Fitch: Prairie State coal plant runs better, but other issues are out there

Fitch Ratings said Dec. 12 that it has assigned an ‘A’ rating to American Municipal Power (AMP) Prairie State Energy Campus (PSEC) project revenue bonds that will be used to advance refund portions of AMP PSEC’s outstanding series 2008A and 2009A bonds.

In addition, Fitch affirmed AMP PSEC’s outstanding $1.7bn Prairie State Energy Campus project revenue bonds at ‘A’. But, due to issues with participants in this coal-fired power plant in Illinois, the Rating Outlook was revised by Fitch to Negative from Stable for all bonds.

“The Negative Outlook reflects weakened fiscal 2013 financial metrics for several of the 21 largest project participants which together represent 80.8% of project capacity,” said Fitch. “A key credit concern is the meaningful deterioration exhibited by four of the top six participants – Hamilton, Cleveland, Piqua, and Celina. In particular, a delay in implementing needed rate increases to recover higher purchased power costs may have contributed to the decline in debt service coverage and depletion of cash resources at these cities.”

Operating performance at PSEC, a two-unit, pulverized coal-fired station located in southwest Illinois, has been relatively weak since entering commercial operation and was hampered by several unscheduled outages and de-rates during 2013 and 2014, Fitch noted. While the take-or-pay nature of the PSEC contracts obligates the participants to pay regardless of plant performance, the resultant reduction in plant availability along with higher transmission congestion costs increased all-in power costs to levels well above original estimates which in turn has pressured participant financial metrics.

The owners of PSEC, including AMP, have implemented a strategic overview designed to stabilize and improve operations in 2015 and beyond, Fitch added. The overview, which included a change in project leadership, appears reasonable, said Fitch, and has contributed to stronger plant availability toward the latter part of 2014.

AMP’S entire share of PSEC’s output is purchased pursuant to take-or-pay power sales contracts with 68 municipally-owned electric systems. Participants’ obligations consist of their respective shares of all project costs. Debt service is paid entirely by the municipal systems as an operating expense.

AMP is a nonprofit wholesale power supplier and services provider that was organized in 1971 for the benefit of its members. As of Dec. 1, 2013, AMP reported 129 members located throughout seven states (Delaware, Ohio, Kentucky, Pennsylvania, Michigan, Virginia and West Virginia).Together, the AMP members serve approximately 625,000 retail electric customers. Fitch notes that AMP and its members have dramatically shifted from purchasers of market power to owners of generating assets. AMP’s ability to oversee a number of existing and new power resources and monitor project participants’ credit standing are important credit considerations.

PSEC is a mine-mouth, pulverized coal-fired station located in Washington, St. Clair and Randolph counties in Southwest Illinois that was originally developed by coal producer Peabody Energy (NYSE: BTU). The generating station consists of two supercritical units with a design net rated electric capacity of 800 MW each. The plant design incorporates state-of-the-art emissions control technology which means significantly less carbon emissions than a legacy U.S coal plant.

The plant’s location adjacent to a coal mine means that all associated rail, water, coal combustion waste storage and ancillary support are available on site. Underground coal reserves are expected to meet project fuel needs for approximately 30 years.

PSEC is now fully operational with Unit 1 commissioned in June 2012 followed by Unit 2 in November 2012. Since returning to normal operation following extended maintenance outages for both units during the first half of 2014, the project has demonstrated meaningful improvement in operating performance, Fitch said. In particular, the equivalent availability factor (EAF) for the five month period July-November 2014 averaged 80% versus 2013 average EAF of 63%. With all major start-up issues resolved and initial maintenance completed, Fitch expects the units to exhibit a high degree of availability and capacity factors.

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.