would not recommend contributing a promised $73.5 million to the city’s strained general fund. Greuel said that without that money the only way to continue paying bills in the short term was to begin to drain the city’s already limited emergency reserve.
Greuel’s announcement was the latest development in an increasingly bitter standoff between the council and the DWP over how much the municipal utility should charge ratepayers and how much it should contribute to the city’s overall treasury.
DWP officials have proposed rate hikes that would range from roughly 9% for most users to as high as 28% for some. The council has blocked those increases from taking effect, responding to irate reactions from constituents.
Interim DWP General Manager S. David Freeman, in a letter sent to Greuel on Monday morning, said that he would urge the utility’s board of commissioners — all appointed by Villaraigosa — to withhold the $73.5-million payment. Without the rate increase, he said, the DWP would not have “surplus revenue” to contribute to the city while still paying its own bills.
— Phil Willon and Maeve Reston at Los Angeles City Hall