Fitch Upgrades Massachusetts Muni Wholesale Elect. Co. Project Debt
Fitch Ratings has upgraded the project ratings of Massachusetts Municipal Wholesale Electric Company (MMWEC) to ‘A’ from ‘A-’. The separately secured project are: Nuclear Mix No. 1, Nuclear Project No. 3, Nuclear Project No. 4, Nuclear Project No. 5, Project No. 6, Stony Brook Intermediate Project, and Wyman Project. The Rating Outlook is Stable.
The rating upgrade is primarily due to the rapid amortization of outstanding debt, with current debt of $658 million expected to be fully repaid by 2019, while MMWEC’s nuclear facilities have extended useful lives, through at least 2030. This provides the utility with increased financial and operating flexibility when many other utilities have substantially greater capital expenditures associated with green house gas cleanup. MMWEC will likely benefit from their more environmentally friendly fuel sources, compared with fossil-fueled generators. Additionally, the debt associated with MMWEC’s Wyman Project and Stony Brook Intermediate Project will mature in 2008.
Other factors supporting the rating include MMWEC’s long-term, court-validated take-or-pay contracts with the project participants; the favorable fuel mix relative to the region; and the fact that the participants are located throughout the Commonwealth, serving a relatively large and diversified population. The rating also reflects the members’ stable financial positions and rates that are below or competitive with the investor-owned utilities (IOUs) in the area. Also incorporated in the rating is the strong participant overlap across the various projects. MMWEC has lost a few members, but those that leave may still contract with the organization for certain services and, more important, are required to continue to pay their designated portion of debt service on whatever projects they participate in.
MMWEC is a joint action agency for Massachusetts municipal electric utilities, with 28 participants. These 28 provide retail service to 35 towns and cities in the Commonwealth, servicing an estimated population of 609,000 (roughly 9.5% of the Commonwealth’s population). In 2006, the total customer count was 275,109, reflecting a compound annual growth rate of 1% since 2002. At the same time, total energy grew at a slightly greater rate during the same period, at 1.4% annually. Total gross revenues and total electric operation and maintenance expense grew at comparable rates, 6% and 6.4%, respectively. This growth is largely attributable to increased fuel costs that were passed through to members.
The primary function of the company is to provide its members with wholesale power. This power is generated by its ownership interests in five electric generating units in eight separately secured projects. In turn, this power is then sold to project participants, pursuant to the terms of the various power sales agreements. In addition to selling the electricity generated by the projects, MMWEC also purchases wholesale power to meet participants’ requirements. In 2006, MMWEC provided approximately 51% of capacity and requirements of the project participants and its resources provided 31% of the energy requirements of those participants.
As of fiscal year end Dec. 31, 2006, MMWEC’s outstanding debt totaled $658 million. Each participating member is responsible for their share of debt service on the bonds, based on their level of participation in the specific project or projects, via take-or-pay contracts, and the contracts contain a 25% step-up provision. In discussion with management, they are monitoring their auction rate debt and reviewing various alternatives.
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