Rochester Public Utilities builds power line to help with coal loss

Fitch Ratings said May 8 that Rochester Public Utilities (RPU) in Minnesota still plans to retire the 105-MW, coal-fired Silver Lake plant in 2015, and in the meantime has been somewhat protected from the downtime at the coal-fired Sherburne County (Sherco) Unit 3.

Fitch assigned an ‘AA-‘ rating to RPU’s $38m electric utility revenue bonds, series 2013B. The bonds are expected to price on May 14 via a negotiated sale. The proceeds will be used to finance a portion of the cost of the city’s interest in the CAPX 2020 La Crosse High-Voltage Transmission Line Project and a debt service reserve. The bonds are scheduled to mature on Dec. 1, 2043, and will extend the current maturity structure by 13 years. In addition, Fitch affirmed the ratings on two other sets of RPU bonds. The rating outlook is stable.

RPU is an integrated electric utility system that meets the bulk of its power needs through a long-term take-and-pay contract (up to 216 MW) with Southern Minnesota Municipal Power Agency (SMMPA), 178 MW of owned generation, and market purchases.

RPU’s exposure to the 884-MW Sherco 3 coal-fired unit, out of service since November 2011 due to a mechanical problem and fire, which is SMMPA’s principal asset, is somewhat mitigated by the agency’s obligation to supply replacement power, Fitch noted. In addition, ample low-cost market power from the MISO market has moderated the effect of the Sherco 3 outage. Sherco operator Xcel Energy (NYSE: XEL) expects the unit to be back in service around Sept. 30.

RPU entered into an all-requirements sales agreement with SMMPA in 1981 that extends through 2030, Fitch reported. The contract is take-and-pay in nature and was amended to meet the utility’s partial requirements up to 216 MW. The SMMPA contract supplies the majority of RPU’s demand requirements. RPU does not plan to enter into an amendment to extend its power sales contract beyond 2030. Peak RPU demand in fiscal 2012 reached 288 MW.

RPU obtains all load requirements exceeding 216 MW from sources other than SMMPA including 178 MW of owned generation in: the Zumbro Hydroelectric plant, coal-fired Silver Lake plant, gas-fired Cascade Creek plant, and from the MISO market through The Energy Authority (TEA).

In August 2012, the RPU board passed a resolution to decommission the aging coal-fired Silver Lake facility by December 2015, Fitch noted. The decision was driven by the unfavorable economics of the plant once emissions control equipment is factored in. The decommissioning of the plant is expected to save RPU $5.5m annually, but will also increase the need to import power. Silver Lake was put in service in 1969 and generates 105 MW, Fitch said.

RPU is making a 9% investment (about $49.6m) in the La Crosse Project along with five other participating utilities. The construction of two 161-kV lines will improve reliability and increase RPU’s import capability from 148 MW to 370 MW, also substituting for the decommissioning of Silver Lake. Construction has begun and its expected date of service is end of 2015.

“Fitch views RPU’s slight change in power supply strategy as fitting the utility’s longer term goal of diversification and cost competitiveness,” the rating agency said. “To offset the 105 MW of decommissioned coal-fired capacity, RPU’s future resource planning will include a combination of market purchases and physical generation investments. MISO capacity acquired will be limited to 75 MW, and beyond that considerations for owned gas-fired generation will be evaluated. RPU will also continue to invest in renewables to meet intent of the renewable portfolio standards with solar.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.