Fitch Ratings said Oct. 24 that operations at the gas- and oil-fired Astoria Power Project in New York have improved, that there has been a recent ownership change, and has affirmed the ratings for Astoria Power Project Pass-Through Trust‘s (Astoria) series A, B, and C certificates at ‘BBB-‘, ‘BB’ and ‘BB-‘.
The Rating Outlook is Stable for each series.
“The affirmation reflects Astoria’s operational stability and the continued prospect of gradual improvement in the NYISO energy and capacity markets,” Fitch noted. “Fitch believes that Astoria’s ratings adequately reflect each respective tranche’s probability of default given the power purchase agreement’s (PPA) floor pricing and the structural features of the debt. Manageable post-PPA leverage levels, the anticipated market price recovery, and the estimated 20 years of remaining useful life help mitigate refinancing risk.”
Astoria’s strong competitive position in the New York ISO Zone J, historically among the most capacity constrained markets in the U.S., helps mitigate dispatch risk and enhances capacity and energy price prospects during the post-2016 merchant period, Fitch added.
The project utilizes conventional, proven combined cycle technology and has demonstrated relatively stable operating performance over the past five years. Astoria has effectively managed costs and realized nearly 25% cost-savings, resulting in an operating cost profile of $45 per kW consistent with the lower end of the range for comparable projects. Astoria remains exposed to potential increases in O&M and/or emissions costs, Fitch added. Energy sales are subject to an implied heat rate factor under the PPA and a competitive dispatch position will be essential during the merchant period, increasing the importance of operational stability and efficiency.
Astoria procures natural gas under a long-term contract with an investment-grade counterparty. Fitch said it believes that supply risk is mitigated by the competitive and highly liquid nature of the natural gas fuel market and Astoria’s dual-fuel capability and on-site oil stocks.
Astoria has performed well above projections through the third of 2014 due to the extremely high margins on energy sales during the first quarter, when extraordinarily severe weather drove up electricity demand. Both PPA capacity payments and non-fuel operating costs have otherwise remained stable compared to the same period in 2013, Fitch reported. The project’s operating profile has generally returned to average historical levels following major outages in 2013 and 2014. NERC availability reached 89.9% and the heat rate remained stable at 7,306 btu/kWh through the third quarter of 2014. However, the facility experienced a higher than normal forced outage rate and a lower capacity factor due to a steam turbine issue that was subsequently resolved in the spring outage, which was extended an additional two weeks.
Fitch understands that recent changes in Astoria’s ownership have had no impact on day-to-day operations or project management. Mitsui purchased a 20.58% ownership stake from GDF Suez in December 2013 and partnered with JEMB Realty and Harbert Management to acquire SNC-Lavalin‘s 12.35% ownership interest in October 2014. While GDF Suez is no longer majority owner, its economic interest remains the largest amongst the sponsor group, Fitch pointed out.
Astoria Energy LLC was formed to develop, construct, own, and operate this 550-MW natural gas- and diesel-fired power plant in Queens, New York. The facility provides electric generating capacity for NYISO’s Zone J and sells the majority of its capacity and energy to Consolidated Edison under a PPA expiring May 2016. Thereafter, the project would operate as a fully merchant generator. The PPA’s rate structure is priced at a 5% discount from the prevailing market price, which is subject to a floor for capacity and energy sales and a ceiling for capacity sales.