Fitch Ratings said Sept. 10 that it has taken various rating actions on Texas Municipal Power Agency‘s revenue bonds, and the Rating Outlook on all bonds is Stable.
TMPA is a joint-action agency that provides unit-based power to four member cities pursuant to court-validated, take-or-pay power sales contracts (PSCs) that expire Sept. 1, 2018. The agency’s sole generating asset is the 470-MW, coal-fired Gibbons Creek Steam Electric Station (GCSES). The agency also has approximately 300 miles of transmission lines.
Fitch said this coal unit is well positioned to be a stable, low-cost resource through its 2035 estimated useful life. The final maturity of TMPA’s generation debt in 2018 is forecast to cause a considerable decline in wholesale rates, and management has modest expectations for additional environmental retrofits.
GCSES’ operating metrics were generally in line with historical levels in 2014 after low natural gas prices reduced the plant’s dispatch in 2012 and, to a lesser degree, in 2013. GCSES’ availability has consistently been above the industry average since at least 2005.
TMPA members are expected to make preliminary decision by September 2016 regarding the replacement operating agreements for the post Sept. 1, 2018 period. Options to the members include winding down the organization, splitting the transmission and generation systems, or some combination of the two, Fitch said.
GCSES will become a more competitive resource beginning in fiscal 2019 when TMPA’s generation-related debt fully matures. The agency forecasts modest rate escalations through fiscal 2017, before declining somewhat in fiscal 2018 and dropping significantly in fiscal 2019, Fitch reported. The plant saw a 31.7% increase in net generation in fiscal 2014 due to higher natural gas prices. Fiscal 2014 production was at 99% of the plant’s net generation average from 2000-2014, which is viewed positively following the sharp decrease in production recorded in fiscal 2012. Fitch said it expects that volatility in annual production levels will continue due to the current and projected cost of natural gas. The volatility in production is not expected to drive the rating as members remain financially obligated to TMPA pursuant to the take-or-pay deals, irrespective of actual plant operations.
Noted the TMPA website: “TMPA operates the Gibbons Creek Steam Electric Station which is a coal fired steam electric plant. Heat from burning coal creates steam which powers a turbine generator creating electricity. TMPA’s coal comes from the Powder River Basin (PRB) in Wyoming and is a clean, low-sulfur fuel. Once mined, the coal is loaded on a train for transport to Texas.”
The website added: “TMPA maintains a proactive stance in meeting environmental standards. The voluntary fuel conversion from lignite to Wyoming (PRB) sub-bituminous coal in 1996 halved TMPA’s emissions of sulfur dioxide (SO2). Another project implemented several years later reduced TMPA’s emissions of nitrogen oxides. In April 2011, TMPA voluntarily implemented a scrubber project that has further reduced its emissions of sulfur dioxide.”
Up for review at the Sept. 10 meeting of the TMPA Board of Directors was a resolution described this way in the meeting agenda: “Resolution No. 2015-9-3, amending the Fiscal Year 2016 Annual Capital Budget by increasing the amount that is authorized to be expended for the Mercury Control Project; authorizing contracts and expenditures therefore, including for the procurement of mercury control system equipment; and resolving matters incidental and related thereto.”