Resiliency Measures: A Key Component in Evaluating Credit Strength
In the face of increasing climate change impacts, the incorporation of resiliency measures into credit strength analysis for municipal utilities is becoming more crucial than ever. The recent downgrade of the Los Angeles Department of Water and Power (LADWP) by a rating agency from AA- to A serves as a stark reminder of the importance of considering future risks posed by extreme weather events.
The lingering threat of climate change, coupled with the rising frequency and severity of wildfires, has raised concerns about the ability of municipal utilities to withstand and recover from such challenges. While the immediate financial impact on LADWP may not be significant, the potential for future risks looms large.
It is evident that the evaluation of credit strength must now take into account not only current financial stability but also the ability of utilities to adapt and respond to changing weather patterns. The role of resiliency measures in mitigating risks and ensuring operational continuity cannot be understated.
Federal Support and Disaster Recovery
One key aspect to consider in the evaluation of credit strength is the availability of federal disaster programs and the role of FEMA in supporting recovery efforts. LADWP’s access to federal funding for burying power lines in burn areas highlights the importance of external support in enhancing resiliency measures.
Federal disaster assistance, typically provided on a 75% federal and 25% local funding basis, can play a significant role in helping utilities recover from catastrophic events. The Robert T. Stafford Disaster Relief and Emergency Assistance Act, administered by FEMA, and the Community Development Block Grant program (CDBG), administered by HUD, are crucial sources of financial assistance for disaster recovery.
Lessons from Past Extreme Weather Events
Looking back at past major weather extremes can provide valuable insights into how utilities can better prepare for future risks. The Climate Change Resiliency Plan put forward by Long Island Power Authority (LIPA) and PSEG Long Island following Superstorm Sandy in 2012 exemplifies the proactive measures utilities can take to strengthen their service areas.
Similarly, San Antonio CPS Energy’s response to Winter Storm URI in 2021 showcased the importance of sound management and financial strength in navigating unexpected weather challenges. By investing in transmission upgrades, ensuring access to liquidity and debt markets, and prioritizing low-income ratepayers, CPS Energy was able to weather the storm and implement necessary adaptations for future resilience.
In conclusion, the incorporation of resiliency measures into credit strength analysis is essential for ensuring the long-term viability of municipal utilities in the face of climate change impacts. By learning from past experiences, leveraging federal support, and implementing proactive adaptation strategies, utilities can better position themselves to manage risks and thrive in a changing climate landscape. It is evident that the future of credit analysis and risk management lies in the ability to adapt and respond to evolving environmental challenges.
