Fitch Cites Silicon Valley Power’s Strong Financial Performance In Affirming Rating On Bonds

January 18, 2022

by Paul Ciampoli
APPA News Director
January 18, 2022

Fitch Ratings recently affirmed the “AA-“ rating on bonds issued by Silicon Valley Power (SVP), which is the operating public power utility for the City of Santa Clara, Calif.

The rating was affirmed for $48.975 million refunding revenue bonds, series 2013A and 2018A and the rating outlook is stable, Fitch noted.

“The affirmation of the ‘AA-‘ ratings reflects SVP’s strong financial performance over the past three years, resulting in lower net leverage,” Fitch said.

SVP’s financial profile “exhibits some variability in operating income as a result of hydroelectric availability, but is supported by robust liquidity levels,” the rating agency said.

It also said that the rating reflects the utility’s low operating cost burden associated with a primarily natural gas, hydroelectric and renewable generation portfolio.

SVP is an enterprise fund of the city of Santa Clara, providing service to approximately 59,200 customer accounts within the city’s boundaries.

The city of Santa Clara “is the heart of Silicon Valley and includes an affluent service territory with a considerable concentration of high-tech industries and strong load growth,” Fitch pointed out.

SVP continues to experience strong customer and load growth, with much of the growth resulting from increased data center activity at technology companies, it said.

“Rating concerns related to customer and industry concentration are partially offset by the diversity of business activities represented by the customer base and the demonstrated stability in demand over the past decade,” Fitch said.

The retail electric utility is fully integrated with direct and joint ownership of generation, transmission and distribution facilities. Power supply is provided primarily by SVP’s locally owned natural gas-fired generation plant and purchased power allocations from the Northern California Power Agency and Western Area Power Administration that include natural-gas, hydroelectric and geothermal resources. SVP supplements these resources with increasing renewable purchases.

Fitch considers the electric system to be a related entity of the City of Santa Clara (not rated by Fitch) for rating purposes, given the city’s oversight of the system, including the authority to establish rates and budget of the electric system.

The rating on the electric system bonds is not currently constrained by the credit quality of the City of Santa Clara, the rating agency said.