Fitch Ratings said it has upgraded the following Missouri Joint Municipal Electric Utility Commission power project revenue bonds (Prairie State Project) to A from A-minus with par amounts as of Dec. 31, 2011: $554,453,287 Series 2007A and Series 2007B; $206,004,151 Series 2009A and Series 2009B; and $77,760,292 Series 2010A and Series 2010B.
The rating outlook is stable.
The bonds are secured by net revenues from MJMEUC's interest in the Prairie State Energy Campus project.
Net revenues are principally derived from unconditional, take-or-pay power purchase agreements with MJMEUC's seven unit power purchasers and by funds collected from its Missouri Public Energy Pool #1 (MoPEP 1; power supply system bonds rated A by Fitch).
The upgrade principally reflects Fitch's favorable view of the largest UPPs and MoPEP 1, whose credit characteristics support the higher rating.
Participant default risk is mitigated by a requirement that each of the seven UPPs step-up their original entitlement shares by 200%, as well as the effectively unlimited step-up of the MoPEP 1 participants. Consequently, bondholders do not have direct exposure to any one participant.
Both PSEC units have achieved commercial operation, which alleviates project construction risk.
Despite increased costs associated with construction delays, project economics and characteristics suggest that PSEC will be a competitive power resource over the long-term. MJMEUC's forecasted for the cost of power is $56 - $59/MWh, and the project includes a mine-mouth coal supply and various transmission ties.
The PSEC indenture requires MJMEUC to begin funding two reserves — a $2 million reserve and contingency fund and a $5 million operating reserve - commensurate with the commercial operation of the project, which enhances project liquidity. The latter reserve was funded with 2009 bond proceeds.
MJMEUC is a joint action agency formed in 1979 to provide its member utilities with an adequate, reliable, and economical power supply. The growing MJMEUC membership principally consists of 69 retail electric systems, ranging in size from approximately 200 retail meters to 110,000, dispersed across the State of Missouri.
In addition to the PSEC project and MoPEP 1, MJMEUC has interests in the Plum Point and Iatan 2 projects. Each project is separately secured.