BRADENTON, Fla. - The Municipal Electric Authority of Georgia tomorrow plans to sell $200 million of bond anticipation notes, the second of three short-term debt offerings totaling about $500 million to finance a portion of its pre-construction costs in what may be the first new nuclear power plant units constructed in the U.S. since the 1980s.
Tomorrow's sale will be the second this month for pre-construction financing of MEAG's 22.7% ownership interest in two new nuclear units expected to be built adjacent to the existing Vogtle Nuclear Power Plant near Augusta by Georgia Power Co.
MEAG was created by state law to own and operate electric generating and transmission facilities to supply bulk power to cities and counties in Georgia. The joint-action agency currently has 48 cities and one county as participants in various ventures.
Jim Fuller, MEAG's chief financial officer, said $163.6 million of Bans were sold last week. The notes, with a yield of 0.85%, will mature in just under 13 months. The offering was oversubscribed, helped in part by strong investor interest from money market funds.
"We hope that we continue to get broader participation [tomorrow], but we had good participation in the first deal," said Fuller, who pointed to the debt's solid fundamentals. "There's strong underlying municipal credits, take-or-pay power sales contracts, and the MEAG cities under their power sales contracts have added their general obligations to the payments to which their full faith and credit is pledged."
This week's Bans are expected to mature on May 25, 2010, and ultimately will be taken out with long-term financing.
To strengthen all the financings related to the project, MEAG had the debt validated in a Georgia court, which means its legality cannot be challenged in the future. "We've got bonding authority for all of the capital needs of the project," Fuller said.
To meet future growth needs of the state, MEAG became part of a consortium led by investor-owned Georgia Power in the development and construction of two new nuclear generating units at Vogtle. The new units, which will cost more than $11 billion to build, are expected to receive final permitting and licensing from the Nuclear Regulatory Commission by early 2011.
MEAG will own 22.7% of the new units, which will provide 500 megawatts of power.
But the authority's participants will not need all of the power right away, so the agency entered into three separate take-or-pay power purchase agreements, or PPAs, that will allow other utilities to receive a portion of the power generated for the first 20 years.
Here's how the agreements are structured:
First, 29 of MEAG's participants in Georgia will receive 169 megawatts of the nuclear power over the life of the two new units. To pre-finance these initial costs, the agency sold last week's Bans.
The Bans being sold tomorrow will pre-finance initial costs of a 20-year agreement with JEA, a publicly owned electric and water utility in Jacksonville, Fla. JEA will receive 206 megawatts of the power generated by the new units. After 20 years, 39 of MEAG's participants will receive the power.
The third financing will be $130 million of Bans to be sold next month. Those notes will pre-finance initial costs of a 20-year agreement with PowerSouth Energy Cooperative, a rural electric utility in Andalusia, Ala., that will receive 125 megawatts. After that agreement expires, 39 of MEAG's participants will receive the power.
Ultimately, the power authority plans to take out all the Ban financings for the nuclear project with long-term bonds or a combination of bonds and a federal loan guarantee from the Department of Energy. MEAG estimates that its total cost for the project will be around $3.5 billion, which includes bonded interest during construction and financing costs.
MEAG is studying the subsidized taxable bond provision offered by Build America Bonds in the federal stimulus act to determine whether those will be used for long-term financing, according to Fuller said. "Clearly that would be beneficial to a long-term capital-intensive project like this," he said.
The $200 million Ban deal selling tomorrow received ratings of F1-plus, MIG-1, and SP-1-plus from Fitch Ratings, Moody's Investors Service, and Standard & Poor's, respectively.
Standard & Poor's analyst Judith Waite said the agency's rating on the Bans reflects a number of strengths, including MEAG's demonstrated ability to access the capital markets and the assumption that the agency will be able to refund the notes with proceeds from long-term bonds or new Bans.
She said other strengths include access to highly liquid assets and the ability to purchase new Bans should access to the long-term credit markets be limited.
"JEA has had a well-established record of strong financial results for its electric system," said a report by Moody's analyst Dan Aschenbach. "The audited fiscal year 2008 electric system revenue bond debt service coverage ratio reflected sound results with senior-lien debt service coverage at 4.60 times and senior and subordinated debt service coverage at 2.40 times. Fiscal year 2009 is forecasted to achieve similar results. Forecasted total electric system debt service coverage between 2009 and 2012 is projected to be approximately two times."
Goldman, Sachs & Co. is the underwriter for tomorrow's Ban sale. Public Financial Management Inc. is MEAG's financial adviser.
Orrick, Herrington & Sutcliffe LLP is bond counsel. Nixon Peabody LLP is special tax counsel. King & Spalding LLP is underwriters' counsel.