Fitch Ratings said May 4 that an indefinite delay for an 800-MW, gas-fired power project has swelled the coffers of the Brownsville Public Utilities Board (BPUB) in Texas so much that the board is about to refund some of that money to customers.
Fitch has assigned an ‘A+’ rating to the proposed $38.9 million utilities system revenue refunding bonds, series 2016 being issued by the city of Brownsville, Texas, on behalf of the BPUB. In addition, Fitch affirms the ‘A+’ ratings on other bonds and notes. The Rating Outlook on the bonds and notes is Stable.
BPUB provides retail electric, water and wastewater services to around 47,000 customers, primarily located in the city of Brownsville. Electric revenues constitute the majority of combined system revenues.
BPUB maintains generation capacity with a relatively equal mix of coal, natural gas and purchased power. Energy from owned generating capacity and purchased power agreements is sufficient to meet BPUB’s peak requirements although recently, short-term market energy purchases have offered a less expensive alternative.
Fitch said that BPUB is party to a development agreement that entitles the utility to purchase a 200-MW ownership interest in a proposed 800-MW Tenaska Brownsville Generating Station (TBGS). Originally scheduled to be built in Brownsville by 2016, low market energy prices have delayed plant construction indefinitely, Fitch said. BPUB is expected to finance its share of TBGS with a sizable bond issuance in 2018, the effect of which on BPUB’s debt profile will be evaluated as the details and timing develop.
BPUB prudently put a five-year package of electric rate increases in place beginning in fiscal 2013 to support the planned TBGS capital investment, Fitch noted. The increased revenues and plant delay have bolstered revenues and reserves to strong levels. A customer bill reduction is planned for fiscal 2016.
In 2013, BPUB announced its intent to purchase a 200 MW ownership interest in the 800 MW TBGS (a natural gas-fired combined cycle plant) being constructed in the city by Tenaska. Under the agreement, BPUB would be expected to contribute $345 million of construction costs, financed primarily through the issuance of debt.
Although plant construction was originally expected to begin in 2013 with the plant entering commercial operation by 2016, construction has not yet commenced. Under the development and purchase agreement, Tenaska is not required to move ahead with construction until it has commitments for the full 800 MW of plant capacity. Since Tenaska and BPUB’s announcement in early 2013, no additional commitments have been secured for the remaining 600 MW, Fitch said. Construction on the plant and on BPUB’s related components (gas and water delivery lines) will not occur until the remaining 600 MW is subscribed.
Fitch wrote: “Diminished interest in the remaining capacity of the project is likely the result of very favorable energy prices available in the ERCOT market. Low natural gas prices and the addition of substantial wind generation capacity have contributed to low energy prices and the lack of new non-renewable capacity construction in the region. While management still anticipates participating in the project if and when Tenaska proceeds with construction, low energy prices have provided an economic option for meeting load in the service area. BPUB continues to tentatively plan to issue debt in fiscal years 2018-2020 to fund the $350 million Tenaska construction.
“If plant construction occurs, the additional 200 MW capacity will increase total available resources (578 MW) to well in excess of the current five-year forecasted peak demand (439 MW), including the recommended 13.75% reserve margin in ERCOT. Additionally, the peak estimate of 439 MW may be revised downward. Previous estimates had indicated continued growth in peak demand and electric sales but management is in the process of revising its electric load forecast in 2016; actual sales and peak demand in the last few years have not been as high as indicated in the load study completed previously.”