Fitch Ratings said Dec. 28 that it has assigned an ‘A+’ rating to the Unified Government of Wyandotte County/Kansas City Board of Public Utilities (BPU) approximately $115.8 million utility system improvement revenue bonds series 2016-A, with that money needed for emissions retrofits on a coal-fired power plant.
Fitch has also affirmed the ‘A+’ rating on certain outstanding BPU bonds. The Rating Outlook is Stable. Bond proceeds will be used to fund environmental capital expenditures at BPU’s Nearman coal-fired station. The nw bonds are expected to price on Jan. 13, 2016.
The Kansas City BPU provides retail electric and water services in a largely overlapping service area. The vertically integrated electric system provides approximately 84.3% of the combined utility system’s operating revenues.
The utility is undergoing a significant transition in its power supply as it moves away from older coal-fired plants towards a greater reliance on natural gas-fired and renewable resources. The transition is largely driven by environmental regulations requiring additional pollution controls on the system’s coal-fired plants.
The good rating reflects the Kansas City Board of Public Utilities’ demonstrated ability and willingness to raise rates and modify its rate structure to maintain financial metrics commensurate with ‘A+’ rated public power utilities.
As a utility that derived 88% of its 2013 energy from older coal-fired units, BPU is exposed to environmental regulations promulgated by the U.S. Environmental Protection Agency, including the Mercury and Air Toxic Standards (MATS). Following a strategic review, BPU is executing a plan aimed at meeting air quality standards and reducing dependence on coal and transitioning towards greater use of natural-gas fired and renewable resources.
- The first step of that plan was completed in December 2012 with the acquisition of a 17% ownership interest (110 MW) in the Dogwood Generating Facility, an efficient combined cycle gas-fired power plant.
- The next phase in BPU’s compliance plan was completed in April 2015 with the permanent conversion of its Quindaro Units 1 and 2 to natural gas from coal.
- The next step and cornerstone of the project is a $250 million capital investment at the 257-MW Nearman Station to bring the plant into compliance with air quality standards by 2017. A portion of these costs will be financed by proceeds of the series 2016 bonds.
BPU has a robust capital improvement plan with approximately $497 million of investments planned between 2016 through 2020. A significant portion of the plan is tied directly to BPU’s strategy of fuel diversification and environmental compliance. Management has stated that an additional debt issuance of approximately $60 million is expected in mid 2016 with another potential financing for $50 million-$70 million in 2018 or later.