Moody's boosts Western Minnesota Municipal Power Agency bond rating
Moody’s boosts Western Minnesota Municipal Power Agency bond rating
SIOUX FALLS, S.D. – Moody’s Investors Service announced April 4 that it had upgraded the ratings of the outstanding bonds of the Western Minnesota Municipal Power Agency (WMMPA) to Aa3 from A1. Moody’s rating outlook for WMMPA is stable. WMMPA currently has about $264 million in outstanding Power Supply Revenue Bonds.
WMMPA is the sole provider of financing for power supply and transmission resources used by Missouri River Energy Services (MRES) to serve its members. MRES has contracts with WMMPA entitling it to the output of WMMPA-owned power supply and transmission facilities. The contracts also require MRES to repay the WMMPA debt related to those facilities.
“Moody’s only rates about 10 percent of the joint action agencies in the country in the double A category and none of these joint action agencies is located in the Midwest,” said MRES Finance Director and CFO Merlin Sawyer. “We are pleased that Moody’s has increased our rating to be in such an exclusive group.”
Moody’s said the upgraded rating “reflects our fundamental view of the consolidated credit quality of MRES, which is the ultimate source of repayment for the bonds.” Among the most notable factors in Moody’s upgrade were the sound financial policies of MRES, which have resulted in ample liquidity and strong debt service coverage; the low cost of power for MRES members; the diversity and overall credit quality of MRES member utility systems, which are the source of revenues pledged to service the bonds; and efforts by MRES to ensure future capacity and improve resource diversity.
Specifically, Moody’s pointed to the significant cash reserves maintained by MRES/WMMPA as well as the ability to quickly adjust wholesale electric rates charged to members when necessary. “The healthy level of liquidity significantly enhances financial flexibility and constitutes a significant credit strength that will continue to be key to maintaining the rating going forward,” Moody’s report said.
“The combination of inexpensive Western Area Power Administration (WAPA) hydroelectric power and the coal-fired power at LRS results in a low average blended power supply rate,” the Moody’s report said. “For 2012, the blended power cost to the members is estimated at about 4.9 cents per kilowatt-hour, which includes the cost of transmission. The cost for generation alone is estimated at about 4 cents per kilowatt-hour. This is significantly below the estimated cost for other providers in the region. Recent 30-year extensions of the WAPA contracts assure this advantage will continue.”
In addition, Moody’s took into account the efforts of MRES to diversify its power generating portfolio including the recent addition of a long-term power purchase agreement for 33 megawatts of nuclear power and its plans to develop a 36-megawatt hydroelectricity facility at the Red Rock Dam in Iowa.
Moody’s also noted that MRES is purposely working to reduce its debt ratio, which is effectively below 70 percent according to Moody’s calculations. That is already low in comparison to other U.S. joint-action agencies, and the long-term goal of MRES/WMMPA is to continue to reduce the ratio.
“The upgrade will reduce the interest cost on future debt issuances and lower the cost of delivering power to our members in the future,” Sawyer said. “Western Minnesota’s bonds have had a AA- rating from Fitch Ratings for several years. So now both entities that rate Western Minnesota’s bonds have assigned a rating in the ‘double A’ category, making Western Minnesota’s bonds even more attractive to investors.”
For more information, contact MRES Director of Member and Public Relations Bill Radio at 605-338-4042 or e-mail: firstname.lastname@example.org.