Nov 30 - Fitch Ratings assigns an 'A' rating to the $117.91 million Oklahoma
Municipal Power Authority (OMPA) power supply system revenue bonds, series
OMPA expects to price the bonds during the week of Dec. 17. Proceeds will
primarily be used to fund construction of a new approximately 100 MW
simple-cycle combustion turbine generating facility and other capital
improvements to the power supply and transmission system.
The Rating Outlook is Stable.
The bonds will be secured by the net revenues of the authority, including
payments received under power sales contracts with the 39 participating trusts
operating municipal utility systems, as well as all funds established by the
KEY RATING DRIVERS
LOW COST WHOLESALE SUPPLIER: OMPA provides low cost wholesale energy supply
($55.2/MWh in 2011) to participating municipalities located predominately
throughout rural Oklahoma. Power and energy is primarily supplied to 39
municipalities pursuant to long-term, take-or-pay power sales contracts.
DIVERSIFIED POWER SUPPLY RESOURCES: Power supplied by OMPA is derived from a
portfolio of owned assets and purchased power agreements, which is well
diversified in terms of fuel mix, asset concentration, counterparties and
operator. Capacity is balanced among natural gas-fired (47%), coal-fired (26%),
and renewable (23%) resources. Moreover, no single resource accounts for more
than 18% of the authority's total capacity.
STRONG DOMINANT MEMBER: The OMPA membership is dominated by its largest member,
Edmond, OK, a vibrant diversified community that has experienced broad economic
growth over the last decade. Edmond accounts for approximately 34% of OMPA's
total billings and has consistently reported demographic and economic metrics
well above the state and national averages.
RESTRICTIVE FINANCIAL POLICIES: OMPA's financial profile is below average for
the 'A' rating category and has been shaped by financial policies that have
produced very competitive wholesale rates, but tight debt service coverage (DSC)
and high leverage. Fitch calculated metrics for 2011 included DSC of 1.05x, debt
to funds available for debt service (FADS) of 13.0x, and net assets to
capitalization of 3.7%. Liquidity was solid at 128 days cash on hand.
MANAGEABLE CAPITAL PROGRAM: Capital spending following the completion of the
John W. Turk, Jr. power plant later this year should be manageable over the
intermediate term. Planned additions through 2015 are limited to the new peaking
WHAT COULD TRIGGER A RATING ACTION
CREDIT SUPPORTIVE FINANCIAL POLICIES: The adoption and implementation of
financial policies more supportive of credit quality and financial metrics would
be viewed positively.
OMPA supplies wholesale power and energy to Oklahoma-based municipalities and
public trusts operating municipal electric systems. The authority began
providing service to 26 cities in 1985, and currently provides wholesale power
supply to 39 public trusts pursuant to long-term take-and-pay power sales
PROTECTIVE POWER SALES CONTRACT TERMINATION PROVISIONS
The term of the OMPA power supply contracts extends through Dec. 31, 2027, and
thereafter until terminated by either party. Although this could result in
termination well before the schedule maturity of the series 2013A bonds, the
contracts provide that, if termination notice is given by a participating trust,
OMPA may increase that trust's wholesale rate to recover the corresponding share
of debt service incurred on behalf the trust prior to termination. Fitch views
this provision as vital to its rating and expects that the provision would be
DIVERSE MEMBERS DOMINATED BY EDMOND, OK
The participating cities are geographically dispersed throughout the state and
range widely in size. OMPA's largest participating community, Edmond, OK, is a
vibrant diversified community that has experienced broad economic growth over
the last decade. However the remaining communities are predominately rural with
regional economies heavily dependent upon agriculture and/or activities related
to the oil and gas industry. Collectively, the participating trusts serve
approximately 114,000 largely residential and commercial customers, and a total
population of approximately 250,000.
WELL DIVERSIFIED AND SUFFICIENT POWER RESOURCES
OMPA's portfolio of power supply resources is well diversified. OMPA's owned
resources have historically been anchored by its interests in three large coal
and lignite-fired generating stations, which have provided reliable low-cost
supply of baseload energy and capacity.
OMPA's most recent resource acquisitions have contributed to the strong
diversity of the portfolio by expanding the authority's access to natural gas
fired capacity. In 2008 coal-fired capacity and purchases supplied 47% of the
authority's energy requirements. For the eight month period ended Aug. 31, 2012,
coal-fired resources supplied only 28% of total requirements, while the newly
acquired natural gas-fired units and traditional peaking facilities supplied
Although only 14.4% of total energy supply in 2011, renewable resources are
expected to contribute up to 25% of total energy supply in 2013, easily meeting
internal targets without compromising cost.
OMPA's resource portfolio will undergo a number of changes through 2014,
including the addition of capacity from the Turk plant, but is expected to
remain sufficient to meet supply obligations. Completion of the planned peaking
facilities should provide sufficient capacity through 2021.
STABLE AND COMPETITIVE WHOLESALE RATES
The authority has consistently offered very stable and competitive wholesale
rates to the participating trusts. Since 2007, rates have remained within the
range of $52.5 - $55.2/MWh. Rates are expected to rise through 2016 reflecting
increased operating expenses and debt service, but should remain regionally
Residential rates in 2012 for the five largest participating trusts, including
Edmond, are largely in-line with those of neighboring utility systems. However,
retail rates at the remaining trusts are well above state averages reflecting
the relatively small size of the cities and the effect of annual transfers by
the utilities to the respective city. Fitch believes that the risks related to
this rate disparity are mitigated by the rural nature of the authority's
smallest participants and a heavily residential customer base.
BELOW AVERAGE FINANCIAL METRICS
OMPA's financial profile is below average for the 'A' rating category due, in
part, to the authority's strategy of keeping wholesale rates very low and
Fitch-calculated DSC, which does not reflect deferrals and withdrawals of rate
stabilization funds, has been volatile, ranging from .92x to 1.26x in 2007-2011.
DSC calculations pursuant to OMPA's resolution have historically been
considerably higher at approximately 1.6x, but exclude certain purchased power
payments from operating expenses. Cash on hand declined to 128 days at year end
2011, but has been reasonably strong and above rating category medians. OMPA's
projected performance is expected to improve modestly through 2022.
OMPA's financial position is supported by the creditworthiness of its
participating cities, particularly the six largest, which generally exhibit
solid cash flow, modest leverage, and healthy cash balances.
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:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'U.S. Public Power Rating Criteria' (Jan. 11, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria