Fitch Ratings on Dec. 6 affirmed the ‘A’ rating on certain American Municipal Power (AMP) bonds related to the Combined Hydroelectric Project (CHP), which is three run-of-river hydro projects on the Ohio River that will produce a combined 208 MW.
“Once complete, the CHP is expected to provide power supply that is initially expensive ($114/MWh) but environmentally-beneficial in a region dominated by fossil-fuel fired generation,” Fitch noted. “The longer-term economics of the CHP are likely to be considerably more favorable.”
Take-or-pay power sales contracts obligate the 79 participating municipally-owned electric systems to pay for their respective shares of all project costs, including debt service debt service on the bonds, whether or not the project is completed, operating or operable, Fitch pointed out. All of the participating systems are members of AMP.
Project construction has progressed with minor delays, but commercial operation is still scheduled for the 2014-2015 timeframe, Fitch added. “More aggressive than anticipated bidding on several contracts has resulted in lower costs and additional contingencies totaling $115 million, which may be used to offset future cost overruns or reduce outstanding debt,” it added.
The six largest purchasers, which include the cities of Bowling Green, Ohio, Cleveland, Ohio, Danville, Va., and Paducah, Ky., together account for 51.4% of the project output, Fitch noted. The power sales contracts include standard step-up provisions that require each participant to purchase up to 125% of its original allocation of the project output in the event that another participant defaults.
AMP is a nonprofit wholesale power supplier and services provider that was organized in 1971. As of Dec. 1, AMP reported 129 members in seven states (Delaware, Ohio, Kentucky, Pennsylvania, Michigan, Virginia and West Virginia). Together, the AMP members serve approximately 625,000 retail electric customers.
Hydro projects add to fuel diversity for AMP and its members
Fitch said that AMP is currently pursuing a portfolio of diverse power supply resources that includes coal-fired generation, hydroelectric generation, natural gas, wind, solar and landfill gas power projects, and is designed to meet the growing energy requirements of its members. AMP is developing its newest resources as separate and distinct projects consistent with its traditional resource strategy. AMP is one of the participants in the new Prairie State coal plant in Illinois.
The CHP consists of three separate, run-of-the-river hydro facilities on the Ohio River: Cannelton, Smithland and Willow Island, Fitch noted. Each individual project will utilize substantially the same design elements and will entail the diversion of water from an existing U.S. Army Corps of Engineers dam through bulb turbines to generate electricity.
Delays related to concrete pouring and ground improvements have pushed the estimated completion dates at Cannelton and Smithland several months later, whereas the absence of certain anticipated ground improvements has accelerated the completion of Willow Island, Fitch said.
The total budgeted cost of project construction remains approximately $2.04bn, which at $9,835/kW is very high compared to natural gas-fired and even coal-fired units, but generally in-line with hydro construction, Fitch said.
The projected CHP unit cost of production ($100/MWH) is expected to be well above prevailing market prices for a long time, making the project a very expensive resource for the foreseeable future, Fitch said. Current projections indicate that production costs will remain above market prices until 2035 (assuming no additional costs related to CO2 emissions).
Said the AMP website about new hydro projects: “Currently, AMP is developing five new hydroelectric projects that will add more than 350 MW of new, renewable generation to the region. These run-of-the-river hydroelectric facilities will be installed on existing dams on the Ohio River. Currently, 79 communities from the states of Ohio, Michigan, Virginia, Kentucky and West Virginia are participating in the hydroelectric projects. Other communities may have the opportunity to participate as additional capacity is added. A contract exceeding $300 million has been signed with York, Penn-based Voith Hydro to manufacture turbines and generators for the first four of these projects, at the Smithland, Cannelton, Meldahl and Willow Island Locks and Dams. The Meldahl project will be built in partnership with the AMP member community of Hamilton, Ohio.”
The website added: “Additionally, AMP and its member community of Wadsworth, Ohio are pursuing the development license for a project at the Robert C. Byrd Locks and Dam on the Ohio River.”