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Fitch Rates Missouri Joint Muni Electric Util Comm's $564MM Power Project Revs '... Prairie State Project
Publication: Business Wire
Date: Tuesday, August 21 2007
SAN FRANCISCO -- Fitch Ratings has assigned an 'A-' rating and Stable Outlook to the following power project revenue bonds for the Missouri Joint Municipal Electric Utility Commission (MJMEUC):
--$538.84 million series 2007A (Prairie State Project);
--$25.38 million series 2007B (Prairie State Project) (taxable).
Bond proceeds will fund a portion of MJMEUC's costs associated with the acquisition and construction of the Prairie State generating project, a 1600-MW (megawatt) coal-fired plant being built in Washington County, Illinois. Bond proceeds will additionally refund an interim loan used for development costs already incurred, fund a debt service reserve fund, and fund capitalized interest six months beyond the expected commercial operation date. MJMEUC expects to fund the remaining portion of its cost of the Prairie State project (currently estimated at approximately $65 million) with project completion bonds in 2011. The 2007 bonds are secured by unconditional, take-or-pay purchased power contracts with seven of MJMEUC's member-city electric distribution systems and by revenues collected from the Missouri Public Energy Pool #1 (MoPEP #1), a power pool operated by MJMEUC with 32 pool participants. The bonds are scheduled to price the week of Sept. 10, 2007, with JP Morgan as the lead underwriter. The 2007 bonds are expected to be insured.
The rating takes into account various credit factors including: the underlying credit quality of the seven MJMEUC unit power purchasers and the 32 pool power purchasers, the strength of the members' power purchase agreements with MJMEUC, the units' projected cost of power (including fixed and variable costs), project participation by two subsidiaries of Peabody Energy (rated 'BB+', with a Stable Outlook, by Fitch) that carry a performance guaranty from Peabody Energy, and the risk of construction delays and cost escalation associated with the development of this traditional coal-fired facility and coal mine.
MJMEUC is purchasing 12.33% (or 197MW) of the Prairie State project. The plant developer, the Prairie State Generating Company, is a subsidiary of Peabody Energy that will become a non-profit entity managed by the project participants, including MJMEUC, once construction begins. The project is expected to begin construction in October 2007 in southwestern Illinois and will consist of 1,600 MW of coal-fired generating capacity, certain transmission improvements, and an adjacent coal mine to be developed and owned as part of the project. MJMEUC, along with the seven other purchasers, will pay for construction costs of the project and operating costs, once the plant is operational. Construction costs and timeline appear consistent with other coal-fired plants in development and the EPC contractor and equipment providers are reputable, well-known companies. Commercial operation is projected by the summer of 2012.
Credit strengths include:
--Unconditional, take-or-pay power purchase agreements with the unit power purchasers that include a step-up provision to 200% of each participant's original allocation;
--Unconditional, take-or pay power purchase agreement with MoPEP #1, which requires an unconditional step-up among the 32 MoPEP1 participants to support the entity's Prairie State allocation;
--The largest power purchasers stable financial history and demonstrated commitment to raising rates necessary to support project construction;
--Diversity and credit strengths of the largest MoPEP #1 participants;
--Strong project economics, with transmission intertie to MISO/PJM, and mine-mouth coal supply;
--Projected competitive cost of power ($45/mwh [megawatt] average wholesale cost to members);
--Experienced, well-established project developer and EPC contractor;
--Well-regarded, experienced MJMEUC management team.
Credit concerns include:
--Open-market power price risk for most of the unit power purchasers until Prairie State construction is complete;
--Underlying credit profile of many of the participants includes a customer base with 10,000 customers or fewer, some customer concentration, a history of limited rate increases, and a transition from full requirements contracts to project ownership;
--Potential cost escalation associated with project construction and on-time completion of the unit;
--Upon completion, single project risk to the unit power purchasers.
The seven unit power purchasers include the Missouri cities of Columbia, Kirkwood, Hannibal, Fulton, Marceline, Centralia, and Kahoka. These seven members have purchased 113 MW of MJMEUC's 197-MW interest in the Prairie State project. Each of these seven members has purchased power agreements that expire between 2008-2011 and will replace the long-term power supply with output from the project. With the exception of Columbia, these cities will have exposure to market prices for approximately three years prior to completion of Prairie State. The cities anticipate entering into contracts for the interim period but any construction delays could create additional exposure to market prices in 2012. Most of the cities will require significant rate increases in order to transition from competitively priced, full-requirements contracts with AmerenUE (rated 'A-', Negative Outlook) to a period of market exposure. Some utilities have begun to implement rate increases, while others expect to rely on substantial cash reserves in order to phase in more modest annual rate increases.
MoPEP #1 is a full-requirements power pool operated by MJMEUC for 32 municipal electric systems within Missouri. MoPEP #1 will purchase the remaining 84 MW of MJMEUC's interest in the project. Like the unit power purchasers, MoPEP #1 is transitioning from a variety of power purchase agreements to project ownership. Since its inception in 2000, the cost of power to MoPEP #1 participants has increased in-line with market rates. It will likely continue to do so until the power plants under construction, such as Prairie State, are operational.
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. MJMEUC members consist of 58 retail electric utilities. On behalf of its members, MJMEUC is also participating in two other coal plants currently under construction: Plum Point (rated 'A-', Stable Outlook) and Iatan 2 (rated 'A', Stable Outlook). In 2000, MJMEUC created the MoPEP #1 power pool on behalf of certain members in order to obtain a more diversified portfolio of cost-based resources for the members. MoPEP #1 currently has 32 members and serves a peak load of 480 MW.
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