CHICAGO — The Nebraska Public Power District plans to issue $94 million of taxable auction-rate revenue bonds in the coming weeks to fund upgrades to its Cooper Nuclear Station.
The deal comes as an increasing number of municipal power agencies in the Midwest issue bonds to improve outdated infrastructure and meet growing demand.
The district plans to issue the bonds on Feb. 20, with Bear, Stearns, & Co. as senior underwriter and broker-dealer. The district’s financial adviser is Castleton Partners LLC. Bond counsel on the transaction is Fulbright & Jaworski LLP.
The bonds will sell in the seven-day mode with bullet maturities in 2014. Though taxable, the bonds but may be taken out in the future with tax-exempt debt, according to NPPA chief financial officer Traci Bender. The sale is the second taxable auction-rate deal for the district in the past few years. In 2004, it issued $54 million of bonds that also will mature in 2014.
That is also the year the utility expects to renew its license for the Cooper Nuclear Station, Bender said. The district must issue taxable bonds because it currently sells about 50% of its output to for-profit entities. It expects to expand its output in the future and take on new customers, which would allow for the bonds to be converted to tax-exempt status.
Fitch Ratings assigned its A-plus rating to the upcoming sale and affirmed the A-plus rating on $1.4 billion of outstanding general revenue bonds. Moody’s Investors Service affirmed its A1 rating, while Standard & Poor’s affirmed its A rating. All three agencies have a stable outlook on the credit.The improvements to the Cooper Station are part of the district’s larger plan to enhance its baseload capacity, said Fitch analyst Hiran Cantu. As part of that expansion, it is participating in the financing of the Nebraska City II project, a new a 663-megawatt coal-fired plant being built by the Omaha Public Power District.
The NPPD issued about $157 million of bonds last fall to help fund its share of the project, which is set for completion in 2009. The district expects to sell one final bond issue for that project, Bender said.
The Omaha Public Power District issued most of its bonds to fund their portion of that project last year. The district issued about $315 million for the $850 million project.
The Nebraska City project is one of several new plants in the Midwest for which bonds have been sold in recent years as some municipal power agencies implement expansion programs and upgrade old facilities. Analysts said they have seen more issuance for new plants as municipal districts try to meet growing demand.
The increase in issuance and construction follows a lull during the 1990s when many public power agencies deferred new construction due to uncertainty about deregulation, according to Dan Aschenbach, an infrastructure analyst with Moody’s. Municipal agencies have returned to purchasing additional power or adding new generation since that time as the demand for power grows, he said.
Over the past year, primarily coal-fired plants have been funded, reflecting the move away from natural gas as prices have become more volatile, Aschenbach said.
On Feb. 15, the Public Power Generation Agency will close on about $500 million of revenue bonds issued to finance the acquisition and construction of the Whelan Energy Center Unit 2, a new plant in Nebraska. The Hastings, Neb.-based agency is made up of five public utilities in Nebraska and South Dakota, which will repay the bonds. The two largest participants are the Municipal Energy Agency of Nebraska and the Heartland Consumers Power District.
As a result of a review of the MEAN in connection with the sale, Moody’s earlier this week affirmed its A2 underlying rating on $25.8 million of outstanding revenue bonds issued by the agency under a 1983 resolution. Moody’s also upgraded $100 million of bonds issued pursuant to a 2003 resolution to A2 from A3.
The Public Power Generation Agency plans to complete the Whelan center project by 2011. It plans to issue an additional $58 million in 2010 to fund the remaining funding costs.
As municipal power agencies upgrade their facilities and build new capacity, the use of prepaid gas contracts also has become more common to offset volatility related to the natural gas market, which agencies tap to maintain a balance of power supply resources.
Moody’s and Fitch have assigned ratings to the Omaha Metropolitan Utilities District, which is the largest participant in a natural gas prepay transaction with the Central Plains Energy Project. The project is expected to issue $484 million of bonds to fund the transaction, which will allow the Omaha district to receive a significant discount to the index price for natural gas for a 20-year period, according to Moody’s analysts.
Fitch assigned a AA implied rating, as the district has no outstanding bonds. Moody’s assigned an issuer rating of Aa2.
As municipal power agencies turn to bonds to fund a variety of programs to upgrade facilities and build new capacity, the industry also is looking to alternative fuels, such as ethanol. Those options are becoming more common as new federal regulations for emissions and environmental pollution are implemented. That could spur additional bond issuance for industrial development bonds related to pollution control, some observers say.
Debt issuance for electric power rose 55% in the Midwest in 2006, to more than $3 billion sold in 75 issues, according to Thomson Financial.
