Fitch Ratings said Sept. 28 that it has assigned an ‘A’ rating to certain bonds issued by the Utah Municipal Power Agency (UMPA), with proceeds from some of the bonds to provide long-term financing for the recent acquisition and repair and replacement costs for the West Valley Power Plant.
Proceeds from other bonds will finance the construction of the Provo Power Plant and a new administration building. The bonds will be sold via negotiation the week of Oct. 3. The Rating Outlook is Stable.
UMPA is an all-requirements, electric services provider serving the distribution systems of six member cities located in Central Utah. The member cities collectively serve a population of over 170,000. Members are bound under power sales agreements (PSAs) to purchase and receive substantially all retail electric power needs from UMPA. The PSAs extend through 2065, well beyond the life of the debt, and provide UMPA with full authority to recover costs from members, including those related to a member default.
The August acquisition of the West Valley Power plant provides UMPA with peaking capacity, although the full plant exceeds member needs at present. Additional changes to the agency’s power supply are expected as baseload purchase power contracts expire over the near term and environmental mandates increase the cost of legacy, coal-fired resources, Fitch noted.
UMPA is an all-requirements, joint-action agency serving six member cities in central Utah. The six members are: Provo, Spanish Fork, Nephi, Salem, Manti, and Levan. Collectively, the six members serve approximately 53,731 electric customers. The all-requirements PSAs between UMPA and each city, as well as the interlocal agreements, were renegotiated in 2015. The current PSAs and agreements, which took effect on Jan. 1, 2016, expire at the latter of 2065 or as long as the agency has debt outstanding.
UMPA made approximately 90% of its fiscal 2016 MWh sales to member systems. The cities of Provo and Spanish Fork are the largest of the members, accounting for 65.3% and 21.4%, respectively, of UMPA’s member MWh sales in fiscal 2016. Fitch’s analysis of UMPA’s members focuses on Provo and Spanish Fork given their relative size and importance to the agency and the PSA provisions that allow UMPA to reallocate costs to remaining members in the event of a member default.
Both Provo and Spanish Fork exhibit solid credit characteristics, including relatively low direct debt levels, solid debt service coverage levels, and ample liquidity. Provo’s customer base is concentrated with its largest customer, Brigham Young University (BYU) accounting for 17.8% of MWh sales and 12.3% of operating revenues in fiscal 2015. A recent proposal by the university to develop a self-generation project that would supply approximately 80% of its needs could reduce the system’s MWh sales. However, Fitch said it views Provo’s financial profile and rate flexibility as sufficient to offset the potential load loss.
UMPA’s total summertime capacity of 499.4 MW is more than enough to serve member cities’ peak demand, which reached a recent high of 280 MW in 2015. Power supply resources consist of owned and contracted capacity, including resources that are directly owned by members but dedicated to the agency under capacity purchase agreements that extend through 2065.
UMPA’s purchase of the West Valley Power Plant in August 2016 secured a needed peaking resource for members. Consisting of five General Electric LM6000 simple-cycle gas turbine generating units with a total net capacity of 200 MW (winter) and 185 (summer), West Valley provides UMPA and its members with quick starting peaking capacity.
UMPA is not projected to require the plant’s full capacity for member needs until 2024 as member sales grow over time. However, the resource was viewed as more economical than self-building a smaller plant and provides the agency with flexibility as other resource decisions are expected to be made over the near term to replace expiring contracts. North American Energy Services (NAES) is contracted to operate the plant through 2018, Fitch added. Capacity in excess of member needs is expected to be sold into wholesale markets, although UMPA management has conservatively assumed no wholesale revenues in its revenue requirement calculation used to set rates for members.
The members of the Federal Energy Regulatory Commission on July 28 had approved an April 29 application from West Valley Power LLC for the sale of the plant to the Utah Municipal Power Agency. West Valley is a wholly owned subsidiary of West Valley Power Holdings LLC, which in turn is an indirect, wholly owned subsidiary of Wayzata Opportunities Fund III LP. Opportunities Fund III is a private investment vehicle. Wayzata Investment Partners LLC is the manager of Opportunities Fund III.
A management report posted to the agency’s website says: “Our member cities continue to grow and the need for securing future power supplies remains a priority for the Agency. Our long term contract with PacifiCorp expires in 2017 and UMPA is exploring several alternatives to replace this contract. This past year, the power purchase contract with Deseret was revised to lower the energy cost in order to be more competitive in the market. Provo City Power announced their plans to rebuild their utility operation center at the current site and will demolish the original power plant and exhaust stacks later in 2016. The Agency is studying the feasibility of installing new natural gas engines at the Provo site using the best available emission control technology. Decisions regarding future resources will be made in 2016 as we navigate options and manage our resource portfolio.”
The Provo City Power website says the 10-MW, diesel-fired Provo Power Plant was decomissioned on June 29 of this year and that new capacity is being built at the site and is due to be operational by June 2017.
The Utah Department of Environmental Quality was taking comment until July 25 on its intent to issue an air permit covering the repowering of the Provo Power Plant by the Utah Municipal Power Agency. A new facility, consisting of five new 2,457 kW natural gas-fired engines and one natural gas-fired backup generator, will be constructed and installed just to the southeast of the previous power plant building. In addition to being fired exclusively on natural gas, the new engines will employ a combination of selective catalytic reduction and oxidation catalysts to control air emissions. The project will use five Caterpillar Gas Generator Sets G3520H natural gas-fired IC engine-generators, each with a 53-foot stack (as measured from the ground).