The AFEC participants are all members of AMP.
The Rating Outlook is Stable.
The bonds are secured by debt service payments made by the 87 AFEC participants pursuant to the power sales contracts. The payments are obligations of the participants' payable from the revenues of their electric utility systems, subject to the prior payment of operating and maintenance expenses.
KEY RATING DRIVERS
COMPETITIVE OPERATING ASSET: AFEC is a 675 MW combined cycle natural gas-fired generating plant that entered commercial operation on
ENTIRE OUTPUT CONTRACTED: AMP's entire share of project output is purchased pursuant to take-or-pay power sales contracts with 87 municipally-owned electric systems and one electric cooperative that obligate the purchasers to pay for their respective shares of all project costs. Debt service is paid entirely by the municipal systems and all are members of AMP.
FAVORABLE FUEL ARRANGEMENTS: The project's proximity to numerous interstate pipeline systems and access to ample capacity and gas supplies mitigates the risks associated with volatile fuel costs, which represented 67% of 2013 operating costs. Procurement, purchasing and hedging activities are managed by The Energy Authority, an experienced service provider.
CONCENTRATION OF SATISFACTORY PURCHASERS: The participants include a geographically and economically diverse group of cities in seven states. The six largest purchasers, which include the cities of
STANDARD CONTRACT STEP-UP PROVISION: The power sales contracts include standard step-up provisions that require each participant to purchase up to 125% of its original allocation of the project output in the event that another participant defaults.
CHANGES IN PARTICIPANT METRICS: The operating and financial metrics of the project participants, many of which are participating in sizable new power projects under development, will continue to be a key rating factor in future reviews.
AMP is a nonprofit wholesale power supplier and services provider that was organized in 1971 for the benefit of its members. As of
AMP continues to develop a portfolio of diverse power supply resources that includes coal-fired generation, hydroelectric generation, natural gas, wind, solar and landfill gas power projects. AMP's diverse resource portfolio is designed to meet the growing energy requirements of its members and transition away from market purchases. AMP is developing its newest resources as separate and distinct projects consistent with its traditional resource strategy.
SEPARATE AND DISTINCT PROJECT
AFEC is a natural gas-fired combined cycle generating plant located in
AMP entered into related agreements with two public power entities -
Each of the AMP project participants is required to pay its proportional share of the AFEC project costs pursuant to the power sales contracts. Each participant's obligation is take-or-pay, requiring it to pay its share of all costs (including debt service) whether or not the project is operating or operable. The power sales contracts also contain a relatively standard step-up provision that would require each participant to purchase up to 125% of its original purchase obligation if another participant were to default on its obligations.
SOLID PROJECT OPERATING PERFORMANCE
AMP acquired AFEC on
DIVERSE PROJECT PARTICIPANTS
The AFEC project participants are comprised of 87 municipal electric systems located throughout seven states. Sixty-five of the participants are located in
Ownership interests in the project among the participants range from 15.07% (DEMEC) to 0.02% (six
PARTICIPANT FINANCIAL PROFILE
The AFEC project's financial position is heavily supported by the creditworthiness of the participating members, which typically exhibit satisfactory cash flow, modest leverage, and healthy cash balances. Fitch has reviewed updated financial metrics for the six largest participants and believes that the credit quality of the participants supports the assigned rating but is relatively weak compared to similarly rated credits. None of the participants are rated by Fitch, with the exception of DEMEC. However, debt service coverage, leverage and liquidity metrics for the participants reviewed are generally consistent with the medians for Fitch-rated retail systems.
Additional information is available at 'www.fitchratings.com'.
--'U.S. Public Power Rating Criteria', dated
U.S. Public Power Rating Criteria
Source: Fitch Ratings
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