The Rating Outlook is Stable.
The bonds are secured and payable solely from gross receipts including payments made by the PSEC participants under the power sales contract and other funds established pursuant to the indenture.
KEY RATING DRIVERS
MINE-MOUTH COAL FIRED PLANT: PSEC is a mine-mouth, pulverized coal-fired generating station located in southwest
ENTIRE AMP OUTPUT CONTRACTED: AMP's entire share of PSEC's output is purchased pursuant to take-or-pay power sales contracts with 68 municipally-owned electric systems. Participants' obligations consist of their respective shares of all project costs. Debt service is paid by the municipal systems as an operating expense.
SATISFACTORY PROJECT PARTICIPANTS: The participants' footprint covers four states consisting of a diverse group of municipalities. The six largest purchasers, which include the cities of
LOW FUEL SUPPLY RISK: The project is located adjacent to a 7 million ton per year underground coal mine mitigating fuel supply risk. Underground coal reserves are expected to meet project fuel needs for approximately 30 years.
STANDARD CONTRACT STEP-UP PROVISION: The power sales contract includes standard step-up provisions that require each participant to step up its purchase by 25% of its original allocation of the project output in the event that another participant defaults.
COMMERCIAL OPERATION ACHIEVED: The rating incorporates the successful completion of both Units 1 and 2 and their commercial operating status. Although initial operation results through 2013 fell below initial original estimates, PSEC's performance has since improved as the plant has moved beyond routine start-up issues.
CHANGE IN PARTICIPANT METRICS: The operating and financial metrics of the project participants will be a key factor in future rating actions.
AMP is a nonprofit wholesale power supplier and services provider that was organized in 1971 for the benefit of its members. As of
Fitch notes that AMP and its members have dramatically shifted from purchasers of market power to owners of generating assets. AMP's ability to oversee a number of existing and new power resources and monitor project participants' credit standing are important credit considerations.
PSEC is a mine-mouth, pulverized coal-fired generating station located in
The plant's location adjacent to a coal mine means that all associated rail, water, coal combustion waste storage and ancillary support are available on site. Underground coal reserves are expected to meet project fuel needs for approximately 30 years.
PSEC is now fully operational with Unit 1 commissioned in
Take-or-Pay Power Sales Contract
Each participant's obligation under the power sales contract (PSC) is on a take-or-pay basis, similar to most Fitch rated project based entities. The strength of a take-or-pay agreement lies in the participant's requirement to make payment regardless of the unit operation and as long as the bonds remain outstanding.
The contract features a standard step-up required by non-defaulting participants to purchase a pro-rata share of the defaulting participants' allocation. This provision typically serves to mitigate the default risk of the weakest and smallest participants or any exposure to the largest participant. In this case, default of the smallest 47 participants accounting for a combined 19% entitlement share is mitigated, while the default of the largest entitlement of 13.52%, held by
Small But Stable Project Participants
The PSEC 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 financial metrics for the 15 largest participants and believes that the credit quality of the participants supports the assigned rating. Debt service coverage, leverage (total debt/funds available for debt service), equity to capitalization, and liquidity (days cash on hand) 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 Peer Study' (
--'U.S. Public Power Rating Criteria' (
U.S. Public Power Peer Study --
U.S. Public Power Rating Criteria
Source: Fitch Ratings
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