Several bond-rating agencies this week warned that without an increase in electric rates this year, Glendale Water & Power could face a downgrade due to its weak financial performance.
The warnings come weeks before a City Council election in which three seats are up for grabs and several candidates have publicly balked at the idea of increasing rates.
Meanwhile, the top fundraisers in the race so far — challenger Zareh Sinanyan and incumbents Laura Friedman and Ara Najarian — say the warnings from Fitch Ratings, Moody's Investment Service and Standard & Poor's wouldn't be the only factor they would consider in deciding whether to raise rates.
“The discussion by the rating agencies does not drive my decision as to whether or not to raise rates,” said Councilman Ara Najarian.
But while utility customers would like to be the main drivers in the decision-making process, the bond-rating agencies carry the hammer when it comes to setting interest rates when bonds go to market — a huge factor in determining the ultimate cost to Glendale Water & Power.
Even so, Glendale Water & Power General Manager Steve Zurn said he wasn't surprised when he saw the ratings outlook, but added that he doesn't expect it to be too much of a factor due to the low-interest-rate environment.
The Federal Reserve has been keeping rates historically low to spur the economy.
Finance Director Bob Elliot said despite the warnings, Glendale Water & Power is still in good standing.
There's also a high demand for municipal bonds, he said, which means Glendale has a better chance at getting a favorable rate.
The roughly $24 million in electric revenue bonds approved last month were given ratings in the upper median to high-grade range from all three ratings agencies.
The bond issuance, which was approved by the council in January, refinances 2003 bonds used to revamp part of Grayson Power Plant.
The new interest rate is expected to be 3.5%, less than the 4.94% Glendale was paying, according to a city report.
During a series of public meetings in July, Glendale Water & Power officials said they were seeking a 14.7% electricity rate hike over four years, starting with a 3% bump in 2013.
The rate increases would help pay for needed capital improvements and improve the utility's weak financial position partially caused by loans the electric side made to its water counterpart, which burned through cash on capital improvements.
The council approved four years of water rate increases — which affect customers differently depending on how much water they use and the size of their meters — last year to partially pay back the loans from the electric utility, which at one point had hit roughly $23 million.
--Copyright © 2015, Los Angeles Times