SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to the following Missouri Joint Municipal Electric Utility Commission (MJMEUC) power project revenue refunding bonds (Prairie State Project):
--$222.2 million series 2016A.
The bonds are expected to price via negotiation during the week of Feb. 8, 2016. Proceeds will refund a portion of MJMEUC's outstanding series 2007A bonds for level savings.
In addition, Fitch has affirmed the 'A' rating on the following MJMEUC power project revenue bonds (Prairie State Project), with par amounts shown before the series 2016A refunding:
--$819,776,890 Prairie State Power Project revenue bonds series 2007A, 2009A, 2010A, and2015A.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by MJMEUC's Prairie State Energy Campus (PSEC) project net revenues, which are principally derived from (i) seven unit power purchasers (UPPs), pursuant to take-or-pay unit power purchase agreements (UPPAs) and (ii) the 35 members of the Missouri Public Energy Pool #1 (MoPEP 1, rated 'A'/Stable Outlook) under all-requirements pool power purchase agreements (PPPAs).
KEY RATING DRIVERS
JOINT ACTION AGENCY PROJECT: MJMEUC is a joint action agency comprised of 67 municipally-owned, retail electric systems located across the state of Missouri. MJMEUC has a 12.33% interest in the Prairie State Energy Campus (PSEC), a dual unit, pulverized coal-fired generating station located in southwest Illinois.
SOLID PURCHASER FUNDAMENTALS: The credit quality of the UPPs and MoPEP 1 members underpin the 'A' rating on the bonds. The three largest UPPs representing about half of MJMEUC's project ownership exhibit good cash flow metrics, healthy system equity, and robust and growing liquidity. All of the power purchasers own and operate electric distribution systems with self-regulation of rates.
ROBUST CONTRACT STEP-UPS: Bondholders do not have direct exposure to any single participant. A requirement that each of the seven UPPs step-up their original entitlement shares by 200%, as well as the effectively unlimited step-up of MoPEP 1 participants, mitigates participant default risk.
PLANT PERFORMANCE IMPROVEMENT: PSEC's operating performance improved in 2015 after experiencing a series of scheduled and unscheduled outages and de-rates during 2013 and 2014. The resultant reduction in plant availability below expected levels has increased power costs above original estimates and above current market prices.
RATING SENSITIVITIES
CHANGE IN PARTICIPANT CREDIT QUALITY: The rating on the Missouri Joint Municipal Electric Utility Commission (MJMEUC) power project bonds will continue to reflect the underlying credit quality of the Missouri Public Energy Pool No. 1 and the seven unit power purchasers particularly the two largest (Columbia Water and Light and Kirkwood, Missouri). Credit drivers for the participants include financial performance, liquidity levels, and rate flexibility.
PLANT OPERATIONS: Failure to operate the Prairie State Energy Campus at high levels of availability and capacity (to the extent it negatively affecting participant credit quality) could result in downward rating pressure.
CREDIT PROFILE
MJMEUC is a joint action agency formed in 1979 to provide its member utilities with an adequate, reliable, and economical power supply. MJMEUC's membership consists of 67 municipal retail electric systems, ranging in size from approximately 225 meters to 111,000 and serving 700,000 customers located across the State of Missouri. Advisory, nonvoting membership extends to four additional Arkansas-based retail electric systems.
MJMEUC purchased a 12.33% (195MW) interest in the PSEC project, a 1,600MW coal-fired generating station, which includes an adjacent coal mine and transmission tie-ins. The Missouri cities of Columbia, Kirkwood, Hannibal, Fulton, Marceline, Centralia, and Kahoka hold 58% of MJMEUC's project interest.
The remaining 42% or 82 MW has been assigned to MoPEP 1, MJMEUC's full-requirements power pool. MoPEP 1's share will increase to 44% (86 MW) on June 1, 2017 when Marceline will terminate its UPPA and MoPEP 1 has agreed to increase its share proportionally. Marceline's decision to terminate its share in the project stems from an excess capacity position that PSEC represents in addition to its other resources. The transfer in ownership interest for approximately 4MW of MJMEUC's total 195 MW share is not viewed as a credit concern. MJMEUC management reports that no other UPPs have indicated an interest to terminate their UPPA.
In addition to the PSEC project, MJMEUC has interests in the Plum Point (147MW) and Iatan 2 (100MW) projects. Each project, as well as MoPEP 1, is separately secured.
PROJECT PERFORMANCE IMPROVING
PSEC is a mine-mouth, pulverized coal-fired generating station located in Washington, St. Clair and Randolph Counties in Southwest Illinois. The generating station consists of two supercritical units with a design net rated electric capacity of approximately 800 MW each. The plant design incorporates state-of-the-art emissions control technology resulting in significantly less carbon emissions than a legacy U.S coal plant.
The plant's location adjacent to a coal mine means that all associated rail, water, coal combustion waste storage and ancillary support are available on site. Underground coal reserves are expected to meet project fuel needs for approximately 30 years.
PSEC is fully operational with Unit 1 commissioned in June 2012 followed by Unit 2 in November 2012. PSEC's operating performance has continued to trend upward with 2015 recording the highest availability and capacity factor for the project to date. In 2015, PSEC's availability and capacity factor was 80.9% and 77.7%, respectively. While the 2015 capacity factor is still below long-term expectations for the plant at 85%, it marks improvement from 2013 and 2014 when the project was negatively impacted by a series of unscheduled outages and capacity reductions. MJMEUC management expects plant operations to improve further, although the 2016 budget is conservatively based on a capacity factor of 77%, resulting in power costs of $76/MWh to participants. MJMEUC projects costs could trend in the mid to upper $60/MWh range over time as operating performance improves.
STEP-UPS MITIGATE DIRECT EXPOSURE
The distribution of project capacity among the seven UPPs and MoPEP 1 eliminates direct bondholder exposure to any single participant, given the generous step-up provisions. UPPs are required to step-up their original entitlement shares by 200% in the event another UPP defaults on its obligations; this provision is not triggered if MoPEP 1 defaults on its obligation. The MoPEP 1 PPPAs require an unlimited step-up among the 35 participants, whereby if one or multiple members default the costs are redistributed to the non-defaulting members without limitation.
SOLID CREDIT QUALITY OF PARTICIPANTS
MoPEP 1 and the largest UPPs sufficiently support the MJMEUC PSEC project rating. The cities own and operate retail electric systems that exhibit generally good financial metrics and service territories, as well as average customer rates. In particular, Columbia and Kirkwood, the largest UPP participants representing about 40% of MJMEUC's project interest, both have strong balance sheets, good cash flow metrics, and abundant liquidity.
ADEQUATE FINANCIAL PERFORMANCE
Project debt service coverage is expected to be near 1.0x, given provisions of the UPPAs and PPPAs that collect a like amount (1.1x for MoPEP 1). Fiscal 2014 results are consistent with this trend with PSEC project level debt service coverage of just over 1.0x in 2014 and expectations of similar performance in 2015. Like most project-based joint action agencies, project equity will remain with the underlying participants.
Fully funded reserves provide a degree of cushion: reserve and contingency ($2 million) and operating reserve ($5 million) funds are included in restricted cash. In addition, MJMEUC retains a $48 million revolving line of credit that is available to all of MJMEUC's projects. Project participants are billed 30 days in advance, which provides additional cushion.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Public Power Rating Criteria (pub. 18 May 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864007
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998977
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998977
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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