Fitch Ratings has assigned initial 'A' ratings to the following revenue bonds for the City of Paducah (Kentucky) Electric Plant Board:
--$164,070,000 series 2009A;
--$8,635,000 (taxable) series 2009B.
Fitch has also assigned an implied 'F1' short-term rating. Paducah Power System (PPS) will use the proceeds to construct a new 110 MW natural gas-fired peaking facility (and associated pipeline) which is expected to reach commercial operation by May, 2010. The 2009 bonds are scheduled to price the week of Jan. 12, 2009 and are payable from net revenues of the PPS electric system after payment of operations and maintenance expenditures and payment of debt service on the outstanding $3.9 million series 1998 & 2001 bonds, which mature in 2017. The senior lien is closed. The Rating Outlook is Stable.
The 'A' rating reflects PPS' sound financial performance, comparable rates, and a stable customer base. Over the past five years, PPS has consistently provided debt service coverage (including power purchases) of 1.25 -1.36 times (x) and equity of approximately 27%. The amount of cash available for operational needs is low for the rating category at $1.47 million (11 days). While the utility expects to increase its cash balances with a $6 million operating reserve fund, this concern is further mitigated by liquidity held at Kentucky Municipal Power Agency (KMPA), which is financing Paducah's share of the Prairie State Energy Campus Project.
Fitch will monitor the following credit drivers that could affect the utility's future rating:
--Construction risks associated with the completion of large generation projects and the financial impact to PPS;
--Ability of PPS to manage the large increase in debt as it transitions from power purchaser to owner of power generation.
The PPS strategy is to transform from a distributor of power purchased from the Tennessee Valley Authority (TVA) to an electric utility that will own generation and distribution resources sufficient to meet its own power needs. The contract with TVA will terminate in December, 2009 and will be replaced by purchase power agreements that will serve the utility's needs until its planned generation additions are completed. Specifically, PPS will acquire 80% (104MW) of its power needs from the 1600 megawatt coal-fired Prairie State Energy Campus (PSEC) project under a take-or-pay power sales agreement with KMPA.
After the expiration of its contract with TVA, PPS will receive power from KMPA through interim bridge power supply arrangements that extent to the projected completion date of PSEC Unit #1 and Unit #2. Unit #1 and Unit #2 of the PSEC are scheduled to be completed in August, 2011 and May, 2012, respectively. PPS will augment PSEC base load with the natural gas peaking unit funded with the current 2009 bond issue. PPS plans to further supplement its power portfolio with a small contractual entitlement in a proposed AMP-Ohio hydroelectric project.
The Paducah Power System provides electric service to its 22,455 primarily residential customers located throughout the City limits and portions of McCracken County. PPS has a defined service area and is not subject to competition from other utilities.
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.
Contacts:
Fitch Ratings, New York
Chris Jumper, +1-212-908-0594
Yvette
Dennis, +1-212-908-0668
Sandro Scenga, +1-212-908-0278 (Media
Relations)
sandro.scenga@fitchratings.com