Fitch Ratings said Jan 11 that it has affirmed the rating on the Pennsylvania Economic Development Financing Authority‘s approximately $53.4 million in 2005 series F resource recovery revenue refunding bonds due 2018 at ‘BB’ for the Colver waste-coal-fired power plant in Pennsylvania.
The Rating Outlook is Stable. The affirmation reflects the fixed-revenue nature of the asset under the power purchase agreement (PPA) that extends about a year and a half beyond the maturity of the debt in 2018. This aging waste coal facility will continue to face the risk of increased maintenance, reduced output and low energy price growth tied to lower than expected GDP growth over the remaining debt term, said Fitch. While projected debt service coverage is expected to remain near breakeven levels, Colver’s strong liquidity is sufficient to cover a full year’s debt service and support the rating at the ‘BB’ level.
The project relies on the ability of the operator to maintain high availability and capacity factors in order to maximize variable payments under the PPA, capture the benefit of excess energy sold at the locational marginal price (LMP) and provide revenue stability. LMP sales, despite price variability and small percentage relative to total revenues, help to add cushion to the cash flow profile. As the PPA expires in May 2020, the project benefits from an estimated 18-month tail to generate additional contracted cash flow after debt maturity.
Despite 75% of waste coal under contract through debt maturity, the project is susceptible to potential price swings in the remaining 25% of spot coal supply. The relative liquidity and depth of the waste coal market helps to mitigate this risk over the remaining debt tenor. Increased use of opportunity coal has also mitigated cost risk, Fitch said.
Cost savings in 2015 stemmed from Colver taking advantage of the sponsor’s access to a proprietary opportunity coal, which is cheaper, more efficient, and cleaner than fixed-price contracted coal options. The project benefited from decreased usage of limestone, used to reduce SO2 emissions, due to the higher utilization of the cleaner opportunity coal. The project’s cost profile further benefited from an approval by the Pennsylvania Department of Environmental Protection (DEP) to defer compliance with MATS environmental requirements to April 2019, resulting in nearly $2 million in lower costs in 2015.
Colver continued to experience persistent tube leaks through fiscal 2015, averaging one to two per month, typical of an aging coal facility. Combined with a boiler feed pump failure in July 2015, dispatch at the project was reduced to roughly 90% year-to-date through November, which represents a deviation from levels traditionally above 96%. In an environment of low demand, as well as the plant’s persistent tube leaks and major maintenance scheduled in autumn of 2016 to restore a rotor, Fitch expects near-term dispatch to remain consistent with 2015 levels.
Plant maintenance costs are expected to rise in FY 2016 due to the planned generator rotor re-winding which will cost approximately $3.2 million. In addition, persistent tube leaks will place pressure on maintenance costs going forward. The increased utilization of cheaper and more efficient opportunity fuel is expected to continue to benefit the project’s cost profile. Continuation of lower diesel costs will help Cover to manage transportation costs for fuel delivery and ash disposal.
The Colver Project consists of a nominal 111.15-MW waste coal-fired qualifying facility (QF) located on a 62-acre site in Cambria, Pennsylvania. The project also includes a 9.6-mile, 115-kV transmission line interconnecting with Pennsylvania Electric‘s Glory Substation. The Colver facility began commercial operations in May 1995. The senior bonds were issued on behalf of an owner-participant as part of a leveraged-lease transaction. Colver’s sponsor is a limited partnership, Inter-Power/AhlCon Partners, which is held by subsidiaries of Northern Star Generation.
Under the terms of the PPA, Pennsylvania Electric (Penelec) pays flat rates on annual energy up to 278 gigawatt-hours (GWh) of on-peak production and 501 GWh/year off-peak production. Penelec purchases excess energy, produced in excess of the caps above, at the posted hourly LMP or day-ahead price of PJM Interconnection.