Business Wire – Wed Feb 17 08:29:00 CST 2010
Fitch Rates MEAG Power (GA) Plant Vogtle Project M & J Bonds 'A+' and Project P Bonds 'A-'
NEW YORK (BUSINESS WIRE) --
Fitch Ratings assigns the following ratings to the Municipal Electric Authority of Georgia's (MEAG Power's) Plant Vogtle nuclear units 3 & 4 revenue bonds:
--$953 million MEAG Power Vogtle Project M Taxable Build America Bonds, series 2010A 'A+';
--$20 million MEAG Power Vogtle Project M Tax Exempt Bonds, Series 2010B 'A+';
--$1,115 million MEAG Power Vogtle Project J Taxable Build America Bonds, series 2010A 'A+';
--$27 million MEAG Power Vogtle Project J Tax Exempt Bonds, series 2010B 'A+';
--$411 million MEAG Power Vogtle Project P Taxable Build America Bonds, series 2010A 'A-';
--$8 million MEAG Power Vogtle Project P Tax Exempt Bonds, series 2010B 'A-'.
The Project M, J and P bonds are all expected to be structured to amortize over 40 years from commercial operation. Interest will be capitalized through 2016 (for unit 3) and 2017 (for unit 4).
In addition, Fitch affirms the following ratings on MEAG Power's outstanding debt:
--$928.4 million MEAG Power Project One & General Resolution Projects, senior bonds at 'A+';
--$2.242 billion MEAG Power Project One & General Resolution Projects, subordinated bonds at'A+';
--$344.1 million MEAG Power Combined Cycle Project, senior revenue bonds at'A+';
--$82.9 million MEAG Power Project One & General Resolution Projects Commercial Paper at'F1+';
The Rating Outlook is Stable.
--Each of the new issue project ratings (Project M, J and P) are supported by take-or-pay contracts covering the life of the respective Plant Vogtle units 3 & 4 expansion project bonds.
--The 'A+' rating for the Project M bonds reflects the contracts and credit fundamentals of MEAG Power and the power sales contracts with its 29 Project M participating member systems (through 2058).
--The 'A+' rating on the Project J bonds reflects the project structure with a take-or-pay power purchase agreement (PPA) with JEA (rated 'AA-', with a Stable Outlook by Fitch) for the first 20 years of debt service (after capitalized interest) and operations. After the 20-year JEA PPA, the remaining Project J debt service and operating costs will be paid from the power sales contracts with 39 MEAG Power participants (through 2058).
--The 'A-' rating on the Project P bonds reflects the project structure with a take-or-pay PPA with Power South Electric Cooperative 'PowerSouth' rated 'A-', with a Stable Outlook) for the first 20 years of debt service (after capitalized interest) and operations. After the 20-year PowerSouth PPA, the remaining Project P debt service and operating costs will be paid from the power sales contracts with 39 MEAG Power participants (through 2058).
--The Plant Vogtle nuclear units 3&4 expansion project will utilize Westinghouse AP1000 design technology that has received the Nuclear Regulatory Commission's (NRC's) design certification. The Plant Vogtle units 3 & 4 combined construction and operating license (COL) application was submitted to the NRC in March 2008 and the COL is scheduled to be issued in November 2011.
--The ratings also take into consideration the provisions under the engineering, procurement and construction (EPC) contract, which provide substantial protection against cost overruns and construction delays, as well as plant performance guarantees. The EPC contract with Westinghouse and Stone & Webster includes payment guarantees as provided by their respective parent companies, Toshiba and the Shaw Group.
--MEAG's 'A+' rating on the outstanding project bonds reflects the continued successful operation of a diverse mix of generating resources, strong court validated power sales contracts through June 14, 2054, sound financial performance and competitive wholesale & retail rates.
--MEAG Power has demonstrated a need for the proposed 22.7% ownership interest (500 megawatts [MW]) in the Plant Vogtle units 3&4 expansion project and, by entering into 20-year PPAs with JEA and PowerSouth, MEAG has parsed the risks and scope of the large Plant Vogtle units 3&4 project into manageable components.
--JEA's 'AA-' rating for its electric system takes into account the system's current and future power resource mix (including Project J), continued strong electric system financial metrics even through the economic downturn and decline in energy sales from 2008 through 2009. JEA's rating also reflects the system's substantial variable rate debt exposure.
--PowerSouth's 'A-' rating reflects the utility's improved financial performance over the past few years as a result of management's increased cash flow, liquidity, and equity targets; the members' support of past and future planned rate increases to fully recover costs on a timely basis; and greater clarity associated with the utility's power resource plan (including Project P). PowerSouth's power supply strategy incorporates a sound mix of owned and purchased power resources, as well as a diversified fuel mix. While there are still sizable future debt plans associated with power needs, the magnitude has been downsized over the last year and timing of Power South's financial commitments are more manageable and supportive of the 'A-' rating level.
--As with any construction project of this size and scope, project completion on time and within budget is essential to maintaining these rating levels. Unit #3 is scheduled to achieve commercial operation on April 1, 2016 and unit #4 is scheduled to achieve commercial operation by April 1, 2017.
--Fitch's Stable Outlook is based on expectation that the proposed Plant Vogtle units 3&4 project construction will be managed prudently and that while the debt associated with the new units is substantial, given that the total costs will be shared between MEAG Power, JEA and PowerSouth, the debt obligations for each system is manageable for their respective ratings.
--The Stable Outlook also assumes the maintenance of the municipal competitive trust fund at current levels taking into consideration current billing credits and additional contribution into the trust from revenues to maintain MEAG Power member's liquidity and to manage the long-term costs associated with the Plant Vogtle 3&4 expansion project.
--Project M includes 29 MEAG participants accounting for 33.9% of MEAG Power's total Plant Vogtle units 3&4 project ownership interest, or 169 MW of capacity.
--Project J includes a PPA with JEA for the first 20 years after commercial operation and then payments from 39 MEAG Power Project J participants accounting for 41.2% of MEAG Power's total Plant Vogtle units 3&4 project ownership interest, or 206 MW of capacity.
--Project P includes a PPA with PowerSouth for the first 20 years after commercial operation and then payments from 39 MEAG Power Project P participants accounting for 24.9% of MEAG Power's total Plant Vogtle units 3&4 project ownership interest, or 125 MW of capacity.
MEAG Power has signed a conditional commitment letter with the Department of Energy (DOE) to guarantee a $1.8 billion low-interest rate loan from the Federal Finance Bank (FFB). If pursued, the DOE guaranteed loan is expected to have a first priority security interest in and lien on the assets of the Plant Vogtle units 3&4 project.
--MEAG POWER: MEAG Power is a joint action agency that owns and operates electric generation and transmission facilities to provide bulk electric power to its 49 participants located through out the state of Georgia. All 49 participants have affirmed a 50-year extension to their existing power sales contracts. In addition all of the MEAG Power participants also provide a general obligation pledge from each city to support their MEAG obligations. MEAG Power currently has ownership interest in 2,098 MW of generating capacity, the majority of which is co-owned with Georgia Power Company, Oglethorpe Power Corporation and the City of Dalton (who also make up the co-owners on the Plant Vogtle units 3&4 nuclear expansion project).
Electric demand of the MEAG Power participants for the nine months ending Spet. 30, 2009 declined 4.7% from the same period in 2008, due to the economic slowdown as well as a cooler than normal summer. Based on MEAG Power's conservative integrated resource plan study, demand growth is projected to resume and continue at 1.75% annually. By virtue of MEAG Power's aging generation fleet, it is anticipated that a significant amount of the new 500 MW of Plant Vogtle units 3&4 project capacity is expected to replace the Plant Hatch nuclear unit 1&2 (whose license extension expires in 2034 and 2037) and other older, less efficient coal generation. To help to mitigate the construction risk and phase in the timing of the Plant Vogtle units 3&4 project capacity as part of MEAG Power's generation portfolio, management entered into PPAs with JEA and PowerSouth.
--JEA: JEA is an independent agency of the City of Jacksonville, Florida and is the seventh largest municipally-owned electric utility in the U.S. in terms of customers served. As of fiscal year end Sept. 30, 2009, the JEA electric system served 417,226 customers located throughout JEA's 900 square mile service area covering all of the city of Jacksonville and portions of neighboring counties. In addition to owning and operating 729 miles of transmission lines and 6,488 miles of distribution lines, JEA meets its electric capacity and energy needs from a combination of owned generating resources and firm purchased power. JEA electric system's electric supply resources are sufficient to meet the 3,250 MW peak demand.
--POWERSOUTH: PowerSouth (formerly known as Alabama Electric Cooperative Inc.) is a not-for-profit generation and transmission (G&T) cooperative that provides wholesale electric service to 16 retail electric distribution cooperatives and four municipal electric systems in the southern U.S. More than one million people are served by PowerSouth's members, with about 80% of energy sales coming from its Alabama members (in central and south Alabama), and the remainder derived from its northwest Florida systems. PowerSouth's generation portfolio is reasonably diverse, as it owns one coal facility, has an interest in another coal plant, three natural gas facilities and two hydro facilities, for an aggregate capacity of 1,726 MW (670 MW being coal fired). PowerSouth provides electricity to customers in 39 Alabama counties and 10 Florida counties, covering 37,000 square miles. Power South's members serve a customer base of 408,088, of which 69% are classified as residential, 16% as commercial and 15% as industrial.
CONSIDERATIONS FOR TAXABLE/BUILD AMERICA BONDS INVESTORS:
The following sector credit profile is provided as background for investors new to the municipal market.
Public Power Bonds - key credit points:
Public power utility bonds in most cases are unsecured debt obligations supported solely by a pledge of net revenues generated by the utility including other legal structural protections, such as rate covenants, and debt service reserve fund requirements. Public power utilities (municipal and cooperative) are effectively owned by their customers with a mission to provide essential, reliable, relatively low cost electric service. The average rating is 'A+', compared to their corporate counterparts' average rating of 'BBB+', with approximately 31% rated at or above 'AA-' and 8% rated at or below 'BBB+'. The key credit underpinning supporting the high average rating is their self regulating authority (or local rate setting ability). Municipal utilities are generally not subject to state/federal regulatory oversight as compared to corporate utilities. This regulatory autonomy provides for a more timely recovery of costs (operating and debt service) through electric rates, and also gives public power issuers the ability to set financial targets/policies as well as renewable energy goals/standards. In addition, public power's predominantly residential customer composition provides for more stable energy sales and in turn more predictable financial performance. Those with below average ratings or low investment-grade or below-investment-grade ratings generally have a limited economic base, and above average leverage (or debt burden) resulting in a high cost structure that may constrain financial flexibility.
Applicable criteria available on Fitch's website at www.fitchratings.com:
--Fitch Revenue Supported Rating Master Criteria (Dec. 29, 2009).
--Fitch Public Power Criteria (June 11, 2009).
Additional information is available at 'www.fitchratings.com'.
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