Fitch Ratings has assigned an 'A' rating to the following Missouri Joint Municipal Electric Utility Commission's (MJMEUC) bonds:
--$32.88 million power supply system revenue bonds (MoPEP Facilities), series 2012.
MJMEUC expects to price the bonds during the week of Feb. 27. Proceeds will be used to finance the acquisition of an 8.2% ownership interest in the Dogwood Generating Facility.
In addition, Fitch affirms the rating on the following MJMEUC bonds:
--$16.475 million power supply system revenue bonds (MoPEP Facilities), series 2011.
The Rating Outlook is Stable.
SECURITY
The series 2012 bonds are secured by power supply system pool revenues, including payments received by MJMEUC pursuant to power pool purchase agreements with its 35 full-requirements members.
KEY RATING DRIVERS
STRONG POWER POOL OPERATIONS: MJMEUC is a joint action agency consisting of 69 geographically dispersed municipally-owned retail electric systems. Thirty-five of the MJMEUC members participate in the Missouri Public Energy Pool #1 (MoPEP), which provides full-requirements power supply pursuant to unconditional long-term pool power purchase agreements (PPPAs).
STABLE POOL PARTICIPANTS: The rating reflects the general credit quality of the 35 MoPEP participants, whose electric systems, in aggregate, have experienced reasonably steady growth in customers and energy sales, and exhibit little customer concentration.
UNLIMITED CONTRACT STEP-UP PROVISION: In practice, the PPPAs provide an unlimited step-up among the pool's 35 members, whereby if one member defaults, the other members are required to incur the redistributed costs, including debt service.
FACILITY OUTPUT DEDICATED: Bond proceeds will be used to fund the acquisition of an 8.2% interest in the Dogwood Generating Facility, a 610 mega-watt (MW) combined-cycle natural gas fired generating facility that has been operating since 2002. MJMEUC's entire share of the project (50 MW) will be dedicated to MoPEP to help fulfill growing member power requirements and replace wholesale purchased power.
COMPETITIVE POWER POOL ECONOMICS: MoPEP provides its participants with affordably priced all-requirements power supply. The average cost of delivered energy was $54 per mega-watt hour (MWh) in 2011. Although average costs are expected to climb through 2015, the wholesale rate should remain competitive when compared to other regional power suppliers.
WHAT COULD TRIGGER A RATING ACTION
CHANGES IN POOL MEMBER METRICS: The operating and financial metrics of the project participants going forward will be a key factor in future rating actions, including the degree to which the participants are willing and able to increase rates to support the MJMEUC debt.
CREDIT PROFILE
MJMEUC is a joint action agency created in 1979 for the purpose of securing adequate, reliable and economical power supplies for municipal electric utilities in Missouri. The MJMEUC membership currently consists of 69 retail electric systems, including five systems that joined in 2011. They range in size from approximately 230 retail meters to more than 109,700. MJMEUC has also extended advisory, non-voting membership to the four Arkansas-based municipalities and one electric cooperative.
Stable and Diverse Power Pool Participants
Since 2000, MJMEUC has been supplying the power requirements of certain members through the operation of MoPEP, a full-requirements power pool. Pursuant to the PPPAs, MJMEUC supplies the full energy requirements of each pool member and recovers all costs incurred to deliver energy to the members. Since its inception, MoPEP has grown from an initial 19 participants to 35 participants, generally small- and mid-sized communities located throughout the state of Missouri. Together, the participants serve approximately 95,800 retail customers and an estimated population of 185,400.
The MoPEP members exhibit solid diversity. The six largest pool participants collectively accounted for only 48.1% of the pool's peak load, mitigating the risk of participant concentration. Energy sales among the participants include a healthy balance between customer segments. For fiscal 2010, energy sales by the six largest pool participants to industrial customers accounted for the largest share (40%), followed by sales to residential (36%) and commercial customers (23%). While there is some customer concentration at the individual member level, concentration within the greater pool is very limited.
New Intermediate Resource Being Acquired
MJMEUC is expanding its participation in new generation facilities, including the Dogwood project, on behalf of its members, to help meet growing load requirements and replace expiring power-purchase agreements. The Dogwood project will further diversify the pool's fuel mix and supply both intermediate and peak power supply. MJMEUC's entire share of the unit capacity will be dedicated to MoPEP and billed to pool members pursuant to unconditional long-term pool power purchase agreements.
Other MoPEP resources include allocated shares of MJMEUC's participation in the Plum Point generating station, the Iatan 2 project and the Prairie State Energy Campus (PSEC), all of which have been financed separately.
Solid Project Operating Performance
The financial performance of the MoPEP Pool Fund has historically been stable, generally reflecting the purchase and sale of required power supply. For 2010, the fund reported operating income of $3.23 million on revenue of $161.3 million. Fund equity increased $2.3 million during the year to $14 million. Results for fiscal 2011 are not yet available, but the fund's performance is expected to remain relatively stable as the composition of revenues and expenses, including debt service expenses change along with the pool's power supply mix.
Net revenues are expected to cover the total debt service approximately 3.0 times (x) through 2016. However coverage of total debt service, including adjusted charges related to the Plum Point, Iatan 2 and PSEC project obligations, will be closer to 1.2x.
For additional analysis see Fitch's new issue report dated Nov. 14, 2011.
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:
--'U.S. Public Power Rating Criteria' (Jan. 11, 2012);
--'Missouri Joint Municipal Electric Utility Commission' (Nov. 14, 2011);
--'Revenue-Supported Rating Criteria' (June 20, 2011).
Applicable Criteria and Related Research:
U.S. Public Power Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=665815
Missouri Joint Municipal Electric Utility Commission (MJMEUC) -- Power Supply System Revenue Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656639
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
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