KBRA assigns a long-term rating of AA to the Department of Water and Power of the City of Los Angeles, CA (“LADWP”) Power System Revenue Bonds, 2026 Series C. The Outlook is Stable.

The long-term rating reflects the stable operating and financial performance of LADWP’s Power System. LADWP is the exclusive provider of electric and water utility services within the City of Los Angeles. The Power System provides energy, transmission and distribution services to approximately 1.6 million customers and is responsible for 25% of California’s electric transmission assets. LADWP benefits from a large, mostly residential service area, a diverse generation mix, and conservative, Board-adopted financial planning criteria. Residential customer rates, though above the national average and rising, remain in line with or below the State’s residential average on an annualized basis. Strong service-area wealth metrics and relatively low residential electricity usage support rate flexibility. Counterbalancing these strengths are contingent liability risks related to the 2025 wildfires and future wildfires, and to the strict liability standards imposed by California’s inverse condemnation law. Potential adverse wildfire-related litigation outcomes that pressure the Department’s ability to meet the related liability exposure would likely have a negative rating impact.

The 2026 Series C Bonds, together with approximately $13.23 billion in outstanding parity bonds and $3.86 billion in unconditional, off-balance sheet joint powers agency take-or-pay obligations, are special obligations of the Department payable solely from the Power Revenue Fund. Proceeds of the 2026 Series C Bonds will be used to fund capital improvements to the Power System, refund certain outstanding Power System Revenue Bonds, and pay certain costs of issuance. As of August 1, 2026, the Department had $250 million of loans outstanding under a revolving credit agreement payable from the Power Revenue Fund, and $150 million of loans outstanding under a revolving credit agreement payable from the Water Revenue Fund which are considered parity obligations under the Master Resolution. Loans to the Department under the revolver cannot exceed $500 million in principal amount outstanding.

Key Credit Considerations

The rating was assigned because of the following key credit considerations:

Credit Positives

  • The Department’s diverse generation mix provides ample net dependable capacity versus peak demand and minimizes exposure to energy cost volatility.

  • Current electricity rates remain affordable relative to other California utilities, allowing for a degree of rate flexibility.

  • The rate structure incorporates several pass-through adjustments that effectively decouple revenue generation from changes in customer demand.

  • Sound liquidity helps to offset enterprise risks.

Credit Challenges

  • California’s inverse condemnation doctrine (strict liability) could result in wildfire liabilities exceeding the Department’s layers of wildfire financial mitigants, which include insurance, liquidity, bonding capacity and potential cost recovery through rate adjustment factors.

  • LADWP’s ability to maintain rate affordability and strong financial metrics while addressing potential wildfire liabilities and capital-intensive energy transition mandates is an evolving credit challenge.

  • KBRA-calculated leverage is very high and expected to grow, given the ambitious, largely bond-funded Power System 2027-2031 CIP.

Rating Sensitivities

For Upgrade

  • Demonstrated progress in attaining mandated energy transition targets with minimal adverse rate impact.

For Downgrade

  • Potential adverse litigation outcomes relating to the 2025 wildfire or to future wildfires which pressure the Department’s ability to meet the related liability.

  • Inadequate or delayed rate recovery that causes a decline in debt service coverage to a level approaching Board-adopted targets.

To access ratings and relevant documents, click here.

Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

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