Intermountain Power Agency revenue bonds affirmed as LADWP-backed contract structure supports AA- rating

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Intermountain bonds affirmed AA-

Highlights

Fitch affirmed Intermountain Power Agency's 'AA-' issuer and revenue bond ratings with Stable Outlook, driven by LADWP's credit quality and contract structure.
Unconditional take-or-pay contracts require participants to cover all costs through at least June 2077, with LADWP obligated to increase its share upon any default.
Completion of the $1.7 billion gas repowering in 2025 and coal unit closures lowered fiscal 2026 leverage to a five-year low despite anticipated higher operating costs.

Contract support and rating drivers

As reported by Fitch Ratings, the agency has affirmed Intermountain Power Agency's Issuer Default Rating and power supply revenue bonds at 'AA-' with a Stable Outlook. The rating reflects the credit quality of LADWP's power system, which is the largest purchaser from the Intermountain Power Project and the main driver of IPA's credit standing.

The rating is supported by unconditional take-or-pay terms in both the existing and renewal power sales contracts. Those provisions require project participants to pay all costs, including debt service, regardless of whether the project or renewal project is built, operating or operable.

Bondholders are secured by IPA revenue linked to the Intermountain Power Project, including receipts under the power sales contracts and an excess power sales agreement. Fitch assesses revenue defensibility at 'aa', citing LADWP's very strong purchaser credit quality and the support provided by other participating purchasers.

The current contract structure covers 35 purchasers through June 15, 2027, while renewal contracts cover 30 purchasers from June 16, 2027 through June 15, 2077. Across both periods, LADWP purchases most of the project's output and is required to increase its share if another purchaser defaults, reinforcing its central role in the rating analysis.

Transition economics and operating impact

The renewal project remains strategically important to LADWP's generation portfolio, resource planning and target of reaching 100% clean energy. Fitch says that importance outweighs day-to-day operating performance in the rating because project revenues are not directly tied to output under the contract structure.

IPA's existing coal-fired project has carried a low operating cost burden, although cost per kWh has fluctuated as participants adjusted production in recent years. That burden improved in fiscal 2025 as coal inventories were drawn down ahead of the fuel transition, after a higher burden in fiscal 2024 when operations were reduced to conserve coal.

Construction of the gas repowering was substantially completed in 2025 at an approximate cost of $1.7 billion. Units 3 and 4 entered service in October and December 2025, and the gas units began commercial operation in December 2025, while the remaining major work, completion of the Adelanto and Intermountain Converter Stations, is expected by April 2028.

Fitch expects IPA's operating cost burden to rise now that the repowering is complete, reflecting lower generation and the full absorption of construction-related costs, although it says the burden should remain low. The agency also notes that leverage, which rose from fiscal 2022 as IPA borrowed for the repowering project, fell to a five-year low in fiscal 2026 as operating income improved after the new gas units entered service and expenses declined following the coal unit closures.

We previously reported on Fitch’s BBB- rating for Hainan Rubber’s proposed subordinated perpetual sustainable securities to be issued by its Halcyon Agri unit and guaranteed on a subordinated basis. That piece outlined how the notes’ structural features—subordination and the ability to defer coupons—drove the notching versus the issuer rating, alongside Fitch’s view of the group’s leverage and liquidity profile.

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