CHICAGO — Moody's Investors Service assigned a negative outlook to Batavia, Illinois electric system revenue bonds citing weakened coverage levels on its fixed obligations and concerns over the system's political will to raise rates tied to its participation in the controversial Prairie State coal-fired project.
Moody's affirmed the A1 rating assigned to $25 million of debt while shifting its outlook to negative from stable this week based on "the utility's weakening fixed obligation coverage levels given the higher debt service due to the amortization of" bonds issued by the Northern Illinois Municipal Power Agency.
The city's utility is a member of NIMPA with a take-or-pay-contract to purchase power from the Prairie State coal plant. NIMPA is one of a handful of joint power agencies that own the project.
"The negative outlook also recognizes that the willingness and ability of the City to raise rates in the future may be tempered by political pressure related to Prairie State and by commercial and industrial rates that are already above the state median," Moody's added.
Batavia is among the local municipal utilities frustrated over the higher than expected power costs associated with the Prairie State Energy Campus. City leaders in September said they planned to ask state Attorney General Lisa Madigan's office to examine the city's 2007 decision to purchase power from the plant.
The action followed the filing of a lawsuit over the summer by a group of ratepayers seeking compensation for steep energy rate hikes and other taxes they've paid beginning in 2012 due to construction delays and cost overruns that drove up the cost of the project by more than $1 billion to $5 billion.
The Washington County, Ill. campus includes a coal-fired plant that generates 1600 megawatts of electricity, and an adjacent mine to provide the coal. Public utilities in Illinois, Indiana, Kentucky, Missouri, and Ohio issued $4.5 billion of debt to finance their ownership. As the costs for the project rose so did the costs passed along to local government users.
Batavia administrators recommended the probe and council members, many of whom were elected after the decision on Prairie State was made, agreed.
City losses have been heightened due to open market conditions as local governments with excess power to sell have received less than originally expected. Batavia considered selling its share in the project but could not find acceptable offers.
Moody's said the Batavia system's A1 rating reflects the electric system's small, yet stable customer base that is primarily residential, but has significant revenue concentration from industrial and commercial customers. While participation in Prairie State may pressure rates, it does provide "long-term favorable economics yet involves substantial off-balance sheet leverage" of $244.3 million associated with its commitment for 55 megawatts of power, Moody's said.
