DALLAS - Oklahoma's Grand River Dam Authority, building an innovative gas-fired power plant to replace a coal-burning unit, is enjoying a lift in its ratings as it prepares to issue $450 million of revenue bonds for the project.
Moody's Investors Service on Sept. 16 raised the wholesale power provider's rating to A1 from A2, citing an "improved financial outlook" at GRDA. Later that day, Standard & Poor's followed suit, lifting its rating to A-plus from A. Outlooks are stable.
"Even with a sizable new debt offering, GRDA's key financial metrics are expected to improve over the near term due to economic growth in the greater Tulsa region and a decrease in scheduled debt amortization requirements owing to substantial amortization during 2011 through 2013," wrote Moody's lead analyst Scott Solomon.
Fitch has rated previous issues A.
With this issue, GRDA will have about $1.2 billion of debt outstanding, according to Moody's.
In the past five years, annual debt service averaged $127 million, according to S&P analyst Judith Waite. Debt service will increase gradually to about $89 million by 2018 and thereafter from $77 million in 2014.
"We expect modest energy sales growth, current rates, and a potential 5% rate increase in 2016 will result in debt service coverage of at least 1.5x," she said.
The upcoming deal is expected to price in early October through negotiation with a syndicate led by JP Morgan. The bonds will come in two tranches: a $315 million tax-exempt Series A, and $125 million of taxable Series B.
The deal won unanimous approval from the Oklahoma Council of Bond Oversight on Aug. 28.
"This is good news and was an important next step toward what we expect to be a very successful bond issue," GRDA chief executive Dan Sullivan said in a prepared statement.
GRDA will use the majority of the proceeds from this bond issue to build a new, combined-cycle gas fired generation plant at the Grand River Energy Center in Chouteau, Okla. The site was formerly a coal-fired facility. Other proceeds will be used to complete emissions control upgrades on Unit 2, one of the existing coal fired generators at the facility.
A combined cycle unit produces electricity in two ways: natural gas is first used to fuel a combustion turbine-generator and then heat from that process will be recaptured and used to produce steam to turn another steam turbine-generator.
Designed by Mitsubishi Hitachi Power Systems Americas, the new unit will be powered by Oklahoma natural gas and will be the first of its kind in the western hemisphere, according to GRDA. Once complete, it will have the potential to be the most efficient combined cycle unit in the United States, officials said.
Historically, the authority's bonds are very popular in Oklahoma, Sullivan said.
Before August 2012, when GRDA paid off $200 million in bonds, Oklahoma residents in 76 of 77 counties held a combined $272 million worth of GRDA bonds, he said. A $550 million GRDA bond issue in 2008 was, at the time, the state's largest, in terms of retail sales to in-state investors.
"These bonds are very well received by Oklahomans," said Sullivan, "and we view that as a vote of confidence in GRDA and the important mission it fulfills everyday for the state. We anticipate the same kind of reception for this next issue."
GRDA's capital spending program, estimated at $590 million, runs through 2017.
Headquartered in Vinita, Okla., GRDA is a state-owned electric utility that is fully funded by revenues from electric and water sales instead of taxes. The utility provides electricity for nearly 500,000 homes in Oklahoma and covers 75 of 77 counties in the state.
GRDA's competitive advantage remains its low generating costs, according to Moody's.
"This allows GRDA to charge electric rate to its customer base that consistently ranks as the lowest in Oklahoma and in the lowest 20% nationwide, a meaningful credit positive for a municipal wholesale power producer as it reduces the likelihood for potential customer loss," Solomon wrote.
GRDA also manages 70,000 surface acres of lakes in the state, including Grand Lake, Lake Hudson and the W.R. Holway Reservoir.