Fitch Ratings said Sept. 10 that it has affirmed its ‘A-‘ rating on Louisiana Energy and Power Authority‘s (LEPA) power project revenue bonds (LEPA Unit No. 1), series 2013A, with this rating reflective of plans for a new gas-fired power unit.
The Rating Outlook is Stable, Fitch noted. The bonds are secured by the net revenues of the project, which include payments received from the six project participants pursuant to power sales contracts, payable as an operating expense of their respective utility systems.
LEPA has arranged for the entirety of the output from its Unit No. 1 Project (a 64 MW natural gas combined cycle generating facility) to be sold pursuant to take-or-pay contracts with variuous municipally-owned electric systems, all of which are members of LEPA. The purchasers are obligated to pay for their respective shares of all project costs, including debt service.
The ‘A-‘ rating reflects the stable credit quality of the underlying project participants. Some 74.2% of project output is accounted for by the three largest purchasers: the Louisiana cities of Houma, Morgan City and Plaquemine.
LEPA expects to complete the project later this year with commercial operations scheduled for the first quarter of 2016. Although the project is behind schedule, LEPA’s obligations under the engineering, procurement, and construction (EPC) contract are largely fixed and within budget, Fitch noted. Importantly, the executed contacts obligate the participants to pay debt service on the bonds regardless of whether the project is completed, operating, or operable.
The project is expected to provide competitively priced capacity and energy, which will complement LEPA’s recent integration into the Midcontinent ISO regional transmission organization and limit participant exposure to market prices. Moreover, the project’s proximity to several pipeline systems and access to ample capacity and gas supplies will mitigate the risks associated with volatile fuel costs, which will represent about 75% of ongoing operating costs, Fitch said.
LEPA is a non-profit wholesale power supplier that was created in 1979 for the benefit of its members. As of Sept. 1, 2015, LEPA reported 17 members which are dispersed throughout the state of Louisiana. Each of the LEPA members own and operate a municipal electric system. LEPA supplied 1.48 million MWh’s of electricity to the members’ retail electric customers in 2014.
LEPA is currently pursuing a strategy to supplement the existing resources utilized to supply wholesale power to certain members, which include a 104.6 MW participation in the Rodemacher No. 2 coal-fired plant, federal hydro resources and the assignment of member-owned generation. This new project will represent a core component of LEPA’s generating portfolio. In particular, the modern, combined-cycle technology will provide the authority with a more efficient baseload resource to replace a portion of older vintage member generation.
The project is a natural gas-fired combined cycle plant being constructed in Morgan City, La. The plant will have a nameplate capacity of 64 MW but is expected to operate at a net output of 61.1 MW based on projected availability. The project is designed to meet the emissions standards in its pending air permit and to comply with all federal and state emissions requirements.
Project construction commenced in early 2014 and is expected to be largely complete by Nov. 18, 2015, approximately six months behind schedule, Fitch said. LEPA expects to begin testing the unit before year end 2015 and bidding the capacity into the MISO market sometime during the first quarter of 2016. The July 31, 2015, project status review prepared by the EPC contractor (Robins & Morton) reported that cumulative progress to date was estimated at 93.8%, Fitch said. The necessary electric transmission and pipeline access projects have been completed. LEPA, an experienced operator, plans to operate the plant post completion.