Fitch Rates Florida Municipal Power Agency's ARP Ref Rev Bonds 'A '; Outlook Stable
--Approximately \\$425,000,000 All-Requirements Power Supply Project refunding revenue bonds series 2016A.
The bonds are scheduled to price via negotiation February 17. The series 2016A bonds will refund certain maturities of outstanding parity bonds (series 2009A and 2008A) for interest cost savingsand pay financing costs.
In addition, Fitch affirms the 'A+' rating on the following outstanding bonds:
--Approximately \\$997,790,000 All-Requirements Power Supply Project Revenue Bonds.
The Rating Outlook is Stable.
Outstanding bonds under the All-Requirements Project (ARP) are secured by participant payments made pursuant to full requirements power supply agreements.
KEY RATING DRIVERS
WHOLESALE ELECTRIC PROVIDER: FMPA is a mature project-based joint action agency providing both all- and partial-requirements projects to its 31 retail electric utility members dispersed throughout Florida.
OBLIGATIONS UNDER THE ARP: Participants in the ARP are bound to the project by power supply contracts subject to onerous provisions that make early termination cost-prohibitive and therefore highly unlikely. Absent notification by the participants at least one-year in advance, the contracts automatically extend each year for one additional year, continuing the duration of the contracts for at least 30 years.
RATE FLEXIBILITY: Both FMPA and its project participants maintain the ability to make timely rate adjustments to recover variable fuel and other operating costs. Importantly, rate adjustments are not regulated by the State's Public Service Commission.
SATISFACTORY FINANCIAL METRICS: Financial metrics are typical of a wholesale system with annual debt service coverage approximating 1.10x and days liquidity, which includes multiple lines of credit, continuing at closer to 200 days.
CHANGES IN PARTICIPANT CREDIT QUALITY: The credit quality of the participants in Florida Municipal Power Agency's All-Requirements Power Supply Project will continue to be an important consideration in future rating actions.
MAINTENANCE OF ADEQUATE LIQUIDITY: Continuation of current liquidity levels remains essential given the considerable exposure to variable-rate debt obligations and related bullet maturities associated with the All Requirements Project debt.
LARGE WHOLESALE POWER PROVIDER
FMPA is a project-based joint-action agency formed in 1978 to provide its members with a reliable and competitively priced power supply and related services. FMPA's 31 members are municipally owned electric utility systems serving an estimated two million residents located throughout Florida on a combined basis.
FMPA's ARP meets substantially all of the wholesale power requirements, as well as scheduling, transmission, and associated services, of its active participants. The project's portfolio of owned generating assets and purchased power resources is sufficiently diversified by fuel mix, asset concentration, counterparties and operator.
MEMBER CREDIT QUAILITY REMAINS SOUND
The six largest participants in the ARP composed nearly 92% of the project's non-coincident peak load of 1,300 MW in fiscal 2015. The three largest utilities, Kissimmee Utility Authority, and the cities of Ocala and Jacksonville Beach, FL are each rated 'AA-'/Stable by Fitch. Two of the remaining three participating utilities - Ft. Pierce Utilities Authority and the city of Leesburg, FL - are rated 'A+'/Stable. Accordingly, the strength of these participants provides comfort at the 'A+' rating level for the project, which has 13 active participants in total.
Project participants serve largely residential end-users with no meaningful customer base concentration. The member systems are generally small to moderately-sized and are geographically dispersed throughout central and eastern Florida. Proximity to the Jacksonville and Orlando metro areas generally support the economies of many of the member cities. Service area characteristics are believed to be generally sound, although somewhat varied.
Capacity is weighted toward natural gas-fired (approximately 80%) generating units with coal-fired units making up the balance. Project-owned generating resources include assets that are solely or jointly owned by the project. The project also purchases capacity and energy owned by two of its participants (the Utility Board of the City of Key West and Kissimmee Utilities Authority) pursuant to capacity and energy sales contracts that obligate FMPA to make fixed capacity payments to the participants. Power purchases directly from Southern Company provide the balance of needed resources.
COMPETITIVE WHOLESALE RATES
The project's cost of power has remained fairly competitive in recent years, allowing a number of the members to maintain retail rates that rank among the lowest in the state. The cost of power declined by approximately 19% in fiscal 2015 (\\$74.6/MWh) compared to the prior year due to the project's reliance on natural gas-fired generation and the continuation of low natural gas prices. Modest capital needs, a lack of additional borrowing plans, and Fitch's expectation that natural gas prices will remain low by historical standards should keep the project's wholesale rate relatively stable over the medium term.
SATISFACTORY FINANCIAL RESULTS
FMPA reports separate audited financial results for each of its five power projects. Annual debt service coverage for the ARP has remained relatively consistent, averaging nearly 1.10x over the prior five fiscal years. Available cash and investments provided a solid 87 days cash on hand at the close of fiscal 2015.
SOMEWHAT AGGRESSIVE DEBT PROFILE
As of fiscal year-end 2015, approximately 73% of the ARP's \\$1.1 billion of outstanding long-term debt was fixed-rate. The balance was issued as variable-rate debt synthetically fixed through interest rate swaps with a diverse mix of counterparties.
Amortization is fairly level, notwithstanding a sizeable one-year spike in principal associated with outstanding series 2011A-1&2 and 2011B bonds that occurs in 2019. Management has stated that FMPA expects refinance the series 2011 bonds to produce a more level, albeit longer, pay-out schedule.