...Strong Credit Quality Intact: California water and sewer ratings are strong with an average `AA' rating in the sector. Credit ratings are expected to remain stable despite ongoing pressures related to the drought. This stability is due to utilities' rate flexibility, revenue diversity, strong reserve levels and ability to defer capital projects. Drought Impacts Severe in Short Term: Utilities faced a fourth year of drought that spurred state intervention in the form of a 25% statewide conservation mandate and subsequent individual conservation standards for each utility enacted in May 2015. Thirty-nine of 47 reporting Fitch-rated utilities met or were close to meeting their individual mandates through December 2015, resulting in sharp curtailments in water sales. On Feb. 2, 2016, the state extended the usage restrictions through October 2016 as expected despite above-average rainfall thus far this season. Financial Margins Under Strain: Strong financial margins are expected to be notably...
