Big Texas Wholesale Energy Provider Ready to Refund

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DALLAS — The Lower Colorado River Authority, one of the largest wholesale energy providers in Texas, aims to take advantage of favorable interest rates with a $426 million refunding deal this week.

The negotiated deal with Barclays Capital as senior manager is expected to price on Wednesday. Co-managers include Goldman, Sachs & Co., Bank of America Merrill Lynch and Morgan Stanley. OBP Muni serves as financial adviser, with McCall, Parkhurst & Horton as bond counsel

The authority is aiming for net present-value savings of $35 million through the current refunding of 1999 revenue bonds while maintaining the same final maturities of 2020, said LCRA chief financial officer Brady Edwards.

With ratings of A from Standard & Poor’s and A-plus from Fitch Ratings, the authority is considering insuring the bonds. Moody’s Investors Service has not rated the deal.

The LCRA has $1.88 billion of outstanding revenue bonds that carry the same rating.

It also has $122 million in tax-exempt and $22.5 million of taxable commercial paper. Its last deal, for $171 million in July, converted commercial paper to revenue bonds.

In evaluating the LCRA’s credit, analysts look at wholesale contracts in a competitive environment. The agency provides power to 43 wholesale customers across central Texas, and competition is increasing, according to Fitch.

“Fitch is concerned about the lack of long-term wholesale power agreement extensions for a portion of the load beyond the current expiration date of 2016,” analysts wrote. “If LCRA has significantly lower load after 2016, its cost structure and source of revenues to service its existing debt obligations would change and could result in credit implications.”

So far, 31 customers representing 57% of the LCRA’s load have signed extensions beyond 2016, and the remaining 12 customers have until 2011 to decide whether to extend theirs, according to Fitch.

At the same time, the authority faces large capital needs for new generation construction and environmental improvements that will call for more debt.

“New generation development will likely increase LCRA’s average system cost,” Fitch analysts noted. “The cost of new generation could be significantly higher than the existing fleet. Fitch expects that LCRA will recover the higher average power cost resulting from the new assets from its customers and maintain, at a minimum, its historical financial performance.”

With its headquarters in Austin, the public utility sells power to eight electric cooperatives, 34 cities, and one investor-owned utility.

It also provides regional water and wastewater services in Central Texas, and manages water supplies and controls flooding along the Lower Colorado River of Texas.

Wholesale power services are projected to account for 71% of operating revenue in fiscal 2010, followed by water services at 7%, and transmission support services at 21%.

The LCRA created its affiliate TSCorp to separate its transmission business from electric generation as required under Texas law.

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