TEXT-Fitch raises Mo. Joint Muni Electric Utility revs to 'A'
Nov 14 - Fitch atings has upgraded the following Missouri Joint Municipal Electric Utility Commission (MJMEUC) Power Project Revenue Bonds (Prairie State Project) to 'A' from 'A-', with par amounts as of Dec. 31, 2011: --$554,453,287 Series 2007A and Series 2007B; --$206,004,151 Series 2009A and Series 2009B; --$77,760,292 Series 2010A and Series 2010B. The Rating Outlook is Stable. SECURITY The bonds are secured by net revenues from MJMEUC's interest in the Prairie State Energy Campus (PSEC) project. Net revenues are principally derived from unconditional, take-or-pay power purchase agreements with MJMEUC's seven unit power purchasers (UPPs) and by funds collected from its Missouri Public Energy Pool #1 (MoPEP 1; power supply system bonds rated 'A' by Fitch). KEY RATING DRIVERS SOUND PURCHASER FUNDAMENTALS: The upgrade principally reflects Fitch's favorable view of the largest UPPs and MoPEP 1, whose credit characteristics support the higher rating. ROBUST CONTRACT STEP-UPS: Participant default risk is mitigated by 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 the MoPEP 1 participants. Consequently, bondholders do not have direct exposure to any one participant. FULL COMMERCIAL OPERATION: Both PSEC units have achieved commercial operation, which alleviates project construction risk. COMPETITIVE PROJECT ECONOMICS: Despite increased costs associated with construction delays, project economics and characteristics suggest that PSEC will be a competitive power resource over the long-term. MJMEUC's forecasted for the cost of power is $56 - $59/MWh, and the project includes a mine-mouth coal supply and various transmission ties. ADDITIONAL RESERVE REQUIREMENTS: The PSEC indenture requires MJMEUC to begin funding two reserves - a $2 million reserve and contingency fund and a $5 million operating reserve - commensurate with the commercial operation of the project, which enhances project liquidity. The latter reserve was funded with 2009 bond proceeds. CREDIT PROFILE MJMEUC is a joint action agency formed in 1979 to provide its member utilities with an adequate, reliable, and economical power supply. The growing MJMEUC membership principally consists of 69 retail electric systems, ranging in size from approximately 200 retail meters to 110,000, dispersed across the State of Missouri. In addition to the PSEC project and MoPEP 1, MJMEUC has interests in the Plum Point and Iatan 2 projects. Each project is separately secured. PRAIRIE STATE ENERGY CAMPUS PSEC is a mine-mouth, pulverized coal-fired generating station located in southwestern Illinois. The generating station consists of two supercritical units with a net rated capacity of 800MW each, and the plant design incorporates state-of-the-art emissions control technology for reduced carbon emissions versus a legacy U.S. coal plant. Coal reserves at the adjacent mine are expected to meet fuel needs for 30 years. The PSEC project experienced several months of delays and cost overruns. However, both units are now live; unit 2 was placed into commercial operation Nov. 2, 2012. This alleviates project construction risk and triggers a MJMEUC indenture requirement to fund $7 million of additional reserves (a large portion of which has already been funded) that enhance project liquidity. MJMEUC's forecast for cost of power remains competitive at $56 - $59/MWh. MJMEUC INTEREST AND STEP-UPS MJMEUC has a 12.33% (195MW) interest in the PSEC project for the Missouri cities of Columbia, Kirkwood, Hannibal, Fulton, Marceline, Centralia, and Kahoka (113MW) and MoPEP 1 (82MW). The unit power purchaser agreements include generous step-up provisions equal to 200% of the original allocations, and the MoPEP 1 pool power purchase agreements essentially require an unlimited step-up of participants. UPPs are not required to support MoPEP 1 participant obligations and vice versa. However, the step-ups imbedded and inherent in the respective contract types are sufficient to cover the default of any one participant, which ultimately benefits bondholders. UPPs The largest UPPs own and operate retail electric systems that generally exhibit good financial metrics and service territories, as well as average customer rates. The three largest UPPs - Columbia, Kirkwood, and Hannibal - have strong balance sheets and good cash flow metrics that sufficiently support the MJMEUC PSEC project rating. The utilities' aggregate fiscal 2011 ratio of equity to capitalization equaled 50%, and cash on hand was a healthy 137 days. Debt service coverage and coverage of full obligations were 3.3x and 1.2x, respectively. MoPEP 1 MoPEP 1 has grown from 19 participants at its inception to 34 today. Participants are generally small- and mid-sized communities located throughout the state. Together, the participants serve approximately 95,800 retail customers and an estimated population of 185,400. Participant energy sales include a healthy balance of customer segments. MoPEP 1's financial performance has been stable, generally reflecting the purchase and sale of required power supply. For 2011, the fund reported operating income of $4.5 million on revenue of $190.7 million, and fund equity increased $3.5 million to $17.5 million. MJMEUC anticipates that the expiration of certain purchased power contracts and an increasing proportion of owned generation will result in more stable and competitive, albeit higher, wholesale rates for pool participants, ranging from $60-$70/MWh through 2016. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope. Applicable Criteria and Related Research: --'U.S. Public Power Peer Study -- June 2012' (June 15, 2012); --'Revenue-Supported Rating Criteria' (June 12, 2012); --'Fitch Rates Missouri Joint Muni Electric Utility Commission's (MO) $32.88MM Power Supply Revs 'A''(Feb. 6, 2012); --'U.S. Public Power Rating Criteria' (Jan. 11, 2012); --'Missouri Joint Municipal Electric Utility Commission (Power Supply System Revenue Bonds)' (Nov. 14, 2011); --'Fitch Rates Missouri Joint Muni Electric Util Comm's $80MM Power Project Revs 'A-'; Outlook Stable' (Nov. 15, 2010). Applicable Criteria and Related Research: U.S. Public Power Peer Study -- June 2012 Revenue-Supported Rating Criteria U.S. Public Power Rating Criteria Missouri Joint Municipal Electric Utility Commission (MJMEUC) -- Power Supply System Revenue Bonds