Fitch Ratings said Oct. 14 that Rochester Public Utilities in Minnesota is working to replace the capacity from the largely-shut-down Silver Lake coal plant, including through a 50-MW, gas-fired addition to an existing power plant.
Fitch said it has assigned an ‘AA-‘ rating to Rochester Public Utilities’ $38,030,000 electric utility revenue refunding bonds, series 2015E. The bonds, together with other available funds of the city, will be used to advance refund a portion of the electric utility revenue bonds, series 2007C. The Rating Outlook is Stable.
The city of Rochester, Minn., and the surrounding service area is fundamentally sound, supported by a highly developed medical infrastructure tied largely to the Mayo Clinic, Fitch noted. Rochester Public Utilities (RPU) provides electric and water service to a population of about 110,000. The bulk of its electric power (peak demand was 259 MW in 2014) is met through a take-and-pay contract (up to 216 MW) with the Southern Minnesota Municipal Power Agency (SMMPA) that extends to 2030. Future power supply options are in an early stage of evaluation.
RPU has exposure to the Sherburne County (Sherco) Unit 3 coal-fired facility, SMMPA’s principal asset. The risk is largely mitigated by SMMPA’s obligation to supply replacement power if required, RPU’s participation in Midcontinent Independent System Operator (MISO) and sufficient, reasonable-cost power in the region, Fitch said.
RPU receives virtually all of its power under a take-and-pay partial requirements contract with SMMPA, a joint-action agency providing wholesale electricity to 18 municipal electric systems in Minnesota. This is primarily through its 41% ownership in the 874 MW Sherco 3 coal-fired unit, under a contract that extends to 2030. RPU also has working agreements with The Energy Authority, which acts as an agent for Rochester to purchase power from MISO when necessary.
The utility’s future power resource strategy is to rely increasingly on MISO capacity and energy market, which provides a diversified fuel mix; build future natural-gas fired generation; and continue to invest in renewables to meet the intent of state renewable program. RPU updates its infrastructure plan every three years, together with financing requirements.
RPU’S Silver Lake plant, a 105-MW coal-fired plant, was decommissioned effective June 1, 2015, due to wholesale market factors and forthcoming environmental regulations. Two of the boilers remain in service, using natural gas to supply steam to the Mayo Clinic.
With the addition of new import transmission capabilities, RPU intends to replace a portion of the Silver Lake capacity through the open market. For planning purposes, this capacity will be limited to about 50 MW. As part of its infrastructure plan, RPU has begun preliminary engineering for installation of approximately 50 MW of reciprocating engine peaking generation at its West Side Energy Station, at an estimated cost of $75 million, with an anticipated operational date in 2018 or 2019, Fitch said.
The RPU electric system is involved in the development of the CapX2020 transmission project. RPU will have a 9% investment (approximately $46 million) based on its load ratio share, along with five other participating utilities. The project includes a 345 kV transmission line and two associated 161 KV lines. This will improve reliability and increase RPU’s import capability from 148 MW to about 370 MW. RPU expects to earn an approximate 12% rate of return on its investment.