Fitch Ratings assigns an 'AA' rating to the following bonds issued by
Port of Morrow (OR) and secured by payments from the Bonneville Power
--Approximately $90 million transmission facilities revenue bonds,
The Port of Morrow bonds are expected to price the week of July 16,
2012. Proceeds from the bonds will refinance a line of credit used to
construction transmission assets in the region for the use by the
Bonneville Power Administration, pay a termination fee in connection
with repaying the line of credit early, and pay costs of issuance. The
bonds do not have a debt service reserve fund.
Fitch also affirms the following outstanding ratings on debt issued by
Energy Northwest and secured by payments from the Bonneville Power
--$1.57 billion Project 1 revenue bonds at 'AA';
--$2.49 billion Columbia Generating Station revenue bonds at 'AA';
--$1.50 billion Project 3 revenue bonds at 'AA'.
Fitch also affirms its implied non-federal revenue bond rating on
Bonneville Power Administration at 'AA'.
The Rating Outlook for all bonds is Stable.
The Port of Morrow bonds are secured by an absolute and unconditional
payment obligation from the Bonneville Power Administration.
Bonneville's payments are made as an operating expense directly to the
Trustee and are on par with approximately $5.6 billion (as of 9/30/11)
in debt outstanding at Energy Northwest. The Port of Morrow and Energy
Northwest obligations are paid prior to Bonneville's payments to the
U.S. Treasury on approximately $7.3 billion (as of 9/30/11) in Treasury
KEY RATING DRIVERS
BONNEVILLE'S OBLIGATION SECURES BONDS: The rating on the Port of Morrow
bonds is the same as the implied revenue bond rating for Bonneville
Power Administration, which reflects Bonneville's absolute and
unconditional obligation to make the lease payments.
COMPETITIVE WHOLESALE SUPPLIER: Bonneville has a competitive resource
portfolio of over 8,500 MW that provides wholesale electricity
(primarily low-cost hydropower) and transmission access to a population
of more than 12 million people in the Pacific Northwest.
COST BASED LONG-TERM CONTRACTS: Bonneville sells its resources through
long-term take-and-pay contracts through 2028 that recover cost of
service from its 135 preference customers. New contracts went into
effect on Oct. 1, 2011 that provide less operational and price risk to
Bonneville than previous contracts.
TIMELY RATE SETTING: Bonneville has established a two-year rate-setting
cycle, with mid-period cost adjustments allowed. Bonneville also employs
an annual cost recovery adjustment clause (CRAC), which adds further
rate setting flexibility.
BPA's financial performance fluctuates as a result of hydrological
conditions and market prices, with secondary (surplus) sales budgeted at
22% of total revenues.
LOW RESERVES: Financial reserves have declined in the past three years
due to considerably lower than projected secondary sales and are at very
low levels. Power system reserves totaled only $129 million as of Dec.
31, 2011. However, this concern is somewhat mitigated by various
financial and rating setting options available to Bonneville, along with
a $750 million federal line of credit with the treasury department,
which provides additional liquidity support.
LARGE CAPITAL NEEDS: Recent increases from the federal government in
Bonneville's borrowing capacity for both long-term and short-term needs
should fund a portion of Bonneville's capital needs. A regional
discussion with Bonneville's stakeholders is ongoing about the scope and
pace of capital spending and the identification of alternative funding
sources to fund remaining needs. The use of the Port of Morrow lease
structure provides an avenue to fund a portion of Bonneville's
transmission related capital needs and additional issuance through the
Port of Morrow is anticipated.
PORT OF MORROW LEASE
The Port of Morrow will issue bonds to purchase transmission assets
constructed for Bonneville's benefit by the Northwest Infrastructure
Financing Corp. II (NIFC II). The assets consist of a variety of
transmission related assets and do not secure the lease transaction. The
Port of Morrow has the authority to own and issue bonds to fund
transmission assets throughout the region. This right was validated by a
court opinion sought by the port in March 2012, prior to undertaking
this transaction. The leased assets will be held by the port and will be
According to the terms of a lease agreement between the Port of Morrow
and Bonneville, Bonneville will make unconditional lease payments
directly to the trustee (the Port has assigned the lease revenues to the
trustee) that are equal to debt service on the bonds. Bonneville will
also pay any additional taxes, charges or other governmental charges, as
well all reasonable costs and expenses of the issuer in connection with
the lease agreement. The lease agreement terminates in 2042 or only once
all the bonds are repaid. Bonneville retains all operational control of
the transmission assets.
For additional information on Energy Northwest and Bonneville Power
Administration, please see Fitch's report, 'Energy Northwest; Bonneville
Power Administration', dated March 19, 2012.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria, this action was additionally informed
by information from Creditscope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'Public Power Rating Guidelines', March 28, 2011;
--'US Public Power Peer Study', June 20, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
U.S. Public Power Peer Study, June 2011
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF