Fitch Rates PPGA's Whelan Energy Center, NE's Unit 2 Rev Rfdg Bonds 'A-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'A-' rating to the following Public Power Generation Agency, NE's (PPGA) revenue bonds:

--Approximately $139,940,000 Whelan Energy Center Unit 2 revenue refunding bonds 2016 series A.

The bonds are scheduled to price via negotiation on April 28. Proceeds from the 2016 series A bonds will be used to refund a portion of outstanding Whelan Energy Center Unit 2 revenue bonds 2007 series A for interest savings, and pay the costs of issuance.

In addition, Fitch affirms the 'A-' rating on the following outstanding bonds:

--Approximately $187,345,000 Whelan Energy Center Unit 2 revenue bonds, 2015 series A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured and payable from payments made by the participants under the participation agreements and other funds established under the resolution.

KEY RATING DRIVERS

SMALL JOINT ACTION AGENCY: PPGA is a small joint action agency comprised of a mix of five municipal wholesale and retail electric providers located across a broad six-state region. The agency was created to finance, construct, own and operate the Whelan Energy Center Unit 2 Project (the project), which began commercial operation on May 1, 2011.

SOLID PROJECT PARTICIPANTS: The credit quality of the project participants and the take-or-pay participant agreements that extend to the later of final bond maturity or decommissioning of the project underpin the project rating. Municipal Energy Agency of Nebraska (MEAN; rated 'A'/Outlook Stable) and Heartland Consumers Power District (Heartland; rated 'A-'), are by far the largest participants, accounting for almost 75% the project entitlement shares. Each of the five participants exhibit solid credit fundamentals supportive of the 'A-' rating.

EXPOSURE TO LARGEST PARTICIPANTS: A 30% step-up provision included in the participant agreements provides additional bondholder protection from a default of one or more participants with the exception of MEAN and Heartland, whose 36.6% entitlement shares of project output would not be sufficiently covered by the other participants. The PPGA rating is therefore currently capped by the weaker of the MEAN and Heartland ratings.

COMPETITIVELY PRICED POWER: The project cost of power has fluctuated since coming online in 2011, but remains largely competitive. Suppressed project output over the prior two fiscal years driven by low energy and natural gas prices has resulted in cost escalation and prompted a peak rate of $65.10/MWh in 2015. Despite the relatively higher cost, Fitch believes the project's modest capital needs and emission-control technology should keep rates manageable over the longer term.

RATING SENSITIVITIES

CHANGES IN PARTICIPANT CREDIT QUALITY: The credit quality of Public Power Generation Agency's project participants will remain an important consideration in future rating actions. Given the concentrated exposure to both MEAN and Heartland, the PPGA should remain driven by the weaker of the two participant ratings.

CREDIT PROFILE

PPGA is a joint action agency created in 2005 for the sole purpose of owning, financing, acquiring, constructing and operating the project. The agency's five participants include the MEAN, Heartland, Hastings Utilities (NE), Grand Island Utilities (NE) and Nebraska City Utilities (NE).

SOLID PROJECT PARTICIPANTS

Both MEAN and Heartland provide wholesale electric power and related services to their respective members, which own and operate electric distribution systems dispersed throughout portions of Nebraska, Colorado, Wyoming, South Dakota, Minnesota and Iowa. PPGA's three remaining participants are Nebraska-based municipal electric utilities providing electric service on a retail basis. Electric rates charged by the participants, who serve on a combined basis slightly more than 200,000 customers, are not subject to regulation by any other regulatory agency at the state or federal level.

The Whelan Energy Center Unit 2 is a 220 megawatt (MW), pulverized coal-fired generating plant located near Hastings, Nebraska. The project, which began commercial operation in 2011, provides PPGA's members with a reliable, long-term baseload power supply resource. The unit was constructed with the latest emissions controls technology, which should limit the scope of future capital needs. MEAN and Heartland each hold a 36.36% share in the project, providing both with 80 MW of associated capacity. The remaining 60 MW is allocated among the three remaining participants. PPGA sells the entire output of the 220-MW project to its five participants pursuant to participation agreements that extend through the final maturity of the related debt.

MIXED OPERATING PERFORMANCE

Project performance improved in 2013 following prolonged outages in the previous year related to an eight-week overhaul of the turbine generator and associated stop valves. The project's equivalent availability factor (EAF) and net capacity factor peaked in 2013 at about 85% and 68%, respectively, before declining in 2014 as additional maintenance issues prompted extended outages. Operation of the unit was curtailed again in 2015 as the continuation of low natural gas prices and availability of low cost energy reduced the project's output, resulting in a nearly 14% decline in energy sales.

MODEST FUTURE CAPITAL NEEDS

The project was constructed with the best available environmental control technology and was designed to comply with all current emissions regulations and permit conditions. As a result, firm capital needs over the next five years are forecasted to be manageable, averaging about $1.7 million annually. However, the inclusion of contingent projects related to rail additions and scrubber ash water treatment could increase the five-year spending plan by an additional $7.5 million. Despite the additional costs, PPGA officials expect to continue funding capex entirely from accumulated reserves.

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=1002564

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002564

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Christopher Hessenthaler
Senior Director
+1-212-908-0773
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Andrew DeStefano
Senior Director
+1-212-908-0284
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher Hessenthaler
Senior Director
+1-212-908-0773
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Andrew DeStefano
Senior Director
+1-212-908-0284
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com