The Rating Outlook on all bonds is Stable.
Bonds are secured by unconditional payments made by the participants in each project. Each project participant is responsible for their percentage share of the project (joint but not several), although the obligation is subject to step-up provisions (as described below) by the performing participants in the event of default by any participant.
KEY RATING DRIVERS
TAKE-OR-PAY OBLIGATIONS: The project participants have an absolute and unconditional take-or-pay obligation for their share of each project's costs as per their respective Power Sales Agreements (PSA). All PSAs extend over the life of the respective bonds and are payable as an operating expense for each participant.
STEP-UP PROVISIONS APPLY: The LEC PSA includes a 35% step-up provision that protects bondholders against a default by any participant responsible for debt service payments on Issue One bonds. The PSA also includes an unlimited O&M expense step-up provision against a default by any participant. The geothermal and hydroelectric projects have a 25% step-up provision for all costs.
LEC OPERATIONAL: LEC began commercial operations in
COMPETITIVELY PRICED CARBON-FREE ENERGY: The geothermal and hydroelectric projects provide members with competitively priced, carbon-free energy, which is increasingly valuable in California's energy market. The ratings on the geothermal and hydroelectric bonds reflect the underlying credit quality of the participants and the projects' valuable attributes as a baseload renewable resource with a history of strong operating performance.
JOINT ACTION AGENCY SUPPORT: NCPA provides its membership with a broad array of services, including a power pool, legislative and regulatory representation, financial planning, and modeling assistance for its smallest members. Fitch views these system-like qualities as providing greater stability and security to the ratings.
PARTICIPANT CREDIT QUALITY: The ratings on each project are based on the credit quality of the underlying participants together with the step-up provisions that mitigate against a payment default. A change in the credit quality, especially of the larger project participants could affect the rating of each project.
NCPA is a joint-power agency that serves a population of approximately 650,000 through its 14 members and one associate member in Northern California. NCPA has a mix of hydroelectric, geothermal, and gas projects, as well as purchased power.
In addition to generation, NCPA provides marketing, legislative/regulatory, and administrative ancillary services to its members. NCPA is governed by a commission made up of one commissioner from each of the members (typically one council or board member).
UNCONDITIONAL TAKE-OR-PAY OBLIGATIONS
NCPA has project agreements with its members that are participants in each respective project. The project agreements extend through the life of the debt related to each project and require unconditional payments sufficient to pay operations and debt service on the bonds, regardless of project operation.
The unconditional nature of the contracts links the rating on the bonds to the underlying credit quality of the project participants, giving consideration to the requirement of a step-up in the event of a participant default.
ADEQUATE FINANCIAL PERFORMANCE
As a joint-action agency, NCPA is designed to run at or near the break-even point financially. NCPA bills members for actual costs, and therefore, there is very little excess cash flow generated. This is consistent with other power joint-action agencies. Fitch looks through to the credit quality, financial strength, and liquidity of the underlying members.
Fitch-calculated debt service coverage, on a consolidated basis across all of NCPA's projects, was 1.38x in fiscal 2013. Coverage at each individual project was over 1.17x on a stand-alone basis in fiscal 2013.
The geothermal project is located on federal land about 70 miles north of
A recent upgrade of the turbines for units 1 and 2, financed with a private placement of debt worth approximately
The hydroelectric project is located on the North Fork Stanislaus and the Stanislaus Rivers (located near
Project operations have been strong, with availability factors over 93% in all of the past five years. The project's operating costs are minimal. The largest costs are in the fixed debt service payments (
NCPA owns and operates the LEC, which began commercial operations in
Participants benefit from LEC's heat rate at 6,824 Btu/kWh, which is one of the lowest in the region, and from its ability to provide base load, peak load and ancillary services to meet the demand, energy, and reliability requirements of the participants.
Transmission constraints have limited the projects operational capacity to 280 MW rather than its designed capacity of 298 MW. However, NCPA plans to finance
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope.
--'U.S. Public Power Rating Criteria' (
--'Revenue-Supported Rating Criteria' (
U.S. Public Power Rating Criteria
Revenue-Supported Rating Criteria
Source: Fitch Ratings
Most Popular Stories
- Homeowners More Satisfied With Mortgage Servicers
- Russia, Ukraine Now Face Off Over Football Clubs
- Obama Vows to Veto House Immigration Bill
- Body Parts Retrieved at MH17 Crash Site
- Motorists Get Rare Summer Break on Gas Prices
- Government Meets Goal for Small-business Contracts
- MassMutual Teams Up With ALPFA
- Chrysler U.S. Sales in July Hit 9-Year High
- Law Lets Users Unlock Cellphones
- Reno Gigafactory No Cinch to Land Tesla Plant