Fitch Ratings assigns an 'A-' rating to Missouri Joint Municipal Electric Utility Commission's (MJMEUC) $49.165 million Power Project revenue bonds (Plum Point Project), series 2009A and $4.795 million Power Project revenue bonds (Plum Point Project), series 2009B. Currently, MJMEUC is planning on issuing the 2009A series as Build America Bonds, and depending on the market demand at the time of the sale, may decide to issue a portion as traditional tax-exempt 2009C series. Proceeds will finance MJMEUC's share of the completion of construction of the Plum Point generation project. The 2009B series will be issued as taxable bonds and proceeds will be used to fund an operating reserve for MJMEUC's Plum Point Project. Fitch also affirms the 'A-' rating on MJMEUC's outstanding parity debt, $278.88 million series 2006 bonds. The series 2006 bonds were issued to fund MJMEUC's 22.1% ownership share (147 mega-watts [MW]) of the construction costs for the 665 MW coal-fired Plum Point Project. The Rating Outlook is Stable.
The 'A-' rating takes into account the construction progress made to date and the experienced team of plant developers, construction contractors and others that MJMEUC has been working with. Credit strengths also include:
--Experienced management;
--Solid power purchase agreements;
--Good project economics and the members' adequate financial performance.
Credit concerns include the risks associated with a single site project and the impact of proposed carbon legislation on the Plum Point Project and its members.
The construction of the Plum Point Project is over 80% complete and the boiler hydrostatic test (a major milestone) was accomplished on July 14, 2009. The next major milestone will be 'first oil fire', which is planned for October 2009. The Plum Point Project has been able to make up some schedule slippage and is expected to meet its Aug. 14, 2010 guaranteed substantial completion date. While there has been increased project cost compared to the initial 2006 estimates, the increases are due to enhancements made to the project and are within the scope of the contingency built into the initial project budget. The estimated cost per kilo-watt (kW) has increased to $1,771 as of April 2009, compared with the 2006 estimate of $1,653. MJMEUC currently estimates that the 2011 busbar cost will still be competitive at $43.43 per MWH, although slightly up from the $41.45 projected in 2006.
The Plum Point Project is being constructed by the Plum Point Partners, which is a joint venture of Gilbert Central Corp., (a subsidiary of Kiewitt Construction Company), Zachry Construction Corp., and Overland Contracting Inc., (a subsidiary of Black & Veatch Holding Company). The Plum Point Project is being built pursuant to a fixed price, turn-key engineering, procurement and construction contract (EPC contract). In addition to extensive experience constructing electric generating facilities, this same group of contractors recently completed the construction of the 663 MW Nebraska City Station Unit #2, which is a coal-fired generating facility of comparable design to the Plum Point Project.
NAES, formally North American Energy Services, has been selected to operate the Plum Point Project. NAES has experience managing over 100 generating sites (with generating capacity of 38,000 MW) and signed a five-year operating and maintenance agreement in May 2009. NAES has commenced work on site and expects to have approximately 80 employees working at the Plum Point Project when it reaches commercial operation.
Pursuant to take-or-pay power purchase agreements, the entire capacity of MJMEUC's portion of the Plum Point Project has been sold to four Missouri members (Kennett, Poplar Bluff, Carthage and Malden) and three advisory members located in Arkansas (North Little Rock, Osceola and Piggott). The power purchase agreements extend through 2050, which is the expected useful life of the project. The strong take-or-pay power purchase agreements obligate the participating members to pay their respective proportional share of expenses related to the operation and maintenance of the Plum Point Project (including debt service) and the payments are considered operating expenses of each of the participating members' respective electric system.
While the power purchase agreements are similar, they are not identical from state to state. Missouri members are required to make the 200% step-up regardless of whether the Plum Point Project is operating or operable. Arkansas advisory members are also required to make a 200% step-up above their original purchase percentage. However, as a result of legal limitations, the step-up is subject to the Plum Point Project reaching commercial operation within 11 months after the guaranteed completion date or provided that the project has not been continuously non-operable for five years. Fitch believes that the risk of not reaching commercial operation within the timeframe stated is mitigated by the strong EPC contract which imposes penalties and liquidated damages in the event of a delay. The operating and maintenance agreement with NAES has specific performance requirements which also helps ensure scheduled maintenance and ongoing operations of the Plum Point Project.
The four largest members of MJMEUC's Plum Point Project collective account for 81.6% of the participating members' share. North Little Rock (40.8% participant share) and Osceola (13.6%) are both located in Arkansas, while Kennett and Poplar Bluff (both 13.6%, respectively) are located in Missouri. The four largest members have each demonstrated adequate financial performance and appear to have the financial, operational and demographical characteristics to support MJMEUC's Plum Point Project as they replace power purchases with power and energy from the Plum Point Project.
Looking forward, Fitch will monitor the following key credit drivers, which could affect the rating:
--Completion of the Plum Point Project on time and within budget;
--A smooth transition from construction phase to the commercial operation phase of the Plum Point Project;
--Once the Project is operational, participating members continue to demonstrate financial metrics (including but not limited to coverage and liquidity levels) sufficient to support the MJMEUC Plum Point Project at this rating level;
--Longer term, the impact of proposed carbon emissions legislation on MJMEUC's Plum Point Project participating members.
MJMEUC is a joint-action agency providing wholesale power to its participant utilities. MJMEUC's management continues to follow a well-defined strategy to provide its 58 members and four-advisory member systems with a competitively priced, reliable power mix consisting of owned resources and purchased power. Fitch will continue to monitor MJMEUC's transition to more self-own generation.
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, 212-908-0594
William
Drake Richey, 212-908-0325
Karl Pfeil, III, 212-908-0516
Cindy
Stoller, 212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com