OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to the following WPPI Energy (WPPI, or the agency) revenue bonds:

--$76,500,000 power supply system revenue bonds series 2016 A.

The bonds are expected to price during the week of April 4, 2016. Bond proceeds will be used to refund a portion of WPPI's series 2008A bonds.

In addition, Fitch affirms the 'A+' rating on the following outstanding WPPI bonds (including amounts to be refunded):

--$191.725 million power supply revenue bonds series 2008 A;
--$179.055 million power supply revenue bonds series 2013 A;
--$66.41 million power supply revenue bonds series 2014 A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the net revenues of WPPI. The agency's 51 member systems have entered into long-term power supply contracts with WPPI to purchase all of their power requirements.

KEY RATING DRIVERS

DIVERSE AND FLEXIBLE POWER SUPPLY: WPPI has a diversified mix of generation resources, purchased power contracts, and fuel sources. New owned and purchased resources are positioning WPPI to reduce its reliance on more expensive long-term purchase power agreements (PPAs), lower carbon emissions and provide more cost-effective energy prices to its members.

COMPETITIVE ELECTRIC RATES: WPPI's wholesale power costs and the members' electric rates are competitive for the region. The use of a 30-day purchase power adjustment clause at the member level provides timely pass-through of power costs to customers and mitigates concerns regarding Public Service Commission (PSCW) oversight of the Wisconsin members.

IMPROVED LIQUIDITY: WPPI completed replenishment of its rate stabilization fund (RSF) in 2015, which was drawn down by $7.4 million in 2011 and 2012 to offset higher operating costs. Cash on hand improved to $109 million (90 days) at year end 2015, including the $43 million RSF.

STABLE FINANCIAL PERFORMANCE: Fitch-calculated debt service coverage (excluding use of the RSF and capitalized interest) was lower in fiscal 2015 at 1.40, but remains appropriate for the current rating. Implemented and planned wholesale rate increases are expected to support coverage of 1.25x through 2017, despite rising debt service.

HIGH PERCENTAGE OF INDUSTRIAL SALES: Although most of WPPI's customers fall into the residential class, a large amount of its sales and revenues come from large industrial users, many of which operate in the more cyclical paper products industries.

RATING SENSITIVITIES

LOSS OF MAJOR LOADS AND REVENUES: A sharp retrenchment of the economy that has a negative effect on major industrial customers and employment levels, and results in rate pressures that weaken the financial results of WPPI Energy and its members could trigger negative rating action.

CREDIT PROFILE

SERVICE TERRITORY

WPPI provides wholesale electric service to 50 member utilities and one nonmember utility, the majority of which are located throughout Wisconsin. The remaining members are in upper Michigan and northeastern Iowa. Close to 200,000 homes and businesses are served, with an estimated population of around 345,000.

Each of the utilities has entered into a long-term power supply contract that requires WPPI to supply all of the members' power requirements. Recent modifications to the long-term contracts executed by 49 of WPPI's 51 members have resulted in terms expiring Dec. 31, 2055 instead of Dec. 31, 2037. The members with long-term contracts expiring Dec. 31, 2055 represent approximately 98% of the agency's total load requirements.

Sales to large industrial users, including the economically sensitive paper industry, are substantial. However, the underlying products are somewhat diversified, varying from tissue paper to coated paper, and WPPI reports that energy use by its largest customers remains stable.

EXPANDED POWER SUPPLY PORTFOLIO

WPPI supplies the power requirements of its participating members through a portfolio of owned generating assets and PPAs, which are well diversified in terms of fuel mix, counterparties and operator risk. The agency has also worked aggressively to reduce the emissions profile of WPPI's power supply portfolio, primarily through the addition of several wind capacity purchase agreements and an agreement to purchase capacity and energy from the Point Beach nuclear plant. There is no current need for additional baseload resources through the foreseeable future.

MANAGEABLE MEMBER LEVEL REGULATION

Retail rates of state municipal utilities are regulated by the Public Service Commission of Wisconsin (PSCW) under Wisconsin law. In mitigation, each of WPPI's 41 Wisconsin based members utilize a purchased power adjustment clause, automatically permitting a true-up in wholesale power costs from WPPI each 30 days without seeking prior approval from the PSCW. Moreover, PSCW oversight of WPPI's Wisconsin members focuses on the distribution component of base rates and does not extend to jurisdiction over wholesale costs. Fitch notes that the members' regulatory relationship with PSCW, on balance, has been amicable with individual distribution rate requests typically processed by the PSCW within 12 months.

ENVIRONMENTAL PROJECT COMPLETE

Construction was completed during 2015 on a major environmental retrofit project at the Boswell 4 coal generating unit designed to ensure compliance with the Mercury and Air Toxics Standard and other federal regulations. Positively, WPPI's estimated portion of project costs is well below the originally estimated cost of $84.2 million. WPPI previously funded its share of the estimated costs plans with proceeds of the Series 2013A bonds.

STABLE FINANCIAL PROFLE

WPPI's financial performance has stabilized in recent years following a period of variability in 2009 and 2010, when coverage ratios fell below target levels (1.20x - 1.25x) due to the recessionary impact on industrial load, higher costs for new projects and lower off-system sales. Financial results for the year ended Dec. 31, 2015, were weaker than in 2013 and 2014, but in line with WPPI's budgeted projections. Fitch-calculated debt service coverage, which excludes transfers to/from the RSF and capitalized interest, was 1.40x. Board-approved wholesale rates for 2016 are expected to yield net revenues of 1.29x debt service -- with no use of the RSF -- a level that is commensurate with WPPI's current rating given the agency's operating stability.

Increased focus on liquidity, including the replenishment of its $43 million RSF, has resulted in gradually improving metrics for cash and total liquidity on hand. At year-end 2015, cash on hand had improved to 90 days and total liquidity to 119 days - both metrics in line with comparable wholesale systems rated in the 'A' category and the agency's adopted range of 97-117 days.

WPPI's total debt burden remains reasonable at $476 million and overall leverage, as measured by total debt/FADS, has continued to decline to 9.7x from 10.9x in 2013. All of WPPI's outstanding debt is conservatively fixed rate and the agency is not party to any derivative contracts or direct placement agreements. Scheduled annual debt service is projected to rise from approximately $39.3 million to $44.2 million by 2017, but gradually decline thereafter to approximately $32 million in 2021. Leverage should continue decline over the near term along with the amortization of existing debt as WPPI currently has no plans for additional debt.