Fitch Ratings said Oct. 6 that it has assigned an ‘A+’ rating to certain Grand River Dam Authority (GRDA) revenue bonds which are scheduled to price via negotiation on Oct. 25, 2016.
Bond proceeds will advance refund all or a portion of the outstanding 2008A, 2010A and 2014C bonds and pay costs incurred in connection with the sale and issuance of the 2016A and 2016B bonds (in aggregate, the 2016 bonds). In addition, Fitch has upgraded ratings to ‘A+’ from ‘A’ on other bonds. The Rating Outlook has been revised to Stable from Positive.
The rating upgrade reflects the recent improvement in GRDA’s financial profile, as well as Fitch’s expectation that the authority will sustain financial metrics supportive of the ‘A+’ rating category.
GRDA’s portfolio of resources, which includes a diverse fuel mix and is supplemented by purchases from the Southwest Power Pool (SPP) market, has enabled the utility to efficiently supply electricity to its customers. Completion of a new 495-MW, natural gas-fired facility in July 2017 will offset the planned closure of the coal-fired Grand River Energy Center (GREC) Unit 1, and should provide GRDA with sufficient resources to meet future customer energy demand, Fitch added.
GRDA supplies wholesale and retail electric service to a sizeable customer base that exhibits significant concentration in energy sales and related revenue. Moreover, just 42% of power supply contracts (by revenue) extend through the life of its outstanding and proposed debt. GRDA’s third largest customer, Northeast Oklahoma Electric Cooperative (NEO), representing 8% of 2015 revenues, recently elected not to renew its contract expiring in May 2017, highlighting this risk, Fitch reported.
GRDA supplies wholesale and retail electric power to 106 customers, principally in 24 northeastern Oklahoma counties. The service territory is broad, indirectly extending to 75 of Oklahoma’s 77 counties and to portions of three neighboring states.
GRDA’s customer base is composed of municipal, off-system firm, commercial and industrial, and cooperative customers, in addition to spot power sales through the SPP. It presents some unique challenges in the public power sector. However, various offsets help provide the authority with greater revenue predictability over the long term.
Retail commercial and industrial sales growth from economic development at the MidAmerica Industrial Park near Pryor, Oklahoma, will help mitigate the loss of NEO from the customer base. Most recently, Google, GRDA’s largest industrial customer, announced on Sept. 23, 2016, that it would increase its total investment in Oklahoma to $2 billion by 2018 as the company expands its data centers. Moreover, industrial customers typically have three-year contracts, but are prohibited from changing wholesale providers after an initial choice is made. This provides long-term certainty that benefits power supply planning.
GRDA is in the midst of constructing a nominal 495-MW natural gas-fired, combined-cycle facility, called GREC Unit 3. The new facility exhibits GRDA’s continued movement away from coal to a higher reliance on natural gas, Fitch noted. GREC Unit 3 will have a very low 6,500 British thermal unit/kWh heat rate that will result in regular dispatch. GRDA expects GREC Unit 3 to be commercially operational in July 2017.