The CMEEC bonds are secured by a pledge of net transmission revenues (after payment of operating and maintenance expenses) received by CMEEC from take-or-pay transmission service contracts with its purchasers.
Strength of Members: The three largest participants of CMEEC, a wholesale energy supplier, exhibit solid credit characteristics and stable operating performance.
Strong Power and Transmission Sales Contracts: Power supply and transmission services are provided by CMEEC and TRANSCO pursuant to strong take-or-pay contracts that cover all of related fixed costs, including debt service.
Given the nature of the CMEEC obligation to TRANSCO, Fitch does not differentiate the ratings between the two joint action agencies.
TRANSCO, a legally separate and newly created agency, will own the transmission asset and CMEEC will be 100% offtaker, utilizing the transmission capacity to serve its retail load.
Additionally, CMEEC 's power purchases are heavily natural gas-fired based.
Given CMEEC's and its members' power supply strategy, which includes diversification of CMEEC's power supply mix (away from natural gas-fired) and the addition of renewable resources, CMEEC is also evaluating new base load generation projects which if developed will increase CMEEC's debt burden by an additional 100%.
It is important to note that CMEEC has had to post significant collateral ($22 million) for the first time on fuel hedging contracts (which expire 2010-2013) that are underperforming based on mark-to-market calculations.
CMEEC is a joint action agency in southern Connecticut, providing electric service to five member distribution systems and three wholesale customers, with a retail customer base of approximately 72,700 users (peak load of 425 MW).
CMEEC is very healthy from a financial perspective with relatively low leverage for a joint action agency, with debt per ultimate retail customer at less than $1000, considerably accelerated debt reduction of 44% since December 2002, and solid debt service coverage levels ranging from 1.
This strategy has worked well for CMEEC the past eight years due to its favorable transmission access to market power sales/purchases, electricity market inefficiencies, and a surplus of energy and capacity in New England.
In addition, CMEEC will need to replace in excess of 100MW in expiring base power supply contracts from 2007 to 2009.