Prairie State Energy Campus

CHICAGO — An Illinois-based joint power agency heads into the market as soon as Tuesday to refund $250 million of debt tied to the controversial coal-fired Prairie State Energy Campus.

Goldman Sachs is the lead manager on the Northern Illinois Municipal Power Agency refunding. The bonds are secured by the net revenues of the agency, derived from the take-or-pay power sales agreements with three municipal electric utility systems.

The deal comes amid a pending federal lawsuit filed by ratepayers against firms that recommended the city of Batavia's electric utility participate in the Prairie State project.

The city is also set to receive a report from the law firm Jenner & Block on its options for diversifying its electric portfolio, according to the offering statement.

While Batavia has affirmed its commitment to the project, local published reports say the firm was also asked to explore the city's legal options with respect to its Prairie State obligation, the potential sale of that obligation or what changes in state law are needed to sell off excess power. The firm is expected to present its report to the city at a meeting on the same day of the scheduled pricing.

Batavia is a member of NIMPA along with two other northern Illinois communities, Geneva and Rochelle, that combined serve approximately 57,611 residents and 28,250 retail electric customers.

NIMPA expects significant 16% net present value savings from the refunding of 2007 debt with the savings taken throughout the maturity schedule.

In an investor presentation, the agency highlights the project's advancements, its long-term fiscal prospects, and the members' unregulated authority to raise rates to meet costs. NIMPA has a 7.6% ownership stake in Prairie State.

"Prairie State continues to demonstrate operational improvement and has minimal future planned capital expenditures" of just $15.1 million over the next five years, said Gary Holm, NIMPA board head and Batavia's public works director. Net capacity at the plant was up to 77.5% last year from 58.4% in 2013.

The $5 billion project has environmental critics who have long warned of its contribution to greenhouse gas emissions while cost overruns, construction delays and a delayed startup prompted a public outcry when ratepayers were forced to pay more than originally expected.

The campus is in Washington County, Ill. It has a dual unit, coal-fired power plant and an adjacent mine to supply it with coal.

Participating public utilities and power cooperatives in Illinois, Indiana, Kentucky, Missouri, and Ohio issued a collective $4.5 billion of debt to finance their ownership.

Ahead of the sale, Moody's Investors Service affirmed NIMPA's A2 rating, affecting $207 million of parity senior-lien debt. The outlook is stable.

The rating reflects the weighted credit quality of the project participants and "sound legal security provided by the take-or-pay power sales agreements that contain a 200% step-up provision," Moody's said.

The rating also considers the strategic importance of Prairie State to the members and the expectation that the coal-fired plant will continue to generate economic and reliable power over the long-term.

The project's benefits include its advanced controls that comply with federal environmental regulators, the near proximity of coal reserves to the plan, and prepaid and favorably priced coal.

"Moody's believes that the value of Prairie State as a long-term asset remains favorable as a source of long-term stable electrical capacity for the participants," analysts wrote.

Fitch Ratings affirmed the agency's A-minus rating and stable outlook.

Fitch said while the project initially fell short of expectations, its performance has improved and stabilized, and unit availability and capacity factors are now in line with industry averages.

A group of Batavia ratepayers initially filed their 2014 lawsuit in state court but it was moved to federal court where it was dismissed in August 2015. It was amended and refiled in October that year and remains pending, according to the offering statement.

The group alleges that consultants were negligent in recommending participation in the project and they are seeking compensation for steep energy rate hikes and other taxes they paid beginning in 2012.

The city was told the cost of power from the plant would be approximately $46 per megawatt-hour. The actual rate charged hit $179.92 per delivered megawatt-hour in November 2013.

The Prairie State project spurred calls for more regulatory scrutiny by local, state, and federal authorities over how it was represented to local officials and in 2013 the Securities and Exchange Commission issued subpoenas to the various owners. The offering statement said NIMPA has had no additional contact from the SEC since the 2013 subpoenas.

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