Fitch Ratings said March 6 that, in part due to better operations lately at this coal-fired plant in Illinois, it has assigned an ‘A’ rating to certain Missouri Joint Municipal Electric Utility Commission (MJMEUC) power project revenue refunding bonds targeted at the Prairie State power plant.
The bonds are expected to price via negotiation on March 11-12. Proceeds will be used to advance refund a portion of MJMEUC’s series 2007A Prairie State project revenue bonds for savings. In addition, Fitch affirmed the ‘A’ rating on other Prairie State project revenue bonds. The Rating Outlook is Stable.
The bonds are secured by MJMEUC’s Prairie State Energy Campus (PSEC) project net revenues, which are principally derived from: seven unit power purchasers (UPPs) located in Missouri, pursuant to take-or-pay unit power purchase agreements (UPPAs); and the 35 members of the Missouri Public Energy Pool #1 (MoPEP 1; MJMEUC power supply revenue bonds rated ‘A’/Outlook Stable by Fitch) under all-requirements pool power purchase agreements (PPPAs).
MJMEUC is a joint action agency comprised of 67 municipally-owned, growing retail electric systems located across the state of Missouri. Advisory, non-voting membership has been extended to four Arkansas systems.
The solid fundamentals of the seven UPPs and 35 MoPEP 1 members, who together purchase MJMEUC’s entire 195-MW interest in the PSEC project, underpin the ‘A’ rating on the bonds. The two largest UPPs representing about 40% of MJMEUC’s project ownership exhibit good cash flow metrics, healthy system equity, and robust and growing liquidity. All of the power purchasers own and operate electric distribution systems that enjoy self-regulation of rates.
PSEC, initially developed by top U.S. coal producer Peabody Energy (NYSE: BTU), has exhibited uneven operating performance since entering commercial operation due to a series of unscheduled outages and derates during 2013 and 2014. 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 has increased all-in power costs to levels above original estimates.
The owners of PSEC, including MJMEUC, have implemented a strategic overview designed to stabilize and improve operations in 2015 and beyond, Fitch said. The overview, which included a change in project leadership, appears reasonable and has contributed to stronger plant availability for the period July 2014-January 2015.
In addition to PSEC, MJMEUC has interests in the coal-fired Plum Point (147 MW; rated ‘A-‘/Outlook Stable by Fitch) and Iatan 2 (100 MW; rated ‘A’/Outlook Stable by Fitch) projects. Each project, as well as MoPEP 1, is separately secured.
The Prairie State plant has run better lately
PSEC is a mine-mouth, pulverized coal-fired station located in Southwest Illinois. It consists of two supercritical units with a design net rated electric capacity of approximately 800 MW each. The plant design incorporates state-of-the-art emissions control technology resulting in significantly less carbon emissions than a legacy U.S. coal plant, Fitch pointed out. 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 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 six month period July 2014-January 2015 averaged 81% versus 2013 average EAF of 63%. With all major start-up issues resolved and initial maintenance completed, Fitch expects the units to exhibit more stable availability and capacity factors going forward.
Fitch said it believes the growing MoPEP 1 membership is well positioned to absorb the city of Marceline’s small 4 MW PSEC project share under a recent agreement that will end Marceline’s participation in the project. While Marceline’s small share in the project is not material to the rating, Fitch views the change as a credit positive for bondholders as MoPEP 1 is a larger, more stable participant.
Marceline will assign and transfer its 4 MW PSEC project share to MJMEUC for the benefit of MoPEP 1 at the expected June 1, 2017 closing date. The city’s UPPA will likewise terminate at such time. Marceline has agreed to pay a total of approximately $1 million in equal monthly parts until closing. In addition, the city has granted a security interest in its electric facilities in consideration of the new agreement.