NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'A+' rating to the following Municipal Electric Authority of Georgia (MEAG Power) bonds:
--$145 million Project One power revenue bonds, series GG;
--$50 million Project One subordinate bonds, series 2012C;
--$50 million General Resolution Projects general power revenue bonds, 2012B series;
--$5 million General Resolution Projects subordinated bonds, series 2012C.
The bonds outlined above are expected to sell the week of Oct. 15, 2012. Proceeds will be used to refund certain outstanding bonds and fund various system improvements.
In addition, Fitch affirms the 'A+' rating on the following MEAG Power outstanding debt:
--$345,000,000 Project One power revenue bonds;
--$692,000,000 General Resolution Projects general power revenue bonds;
--$1,795,000,000 Project One subordinated bonds;
--$402,000,000 General Resolution Projects subordinated bonds.
The Rating Outlook is Stable.
The Project One power revenue and subordinated bonds are payable from funds available to the authority including payments made pursuant to the Project One power sales contracts, after the payment of operating expenses. Payments on the Project One subordinated bonds are payable subject to the prior pledge of the power revenue bonds.
Similarly, the General Resolution Projects general power revenue and subordinated bonds are payable from funds available to the authority including payments made pursuant to the General Resolution Projects power sales contracts after the payment of operating expenses. Payments on the General Resolution Projects subordinated bonds are payable subject to the prior pledge of the general power revenue bonds.
KEY RATING DRIVERS
STRONG JOINT ACTION AGENCY FUNDAMENTALS: MEAG Power's Project One and General Resolution Projects are supported by the authority's strong fundamentals including a diverse mix of generating resources, sound financial performance and liquidity, competitive wholesale and retail rates, and strong court validated take-or-pay power sales contracts with the project participants.
FULL FAITH AND CREDIT OF PARTICIPANTS: The 49 city and county-owned electric systems that participate in Project One and the General Resolution Projects also exhibit solid breadth, diversity and creditworthiness. Participant obligations under the power sales contracts are general obligations of which their full faith and credit are pledged.
NUCLEAR CONSTRUCTION FACTORED: MEAG Power's participation in the construction of the Plant Vogtle Nuclear Units 3 & 4 and the projected impact of the related borrowings on the authority's financial metrics and wholesale cost of power supply have also been factored into the rating.
SIZABLE ACCUMULATED TRUST FUNDS: Mitigating the impact of the planned construction expenditures on MEAG Power and its participants is the availability of funds held in the Municipal Competitive Trust (MCT; $705 million at June 30, 2012), which have been accumulated over time and include portions that may be used by the participants to reduce current power costs, or used for future generation costs, including those related to the Vogtle expansion.
DEBT REQUIREMENTS PRE-FUNDED: MEAG Power's pre-funding strategy, whereby approximately 72% of the authority's capital requirements for the Vogtle expansion have already been funded further mitigates funding risk. A conditional commitment from the Department of Energy (DOE) Loan Guarantee program brings total funding and commitments to 121% of expected needs. Total cash and investments exceeded $3.6 billion at year-end 2011.
WHAT COULD TRIGGER A RATING ACTION
Adverse Nuclear Developments: Adverse developments related to the Vogtle construction that weaken the authority's current and forecasted metrics could lead to downward pressure on the rating or Outlook.
MEAG Power is a joint action agency created to provide bulk electric power to municipally-owned electric distribution systems located throughout the state of Georgia. The authority effectively supplies the full energy requirements of 49 systems via participation in a series of power supply projects. The participating systems, in turn, provide electric service to approximately 309,000 retail customers, representing a total population of 614,000.
Strong, Court Validated Contracts
All 49 participants have entered into take-or-pay power supply contracts related to the projects in which they participate. The Project One and the General Resolution Projects power sales contracts extend until June 1, 2054 and have been validated by the Superior Court of Fulton County, GA. They cannot be challenged in any subsequent proceeding. Each participant's obligation under the power sales contracts is also supported by a general obligation pledge, which would compel the participant to assess and collect an annual tax, if necessary, to meet its obligation to MEAG Power under the contract.
Diverse Power Supply Resources
MEAG Power currently has ownership interests in 2,069 MW of generating capacity, the majority of which is co-owned with Georgia Power Company, Oglethorpe Power Corporation, and the City of Dalton. The portfolio of resources available to serve participant requirements during 2011, which also included 341 MW of Southeastern Electric Power Authority (SEPA) hydroelectric capacity and purchased peaking capacity, was comfortably above peak demand (2,031 MW). For 2011, the fuel mix for delivered energy exhibited solid diversity: 47% nuclear, 30% coal, 12% natural gas, 6% hydroelectric and 5% purchased power.
Electric demand of the MEAG Power participants for the full year 2011 declined 2.6% from the same period in 2010, reflecting more moderate weather conditions. The decline follows a solid increase in 2010 drive by warmer weather. Based on MEAG Power's conservative integrated resource plan study, demand growth is expected to resume and continue at 1.5% annually.
Vogtle Project Will Not Materially Impact Rates
MEAG Power is participating in the development of the Plant Vogtle nuclear unit 3 & 4 expansion project. The construction and operating license for the project was issued by the Nuclear Regulatory on Feb. 10, 2012, and commercial operation of the units is anticipated in 2016 and 2017. Fitch views the license approval and issuance favorably, but the approval was already been factored in the current rating.
Fitch does not believe that the Vogtle expansion project will materially impact, or jeopardize the competitiveness of, MEAG Power's wholesale power rates. The new Vogtle Units will account for only a small portion of the authority's total power supply, particularly given the contracted sale of project capacity to the Jacksonville Electric Authority and PowerSouth Energy Cooperative through 2037. The project's effect on rates will be further mitigated by funds available to the participants through the MCT.
The continuing disputes and litigation between the Vogtle project co-owners and the construction consortium is a Fitch concern but does not appear to be having a material impact on the project's development.
Sound Financial Position and Strong Liquidity
MEAG Power's Fitch calculated debt service coverage (DSC) was below 1.0x at .88x for fiscal 2011. Fitch's debt service calculation excludes MCT credits, however, Fitch acknowledges the application of the MCT credits is consistent with the long-term plan that was developed with the funding of the MCT. Fitch expects the application of MCT credits to continue.
Including the MCT credits, DSC improves to 1.05x, which is more consistent with comparable wholesale power suppliers, but below the median for the Fitch rating category. Leverage metrics, including total debt to funds available for debt service (13.5x without MCT credits; 11.3x including credits) and equity/capitalization (0%) are also below the median for the current rating.
Bolstering the authority's financial position and mitigating Fitch's concerns are cash and investments on hand exceeding $3.6 billion at year-end 2011, a large portion of which is available to ease the capital funding requirements of the participants going forward.
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.
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
Dennis M. Pidherny, +1 212-908-0738
One State Street Plaza
New York, NY 10004
Alan Spen, +1 212-908-0594
Christopher Hessenthaler, +1 212-908-0773
Elizabeth Fogerty, +1 212-908-0526
Source: Fitch Ratings