NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'A+' rating to Nebraska Public Power District (NPPD) $211.1 million general revenue bonds, 2012 series B and C. The bonds are expected to price in October through negotiated sale. Bond proceeds will be used to refund certain outstanding bonds and finance and refinance the costs of certain generation and transmission capital additions to the NPPD system.
In addition, Fitch affirms the ratings on the following NPPD bonds and securities:
--$2 billion general revenue bonds at 'A+'.
The Rating Outlook is Stable.
The 2012 bonds are secured by net revenues of NPPD, on parity with outstanding general revenue bonds.
KEY RATING DRIVERS
DIVERSE POWER SUPPLY: NPPD offers a diversity of generating resources and fuel mix. While mostly a coal-based system, better operating performance at the Cooper nuclear station, along with the development of wind and transmission projects, provides good overall balance to the district's power supply.
STRONG ECONOMY: The Nebraska economy continues to perform well and has been relatively unaffected by the economic downturn. Agriculture remains strong and land values are solid. Modest annual growth is forecast.
EXPIRATION OF WHOLESALE POWER CONTRACTS: Wholesale customers, accounting for about 50% of NPPD 2011 operating revenues, have contracts that expire Dec. 31, 2021, well in advance of final debt maturity. Discussions to extend these agreements will begin in 2013. The district's ability to renew these contracts is an important element of the rating.
RATE FLEXIBILITY: The district's rates have been relatively steady and competitive for the Midwestern region. Forecasts assume moderate rate increases to cover higher operating and fixed costs. Fitch views the board's continued willingness to adjust rates as needed as essential.
PREDICTABLE FINANCIAL PERFORMANCE: The utility has a record of generally meeting debt service coverage targets of 1.50x and has accumulated equity to capitalization equaling about 32%. Liquidity is ample.
NPPD provides wholesale and retail electric service to non-metropolitan Nebraska. Generation, transmission and distribution services are provided to approximately 89,000 retail customers, 52 municipal wholesale customers and 25 public power and electric cooperative customers. Most of NPPD's long-term wholesale contracts expire in 2021, and management is in the early stages of renewal discussions with these customers. These agreements remain in force thereafter from year to year unless terminated by either party on specified dates pursuant to the contracts.
ASSETS AND OPERATIONS
Sources of energy supply were well diversified in 2011 and included: coal (44%), nuclear (36%), hydro (7%), wind (4%), gas and oil (1%) and purchases (8%). NPPD's board of directors approved a new strategic plan for power supply in July 2011. Assumptions and feedback from the board and other NPPD stakeholders will be reviewed and included as appropriate in an update to the formal integrated resource plan during the last half of 2012. The results will be presented to the board for consideration during the first quarter of 2013. The review is also intended to address excess power supply issues faced by NPPD.
Cooper Nuclear Station
Performance at the Cooper Nuclear Station has shown marked improvement in the past years. In helping to maintain the operating integrity of the Cooper Nuclear Station, NPPD authorized expenditures of approximately $72.6 million in 2011 and about $33.8 million in 2012, primarily for capital additions and renewals and replacements to the facility. The 2013 proposed budget is $39.7 million. However, should the NPPD board decide to go forward with an uprate program to the plant, the 2013 expenditures may be increased to $167.9 million.
A study has been commenced to consider a further increase to the generating capacity for Cooper. Initial indications are that this project could provide for additional capacity ranging from 120 megawatts (MW) to 146 MW. Additional expenditures would be made with the potential uprate in station power taken into consideration. Preliminary estimates for the cost of such a power uprate range from $200 million to $400 million, with the uprate project taking roughly five years. A decision by the NPPD board is expected no later than December 2012.
WILLINGNESS TO ADJUST RATES
Wholesale and retail rates have historically been competitive for the region. The NPPD board implemented a 6.5% wholesale rate increase, effective Jan. 1, 2012, following a 9.7% increase on Jan. 1, 2011. The increase was due to rising fuel costs, primarily coal transportation and infrastructure investments. An additional.3.75% increase in wholesale rates is expected to be effective Jan. 1, 2013. This is due largely to increased debt payments, current capital expenditures and increased operating costs.
Also, an average 6.7% increase in NPPD retail rates became effective Jan. 1, 2012, after a 10.6% increase in 2011; and a 3.75% overall increase in retail rates will become effective Jan. 1, 2013. Senior management believes electric rates will remain in line with other area providers. Fitch views management's willingness to raise rates during a period of rising costs positively.
SOUND FINANCIAL PERFORMANCE
The District's financial performance has been stable; with the utility budgeting rates to meet NPPD annual debt service coverage calculations of around 1.50x.Fitch-based coverage ratios tend to track lower, with 2011's coverage calculation at 1.28x. Cash and investments in excess of $250 million and a revolving credit agreement provide liquidity for NPPD's $150 million commercial paper program and for funding of capital projects.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
Alan Spen, +1 212-908-0594
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Chris Hessenthaler, +1 212-908-0773
Dennis Pidherny, +1 212-908-0738
Elizabeth Fogerty, +1 212-908-0526
Source: Fitch Ratings