The settlement of a federal lawsuit over an agreement to buy power from nuclear reactors under construction at Plant Vogtle in Georgia earned three bond issuers rating upgrades from Moody's Investors Service.
Georgia's MEAG Power, the city of Jacksonville, Florida, and its utility, JEA, have received two-notch rating boosts since the Aug. 13
JEA and Jacksonville had challenged the legality of a power purchase agreement JEA had with MEAG to buy power from the two reactors, one of which is expected to begin operating in November 2021 and the other to start up November 2022.
U.S. District Judge Mark H. Cohen terminated the suit Aug. 13 after the settlement was reached and a term sheet was posted in the case.
"The settlement eliminates the near-term uncertainty over JEA's willingness to abide by the PPA’s unconditional take-or-pay contractual terms with MEAG," Moody's analyst Valentina Gomez said in a comment Thursday.
Jacksonville's issuer rating was raised two notches to Aa3 from A2 on Sept. 28. Moody's also upgraded the city's non-ad valorem rating to A1 from A3; the city's transportation and capital improvement bond ratings to A1 from A2; and the Better Jacksonville sales tax bond rating to Aa3 from A2.
Gomez said the higher ratings also reflect the city’s large, diverse and growing tax base, ample reserves, and elevated fixed-cost burden. All bonds have a stable outlook.
On Sept. 28, JEA's water and sewer senior and subordinate lien revenue bonds also received a two-notch rating upgrade to Aa3 from A2. The rating had been downgraded to A2 in concert with downgrading the city's issuer rating to A2 due to the litigation with MEAG.
Moody's also elevated JEA's energy system revenue bond rating to A1 from A3, and revised the outlook to stable from positive.
MEAG has issued $2.5 billion of debt to pay for part of its cost of the new reactors. JEA pays the debt service as part of its 20-year power purchase agreement.
After Cohen ruled that the PPA was valid on June 17, Moody's affirmed its Baa3 rating and changed the outlook to positive from negative on June 30.
Moody's upgraded the MEAG rating to Baa2 from Baa3 on Aug. 10. It was raised a second time to Baa1 from Baa2, with a positive outlook, on Sept. 11.
Jennifer Chang, the analyst for MEAG's credit rating, said the legal settlement resolved all disputed issues relating to the new reactors being built at Plant Vogtle.
In the settlement, JEA agreed to increase the amount it will pay MEAG by 75 cents per purchased megawatt-hour of electricity on rates that had been established in the PPA after the two reactors begin operating.
Chang said the additional compensation to be paid by JEA amounts to about $1.2 million per year. While the extra money is not pledged to the bonds "it provides some modest additional liquidity to MEAG Power and its members."
The positive outlook on MEAG's rating considers the PPA, which is the sole source of payment for the bonds over the first 20 years, and the expectation that progress will be made to meet the 2021 and 2022 in-service dates for the new reactors, said Chang.
