Fitch Ratings said May 27 that it has affirmed the ‘A’ rating on Brazos Electric Power Cooperative‘s implied senior secured obligations, with the rating taking into account Brazos’ $2.46 billion of outstanding debt on a consolidated basis as of Dec. 31, 2015, which consists primarily of mortgage notes payable to the Federal Financing Bank.
The rating applies to implied senior secured obligations because the cooperative does not have any publicly held debt. The Rating Outlook is Stable.
Brazos is a large generation and transmission (G&T) power cooperative serving 16 Texas distribution cooperative members across 68 counties under long-term, all-requirements power sales contracts through 2045. Strong financial margins are also provided by regulated transmission assets within the Electric Reliability Council of Texas (ERCOT) region.
Sustained sales growth averaging 3.1% annually and a largely residential retail base provide stability to Brazos’ member systems. System growth is projected to continue around this level. Brazos has limited concentration risk related to single, large retail customers, although some members have concentration within their own customer base.
Brazos continues to add owned and contracted generation resources supplemented by heat rate call options, to meet its growing peak demand. Brazos plans to construct a 380-MW, natural-gas plant within five years, but timing will depend on the continued availability of attractively-priced short-term energy options in ERCOT.
Brazos’ power supply strategy has included the acquisition of additional generation resources, either owned or through long-term power purchase agreements, to continue serving its growing load demands. Recent additions in the past decade include 1,200 MW at two units of natural gas generation (the Jack County projects) and 388 MW from the Sandy Creek coal-fired plant. Brazos has a fuel mix that is primarily natural-gas dependent, which has provided favorable pricing in the current low natural gas price environment, Fitch noted.
In addition to its 2,932 MW of owned and contracted resources, Brazos is taking advantage of currently low energy prices in ERCOT to serve a portion of its load. Within the ERCOT market, low natural gas prices and the addition of substantial wind generation and transmission capacity have contributed to low energy prices. Brazos uses heat rate call options and forward energy purchases to limit risk associated with serving its peak load (3,407 MW in 2015).
Fitch added: “Brazos plans to build a 380 MW natural-gas peaking unit in Hill County. Brazos owns the property and air permits were received in 2016. However, plans to begin construction have been delayed given current market energy prices. The expected date of commercial operation has moved back from 2017 to 2019. Brazos instead signed a 300 MW firm energy three-year power purchase agreement from 2016 through 2018 in lieu of an earlier construction date in Hill County.”
Brazos previously had rights to 50% (195 MW) of capacity at the San Miguel coal-fired plant, owned and operated by San Miguel Electric Cooperative (SMEC). The plant entered commercial operation in 1982 and includes a lignite coal-mine and a license to operate until 2037. Brazos and SMEC were in litigation in 2014 regarding Brazos’ minimum scheduling requirements under its wholesale power contract. Brazos wanted to run the plant less than was desired by SMEC. The litigation was settled by Brazos, SMEC and the South Texas Electric Cooperative (STEC; the other 50% purchaser) in 2015, Fitch said.
The settlement allowed Brazos to assign its 50% rights to the project to STEC and exit SMEC by making a final payment designed to cover its remaining debt, plant and mine decommissioning costs. This occurred on Dec. 31, 2015. Brazos and its 16 electric distribution cooperative members have withdrawn their membership from SMEC and no longer have members on the Board of Directors. To replace the energy, Brazos entered into energy contracts totaling 160 MW through 2021.
The Texas Commission on Environmental Quality (TCEQ) said last December that it was nearing issuance of proposed air quality permits that would authorize construction by Brazos Electric of the Hill County Generation Facility, a new natural gas-fired simple cycle combustion turbine power plant. The TCEQ said in a Dec. 18 notice that the project site is at 3750 Farm-to-Market Road 66, Grandview, Hill County.
The major equipment for the plant consists of four natural gas-fired combustion turbines (CTs) powering electric generators (CTGs). Four CT/CTG models are being considered for selection: General Electric 7FA.o3, GE 7FA.o4, GE 7FA.o5, and Siemens SGT6-5000F(5)ee. The total electric output of the four CTGs will be between 684 MW and 928 MW, depending on which model is chosen, said the TCEQ. Although natural gas will be the normal fuel, the proposed permit allows limited CT operation on ultra-low sulfur diesel (ULSD) fuel oil as a backup fuel.