Fitch Ratings said April 7 that it has assigned an ‘A-‘ rating to $144 million in American Municipal Power (AMP) revenue bonds used to finance the Greenup Hydroelectric Project on the Ohio River.
The bonds are expected to sell via negotiation in early May. Proceeds will be used to finance AMP’s purchase of an ownership interest in the Greenup Hydroelectric Facility, including AMP’s share of capital expenses for Greenup, repay an interim line of credit, fund capitalized interest, make a deposit into the debt service reserve and pay issuance costs.
The bonds are secured and payable from the net revenues and other income received from AMP’s 48.6% ownership interest in Greenup, including payments made by the participants under the power sales contracts (PSCs).
AMP’s ownership interest in Greenup, an existing 70.2 MW hydroelectric facility, will continue the long-term strategy to expand its resource platform with additional baseload projects. Greenup power will be above current market prices, but the power supplied will be environmentally friendly and comprise a small amount of each participant’s own base load needs.
The rating reflects the credit quality of the project participants, particularly two of the largest, Cleveland, Ohio, and Paducah, Kentucky, which together hold a 26.5% entitlement share of the project. Although unrated by Fitch, Cleveland exhibits operating risk and credit quality that is consistent with the rating on the bonds.
Take-or-pay power sales contracts obligate the 47 participating municipally owned electric systems to pay for their respective shares of all project costs, including debt service on the bonds, whether or not the project is operating or any power is delivered.
AMP is a nonprofit wholesale power supplier and services provider organized in 1971 for the benefit of its members. As of Feb. 1, 2016, AMP reported 132 members located throughout nine states (Delaware, Kentucky, Michigan, Ohio, Pennsylvania, Indiana, Maryland, Virginia, and West Virginia). Together the AMP members supplied approximately 16 million MWhs of electricity to approximately 637,000 retail electric customers for a total of $1.1 billion in gross sales in 2015.
AMP and its members have continued to shift from market purchases to owners of generating assets. Greenup is an existing 70.2 MW run-of-the-river hydroelectric facility located at the Greenup Lock and Dam (maintained by the Army Corps of Engineers) on the Ohio River. Built originally in 1982, Greenup has been owned and operated by the city of Hamilton, Ohio, since 1988. The powerhouse consists of three bulb-type turbine-generating units, using diverted water from the existing dam to generate electricity.
After receiving a FERC license in 2008 to develop, construct, and operate the Meldahl hydro project, AMP and Hamilton (also an AMP member) agreed that the city would sell a 48.6% undivided ownership interest in Greenup (approximately 34 MW) to AMP within 60 days of the projected date of Meldahl’s commercial operation, which is expected in mid-April 2016.
Greenup’s gross cost of power to the participants is expected to be high. Projections indicate power costs will escalate from roughly $68/MWh in 2016 to over $91/MWh by 2020 due principally to the anticipated rise in annual debt service (ADS) on the 2016 bonds and the recovery of planned capital improvements.
Fitch added that power costs will be influenced somewhat by revenues obtained from offering some Greenup capacity into the PJM reliability pricing model and the sale of renewable energy certificates. Net power costs are projected to be closer to $76/MWh in 2020, which is still high but similar to costs at AMP’s other hydroelectric facilities, Belleville and Meldahl. Additionally, Greenup comprises a very small amount of peak participant demand, further offsetting the high unit costs.
The Meldahl LLC affiliate of AMP said in a November 2015 registration filed with the Public Utilities Commission of Ohio that its 105-MW hydroelectric project on the Ohio River went into service on Oct. 23, 2015. The filing, which includes pictures of the completed project, is for registration as a renewable energy generator.
The Meldahl Project diverts water from the existing U.S. Army Corps of Engineers-owned Meldahl Locks and Dam through bulb turbines to generate an average annual output of approximately 558,000,000 kWh. The site includes an intake approach channel, a reinforced concrete powerhouse, and a tailrace channel. The powerhouse houses three horizontal 35-MW bulb type turbine and generating units with an estimated total rated capacity of 105 MW at a gross head of 30 feet, the registration noted.