Jan 3 - Fitch Ratings has affirmed the ratings on the following Municipal
Electric Authority of Georgia (MEAG Power or the authority) bonds:
--$1.224 billion Project J bonds, taxable series 2010A (Build America Bonds),
--$24.17 million Project J bonds, series 2010B (tax-exempt), 'A+';
--$1.012 billion Project M bonds, taxable series 2010A (Build America Bonds),
--$16.71 million Project M bonds, series 2010B (tax-exempt), 'A+';
--$383.4 million Project P bonds, taxable series 2010A (Build America Bonds),
--$7.09 million Project P bonds, series 2010B (tax-exempt), 'A-';
The Rating Outlook on all bonds is Stable.
The Project J bonds are payable from funds available to the authority including
payments made pursuant to a power purchase agreement (PPA) with JEA and Project
J power sales contracts with 39 participating members of MEAG Power.
The Project M bonds are payable from funds available to the authority including
payments made pursuant to Project M power sales contracts with 29 participating
members of MEAG Power.
The Project P bonds are payable from funds available to the authority including
payments made pursuant to a PPA with PowerSouth Energy Cooperative and Project P
power sales contracts with 39 participating members of MEAG Power.
KEY RATING DRIVERS
RATINGS REFLECT PARTICIPANT CREDIT QUALITY: Ratings on the Project M, J and P
bonds reflect the credit quality of the MEAG Power members participating in the
Plant Vogtle Nuclear Unit-based projects, as well as the credit quality of two
independent power purchasers - JEA (rated 'AA' by Fitch; Project J) and
PowerSouth (rated 'A-'; Project P).
MEAG POWER EXHIBITS STRONG FUNDAMENTALS: Projects J, M and P (the Projects) are
supported by the authority's strong fundamentals including a diverse mix of
generating resources, sound financial performance, competitive wholesale and
retail rates, and strong court-validated take-or-pay power sales contracts with
PROJECT P BONDS RATED LOWER: The rating on the Project P bonds reflects the
lower rating assigned to PowerSouth's obligations to purchase the entire output
of the project for the first 20 years following commercial operation pursuant to
a take-or-pay PPA.
PROJECT J BONDS REFLECT MEAG POWER RATING: The rating on the Project J bonds
reflects the lower rating assigned to the MEAG Power participants' obligations
despite the higher rated JEA obligations.
FULL FAITH AND CREDIT OF MEAG PARTICIPANTS: The city and county-owned electric
systems participating in the Projects exhibit solid breadth, diversity and
creditworthiness. Participant obligations under the power sales contracts are
general obligations of which their full faith and credit are pledged.
NUCLEAR DEVELOPMENTS FACTORED IN: Recent developments in the construction of the
Plant Vogtle Units 3 & 4 and the projected effect of the related borrowings on
the financial metrics and power supply costs of the authority, JEA and
PowerSouth has been factored into the ratings, but bear watching.
SIZABLE ACCUMULATED MEAG TRUST FUNDS: Mitigating the impact of the Vogtle
expansion on MEAG Power and its participants is the availability of funds held
in the Municipal Competitive Trust (MCT; $705 million at June 30, 2012), which
have been accumulated over time and could be used by the participants to reduce
current power costs, or redeployed to address future generation costs.
DEBT REQUIREMENTS PRE-FUNDED: MEAG Power's pre-funding strategy, whereby
approximately 70% of the capital requirements for the Vogtle expansion has
already been funded mitigates funding risk. A conditional commitment from the
Department of Energy (DOE) Loan Guarantee program brings total funding and
commitments to 121% of expected needs. Total Vogtle project construction funds
exceeded $1.66 billion at year end 2011.
WHAT COULD TRIGGER A RATING ACTION
ADVERSE NUCLEAR DEVELOPMENTS: Adverse developments related to Vogtle
construction that weaken the authority's current and forecasted metrics could
lead to downward pressure on the rating or Outlook.
PURCHASER RATING CHANGE: A change in the rating or Outlook assigned to the
PowerSouth obligations would result in a corresponding change to the rating or
Outlook on the Project P bonds.
MEAG Power is a joint action agency created to provide bulk electric power to
municipally-owned electric distribution systems located throughout the state of
Georgia. The authority effectively supplies the full energy requirements of 49
systems via participation in a series of power supply projects. The
participating systems, in turn, provide electric service to approximately
309,000 retail customers, representing a total population of 614,000.
VOGTLE PROJECT SHOULD NOT MATERIALLY IMPACT RATES
Fitch does not believe that the Vogtle expansion project will materially impact,
or jeopardize the competitiveness of, MEAG Power's wholesale power rates, or
rates charged by JEA or PowerSouth. The new Vogtle Units will account for only a
small portion of each utility's total power supply. The project's effect on MEAG
Power rates will be further mitigated by funds available to the participants
through the MCT, as well as the PPAs.
The continuing disputes and litigation between the Vogtle project co-owners and
the construction consortium, as well as widely anticipated delays in project
completion, are growing Fitch concerns but do not yet appear to be materially
adverse. Fitch expects greater clarity on projected costs and timing to emerge
in 2013, and to review any new developments as appropriate.
VOGTLE INTEREST STRUCTURED AS THREE PROJECTS
MEAG Power has subscribed to an ownership interest of 22.7% in the Vogtle
expansion project - consistent with its participation in Units 1 and 2 - or
approximately 500.3 megawatts (MW) of capacity. However, the capacity
attributable to MEAG Power's ownership interest is initially in excess of its
participants' needs. As a result, the authority has structured its ownership
interest in the new Vogtle units as three separate projects - Projects J (206
MW), M (169 MW) and P (125 MW) - to allow for a portion of the initial capacity
to be purchased by entities other than the MEAG Power participants.
Agreements are currently in place with JEA and PowerSouth, wherein each of the
utilities has agreed to purchase all of the output from, respectively, Projects
J and P, for the first 20 years of commercial operation pursuant to take-or-pay
PPAs. Upon the expiration of the PPAs the output of each project will be
purchased by the designated MEAG Power participants.
All of the capacity allocated to Project M will be purchased by 29 participating
members of MEAG Power.
STRONG TAKE-OR-PAY CONTRACTS AND AGREEMENTS
All of the participating members of MEAG Power have entered into power supply
contracts related to the Projects in which they participate. The Project power
sales contracts extend until June 15, 2058 and have been validated by the
Superior Court of Fulton County, GA. They cannot be challenged in any subsequent
proceeding. Each participant's obligation under the power sales contracts is
also supported by a general obligation pledge, which would compel the
participant to assess and collect an annual tax, if necessary, to meet its
obligation to MEAG Power under the contract.
The power purchase agreements with JEA and PowerSouth unconditionally obligate
the purchasers to take the entire output and to pay all of the costs related to
the construction and operation of their respective projects, including debt
service, for the initial 20 years of commercial operation.
Each of the Project power sales contracts contains an explicit 'step-up'
provision that would require each participant to increase its obligation share
up to 130% of its original share if an event of default has occurred with
respect to other MEAG Power member-participants. The contracts further obligate
the MEAG Power member-participants to pay certain annual costs during the term
of the PPAs to the extent not paid by JEA or PowerSouth. However, the MEAG Power
members are under no obligation to pay debt service related to the Project J or
P bonds during this period.
For additional information on MEAG Power please see Fitch's release dated Oct.
12, 2012, available at www.fitchratings.com.
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.
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