Fitch Ratings said Feb. 11 that the two-unit, 1,800-MW Intermountain coal plant in Utah should return to normal levels of operation this year following an extended outage in 2012.
Fitch assigned an ‘AA-‘ rating to Intermountain Power Agency‘s (IPA) proposed approximately $307m subordinate power supply revenue refunding bonds, 2013 Series A. The bonds are expected to price on Feb. 19, 2013. Bond proceeds will refund the outstanding 2003 Series A senior lien bonds and the 2008 Series A subordinate lien bonds for savings.
Fitch also affirmed its ‘AA-‘rating on IPA’s outstanding $173.9m senior and $714m subordinate lien bonds and $1.11bn subordinate notes. The rating outlook is stable.
The bonds and notes are secured by revenues from the long-term Power Sales Contracts (PSCs) between IPA and its power purchasers.
IPA owns and operates the Intermountain Power Project, which has historically exhibited solid operational performance above industry averages. Operational performance in 2011 and 2012 was below average due to extended unit outages, Fitch noted. However, the plant is expected to operate at historical levels in 2013.
A statistics summary on the IPA website shows that the plant’s forced outage rate jumped from only 0.32% in 2011, to 21.7% in 2012. The plant’s net capacity factor fell from 91.4% in 2010, to 74% in 2011 and to 68.3% in 2012.
Project participants include 36 entities throughout Utah and California. The current rating largely factors in the financial strength of IPA’s six California purchasers that are entitled to 75% of project generation and purchase about 99% of power output. The power purchasers are unconditionally obligated to pay all costs of operation, maintenance and debt service, whether or not the project is operating, under strong take-or-pay power sales contracts with implied step-up provisions, Fitch noted.
IPA’s existing pollution control equipment meets the requirements under the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards. Also seen as a plus by Fitch is that IPA’s California purchasers are expected to be allocated sufficient allowances through 2020 to meet the state’s Greenhouse Gas Regulations, which will preserve project economics during that period.
Favorably, the majority of the project’s output is sold to six financially strong California-based purchasers, Fitch said. The California purchasers are entitled to about 75% of the project’s generating capacity, and the remaining 25% is devoted to PacifiCorp (Utah Power & Light), Utah municipal purchasers and six rural electric cooperatives. However, power sales agreements among the participants are in place that provide for the California participants to purchase up to 99% of the actual output. The Los Angeles Department of Water and Power (LADWP) is the project’s largest participant, purchasing approximately 66% of output.
“IPA is further developing a project repowering strategy that includes building a new gas-fired unit to comply with California greenhouse gas emission mandates, and would allow the California purchasers to remain project participants after the termination of the PSCs,” said Fitch.
LADWP said in a final integrated resource plan issued in December 2012 that it is working with project participants to convert the Intermountain plant to natural gas. “A new contractual arrangement is in process, which will establish a firm conversion date that will be no later than, and possibly sooner, than 2027,” said the final IRP about Intermountain. “Until a firm conversion date is established and for analysis purposes, Case 4 was developed for this IRP which has IPP coal replacement in 2023. Once a firm date is determined, it will be incorporated into the IRP base case model runs. Strategically, it is important for LADWP to remain a participant at IPP to retain geographic diversity in its resource mix, access the regional fuel supply, and retain the project’s transmission lines to access renewable energy from the region.”
U.S. Energy Information Administration data shows the Intermountain plant getting coal in 2012 from several Utah mines, including the SUFCO longwall operation of Arch Coal (NYSE: ACI), the Bear Canyon deep mine of Rhino Resource Partners LP (NYSE: RNO) and the new Coal Hollow surface mine of privately-held Alton Coal Development.