The members are obligated pursuant to take-or-pay power sales agreements, to pay NIMPA
for all its power supply costs, including debt service on the PSEC related bonds, whether the project is operating or not.
COMPROMISED PSEC OPERATIONS: With members' reliance on PSEC for the majority of their power supply and NIMPA's high (PSEC-related) debt burden, failure of the project to adequately operate could result in negative rating pressure for NIMPA.
It is also the first year principal on NIMPA debt comes due (only capitalized interest through 2012).
While Fitch recognizes that Batavia's debt burden after including its share of NIMPA
debt is somewhat high relative to other similar systems in the 'A-' rating category, the credit concern is partially mitigated by a competitive retail rate position and a relatively affluent service territory thereby giving the utility more financial flexibility.
The original target price Engineering Procurement and Construction (EPC) contract was replaced with a guaranteed fixed-price contract thereby substantially reducing cost escalation risk to NIMPA but increasing the project cost by nearly $1 billion.
While PSEC exposes NIMPA to single-project risk, Fitch believes it is partially mitigated by the availability of cheaper replacement energy at the member's load location.
Fitch notes that although NIMPA is a relatively new organization, it benefits from the solid management team at Indiana Municipal Power Agency (IMPA; rated 'A+' with a Stable Outlook by Fitch) through its management service agreement with IMPA.
related to further increase in leverage at the member or NIMPA level, or a deferral of the proposed rate adjustments) may result in downward pressure on the rating or Outlook.
Strong project economics, with transmission inter-tie to regional transmission operators, Midwest Independent Transmission Operators (MISO) and PJM, as well as a mine-mouth coal supply that will produce competitive and stable wholesale power for NIMPA members;
NIMPA is a joint action agency created in May 2004 for the purpose of effecting the joint development of electric energy resources for NIMPA's three Illinois member cities, Batavia, Geneva, and Rochelle.
NIMPA's rating takes into account various credit factors including: Fitch's assessment of the plant developer (PSGC; a subsidiary of Peabody), the units' projected cost of power (including fixed and variable costs), NIMPA member system composition, the strength of the members' power purchase agreements with NIMPA, and the construction risk associated with the development of this traditional coal-fired facility and coal mine.
Over the next few years, should the project development substantially proceed on-time and within budget, the project's cost of power maintain its competitive position, and the members maintain their solid financial strength, NIMPA and Batavia's credit ratings are poised for possible positive rating action by Fitch.