More than $500 million in revenue bonds used for pre-paid long-term natural gas supplies for a group of Southern California public power providers were downgraded to “A2” from “A1” by Moody’s Investors Service Tuesday. The bonds are part of the A-rated Southern California Public Power Authority (SCPPA), a joint powers authority formed more than two decades ago as an infrastructure financing arm for a dozen public-sector electric utilities.

Moody’s said the rating action comes following its recent downgrade of global insurance giant American International Group (AIG) to “A2” (on watch for downgrade) from “Aa3.” Goldman Sachs & Co. “Aa3” is the gas purchase contract guarantor, and AIG is the commodity swap guarantor in the SCPPA deal financing long-term gas purchases for five of its muni members (the cities of Anaheim, Burbank, Colton, Glendale and Pasadena).

Global credit woes have continued to seep into the public-sector utility space where the electrics made bold natural gas hedging plays in recent years, and major ratings agencies, such as Moody’s, last July downgraded several of the utilities in California and elsewhere around the nation (see Daily GPI, July 28). At that time, the hedges were bad enough that one municipal said it was closing up its hedging program.

Moody’s downgraded Roseville, CA; Colorado Springs, CO; and a Texas public-sector gas-buying entity; they were all lowered to “A2” from “A1” ratings. And elsewhere in California, the former energy trader for the Imperial Irrigation District (IID) sued the utility after being fired, allegedly for overreacting to Hurricane Katrina three years ago and costing the public-sector utility tens of millions of dollars in excessive wholesale natural gas charges.

Moody’s noted that the same city-run utilities that are part of the downgraded gas pre-pay transaction are also part of a gas-fired power plant in Burbank, the Magnolia project, whose SCPPA-issued bonds are rated “A1” based on what Moody’s called “the participants’ credit quality, the cost of the power from the project, the essentiality of the project to its participants and other credit factors consistent with our rating methodology for U.S. municipal joint power agencies.”

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.