Fitch Rates Muni Electric Auth of Georgia's $245MM Project One & Gen Res
Projects Revs 'A+'
NEW YORK -- October 12, 2012
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
--$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
In addition, Fitch affirms the 'A+' rating on the following MEAG Power
--$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
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
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%
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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
Press spacebar to pause and continue. Press esc to stop.