Fitch affirms the 'A' rating of Municipal Energy Agency
of Nebraska's (MEAN) $84.35 million series 2003 A and $15.65 million
series 2003 B power supply system revenue bonds. Fitch also affirms
the 'A' rating on $26.035 million outstanding senior prior lien bonds.
The Rating Outlook is Stable.
MEAN's rating is reflective of the system's diverse, low-cost, primarily coal-based power supply and a stable, diversified customer base. MEAN derives its power supply from a combination of owned and long-term resources and various short- to medium-term power purchase agreements. Additional support for the credit comes from Fitch's belief that management continues to effectively manage MEAN's power supply resources to meet the wholesale power requirements of its members.
The primary credit risk associated with MEAN is that only 32 of its 61 participants (accounting for 35% of total 2005 revenue) have long-term, take-or-pay power purchase contracts that extend to or beyond the life of the series 2003 bonds. The remaining members generally have contracts with terms of 10 years or less. While MEAN has been very successful in retaining substantially all of its participants, a large portion of its members have the ability to leave MEAN at the end of their contracts. If these loads were lost and MEAN was unable to replace them or reduce its power purchase commitment, there would be upward pressure on wholesale rates on the 32 participants under long-term contracts. Partially mitigating this risk are MEAN's very competitive wholesale rates. MEAN expects its wholesale rates for Service Schedule M and K participants (4.07 cents per KWh (kilowatt hour) after a 1.8% increase that will go into effect on April 1, 2006) to continue to remain very competitive relative to other regional wholesale providers. Management expects that the addition of the low-cost, coal-fired Council Bluffs Unit #4 (CB4) to MEAN's power supply mix (MEAN will own approximately 52 MW (megawatts) of the total 790 MW) will help enable MEAN to keep wholesale rates at existing levels over the next several years.
Fitch notes the risk associated with the on-time completion of both the CB4 project and the development and construction of the 220 MW (MEAN expects to purchase up to 80 MW) pulverized coal-fired Whelan Energy Center Unit 2 (WEC 2) project. MEAN continues to expect the CB4 plant will become operational as scheduled in June 2007. WEC 2 (expected to come on line in 2012) will be subject to the development and construction risk typically associated with a coal-fired project of this type.
Fitch views MEAN's financial profile as adequate given its risk profile. Debt service coverage has ranged from 1.18 times (x) in 2003 to 2.01x in 2005 and is expected to be at the upper end of this range for 2006. Going forward, management projects debt service coverage of 1.42x-1.83x through at least 2010. The addition of a $7.5 million line of credit provides MEAN with liquidity equal to approximately three months of operating expenses.
MEAN is a joint-action agency providing wholesale energy to its participant utilities. MEAN had total revenues for the year ending March 31, 2005 of $79.3 million. MEAN's 61 participants include 59 municipal distribution utilities, one public power district, and one power authority in five states (Nebraska-43, Colorado-13, Kansas-2, Wyoming-1, and Iowa-2). MEAN's participants serve approximately 81,000 customers.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
MEAN's rating is reflective of the system's diverse, low-cost, primarily coal-based power supply and a stable, diversified customer base. MEAN derives its power supply from a combination of owned and long-term resources and various short- to medium-term power purchase agreements. Additional support for the credit comes from Fitch's belief that management continues to effectively manage MEAN's power supply resources to meet the wholesale power requirements of its members.
The primary credit risk associated with MEAN is that only 32 of its 61 participants (accounting for 35% of total 2005 revenue) have long-term, take-or-pay power purchase contracts that extend to or beyond the life of the series 2003 bonds. The remaining members generally have contracts with terms of 10 years or less. While MEAN has been very successful in retaining substantially all of its participants, a large portion of its members have the ability to leave MEAN at the end of their contracts. If these loads were lost and MEAN was unable to replace them or reduce its power purchase commitment, there would be upward pressure on wholesale rates on the 32 participants under long-term contracts. Partially mitigating this risk are MEAN's very competitive wholesale rates. MEAN expects its wholesale rates for Service Schedule M and K participants (4.07 cents per KWh (kilowatt hour) after a 1.8% increase that will go into effect on April 1, 2006) to continue to remain very competitive relative to other regional wholesale providers. Management expects that the addition of the low-cost, coal-fired Council Bluffs Unit #4 (CB4) to MEAN's power supply mix (MEAN will own approximately 52 MW (megawatts) of the total 790 MW) will help enable MEAN to keep wholesale rates at existing levels over the next several years.
Fitch notes the risk associated with the on-time completion of both the CB4 project and the development and construction of the 220 MW (MEAN expects to purchase up to 80 MW) pulverized coal-fired Whelan Energy Center Unit 2 (WEC 2) project. MEAN continues to expect the CB4 plant will become operational as scheduled in June 2007. WEC 2 (expected to come on line in 2012) will be subject to the development and construction risk typically associated with a coal-fired project of this type.
Fitch views MEAN's financial profile as adequate given its risk profile. Debt service coverage has ranged from 1.18 times (x) in 2003 to 2.01x in 2005 and is expected to be at the upper end of this range for 2006. Going forward, management projects debt service coverage of 1.42x-1.83x through at least 2010. The addition of a $7.5 million line of credit provides MEAN with liquidity equal to approximately three months of operating expenses.
MEAN is a joint-action agency providing wholesale energy to its participant utilities. MEAN had total revenues for the year ending March 31, 2005 of $79.3 million. MEAN's 61 participants include 59 municipal distribution utilities, one public power district, and one power authority in five states (Nebraska-43, Colorado-13, Kansas-2, Wyoming-1, and Iowa-2). MEAN's participants serve approximately 81,000 customers.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.