October 28, 2008
Fitch Rates Nebraska Municipal Energy Agency’s $76MM 2008A Revs ‘A'; Outlook Stable
Fitch Ratings has assigned an 'A' rating to the Municipal Energy Agency of Nebraska's (MEAN) $75.91 million 2008 series A subordinate power supply system revenue bonds. At the same time, Fitch has affirmed the 'A' on MEAN's outstanding prior lien and subordinate lien bonds. The Rating Outlook is Stable.
Bond proceeds will be used to:
--Pay the costs of acquiring a 23.5% interest in an 85 megawatt coal-fired plant (Wygen I Unit) and the capital improvements on the unit;
--Redeem approximately $15.65 million of outstanding 2003 series B bonds that are in the auction rate mode;
--Fund the debt service reserve;
--Pay the costs of issuance.
The bonds are expected to sell the week of Dec. 1, 2008.
MEAN is a joint action agency with various classes of participants purchasing power under contracts of varying durations. The 'A' rating largely reflects management's ability to plan for and meet the power resource needs of its member base through a diverse mix of owned and purchased power resources. Management's new power resource strategy focuses on acquiring more assets as power purchase contracts expire. The rating also takes into account management's successful transitioning of seven customers from shorter term contracts to contracts that run through the life of the bonds. At the same time, seven new participants have joined MEAN under the same long-term contracts. Currently, these long-term contract participants account for 31% of MEAN's revenues.
Management continues to closely match capacity with participant need. For example, if all participants (other than those with long-term contracts maturing in 2041) did not renew expiring contracts, MEAN would not expect to be significantly impacted or be long power, given that as these contracts expire, so do the associated purchase power arrangements.
The rating also reflects the multi-state participant base, low cost and diverse power supply, competitive retail rates charged to the participants' customers, and relatively stable financial performance. A Pooled Energy Adjustment (PEA) is in place, whereby management can pass through fuel costs without requiring any further board approval. While this has only been implemented three times over the past 15 years, Fitch believes that this provides MEAN with added financial flexibility. Debt service coverage in 2008 was 1.42 times (x), in line with historical levels. In 2007 operating coverage dropped below 1.00x due to the cost impact associated with ice storms that hit Nebraska in early 2007. Resolution coverage for the same year was 3.00x and included the use of $2.7 million of rate stabilization funds and other non operating revenues from American Public Energy Industry (APEA) ($2.4 million of rate stabilization funds were replenished in FY2008). Liquidity is strong, with 118 days cash on hand, above the median for the rating category.
The Stable Rating Outlook reflects Fitch's expectation that the Whelan Energy Center coal project in which MEAN is participating will be completed on time and within budget.
MEAN, formed in 1981 to generate and transmit wholesale electric power, is a joint-action agency providing wholesale energy to its participants' distribution systems. Currently, 66 participants are served, of which 45 are provided their total requirements through 2041; 17 participants are served their total requirement through long-term contracts (with terms of up to 10 years), and the other four purchase power at negotiated rates. Combined, these participants serve approximately 114,000 retail customers in four states. Approximately 40% of the load is from Nebraska participants, with the remaining load generated from participants in Wyoming, Iowa and Colorado.
In addition to providing power and energy, MEAN also supports the participants in a number of ways, including power supply and planning, dispatching, forecasting and demand side management.