Fitch Ratings upgraded the Missouri Joint Municipal Electric Utility Commission revenue bonds issued for the controversial coal-fired Prairie State Energy project one notch to A now that the plant is fully operational.
The upgrade affects $554 million from a 2007 issue, $206 million from a 2009 issue and $78 million from a 2010 issue. The bonds are secured by the utility’s interest in the project. Net revenues primarily come from unconditional, take-or-pay power purchase agreements with its seven local power purchasers and from funds collected from its Missouri Public Energy Pool #1.
Fitch said the upgrade principally reflects its “favorable view” of the credit strengths of those local customer pools.
Both Prairie State units are now in operation, which alleviates project construction risk and triggers an indenture requirement to fund $7 million of additional reserves. After delays, a second unit came online early in November.
“Despite increased costs associated with construction delays, project economics and characteristics suggest that PSEC will be a competitive power resource over the long term,” Fitch wrote. The utility has a 12.33% interest in the southwest Illinois plant. Coal reserves come from an adjacent mine.
The utility’s forecasted cost of power is $56 to $59 per megawatt hour. The MJMEUC is a joint-action agency formed in 1979 to provide its member utilities with an adequate, reliable and economical power supply with a membership of 69 retail electric systems.
Local public utilities in eight states have a stake in the mostly bond-financed project. It was first estimated to cost $1.8 billion when initial owner Peabody Energy approached local publicly-owned utilities about taking an ownership stake.
The price tag then rose to $3 billion and the utilities and project managers in 2010 negotiated a fixed cost of $4 billion. Current costs for the project are estimated at nearly $5 billion, according to published reports.
Rep. Dennis Kucinich, D-Ohio, recently asked the Treasury Department to investigate whether it was appropriate to use Build America Bonds that receive federal subsidies to help finance construction of the plant.
