DALLAS -- Ohio-based American Municipal Power Inc. says it has resolved a Securities and Exchange Commission probe triggered by the troubles of the coal-fired Prairie State Energy project in Illinois.
The resolution was disclosed in an offering statement for the refunding of up to $67 million of debt tied to the project.
Proceeds will refund debt sold in 2008 and 2009 to finance AMP’s share in the campus. The bonds are scheduled to price Wednesday. The refunding will lower debt service requirements over the next five years to better position the project cost structure in relation to participant billings.
The project raised eyebrows over cost increases that drove up bills for ratepayers of the public utilities that contracted to accept electricity from Prairie State.
AMP reported in its offering statement that the SEC probe ended earlier this year. “AMP fully cooperated with the SEC’s investigation,” according to the statement. “On Feb. 9. 2017, SEC staff notified AMP that the investigation as to AMP had been completed and that staff did not intend to recommend and enforcement action against AMP.”
AMP also reported in the offering statement that there’s no material litigation pending regarding the enforceability of the power sales contracts securing the bonds.
The senior manager on the refunding deal is Citi and Ramirez and Co. is the financial advisor.
The bonds are secured by the take-or-pay power sales agreements with 68 AMP members. AMP has a 23.26% ownership interest – the largest stake -- in the 628 mega-watt coal-fired generation facility that includes an adjacent mine that supplies the coal.
Eight other utilities including five other municipal joint action agencies are owners of Prairie State and the several billion of debt issued for the project is separately secured from AMP’s revenue bonds.
The Prairie State project sparked controversy for years, starting with cost overruns of nearly 25% that boosted the final price tag to nearly $5 billion, driving up customer rates. The overruns led to lawsuits from some of the local municipal utilities that agreed to contracts with their joint power agencies that are ownership participants and some have sought to shed their contract.
The SEC
While the rates are higher than projected, most of AMP’s Prairie State participants have averaged retail rates lower than the region's investor-owned utilities.
“PSEC's all-in cost of power is slightly lower than AMP's all-in power costs across its entire portfolio; we expect relative improvement as power costs increase for the other projects,” according to S&P Global Ratings. “As a mine-mouth coal unit, variable costs are fairly stable, and so we do not anticipate the cost of power from the PSEC project to increase over the next five years.”
The Institute for Energy Economics and Financial Analysis, an environmental group that promotes renewable sources of energy, said that even after the refinancing of Prairie State bonds, the cities and towns throughout the Midwest that signed contracts to purchase power from the Prairie State plant are paying almost twice the price for power sold on the energy markets.
“Some are finding themselves in a position where they are using up reserves or can't provide money from the electric funds to support their general revenue funds," executive director of the IEFFA Sandy Buchanan said. "For example, IEEFA found that in 2016 the city of Galion, Ohio paid $2.3 million more for power from Prairie State than it would have paid had it purchased power through the wholesale market. Even with a series of bond refinances and other measures aimed at mitigating the city's participation in the plant, the Galion Electric Fund has used up a sizeable portion of its reserves, and is now considering whether it needs to raise electric rates.”
Moody’s affirmed its A1 ratingson the Prairie State bonds and S&P affirmed its A ratings The outlook for both agencies is stable.
“The value of Prairie State as a long term asset remains favorable as a source of long-term stable electrical base load capacity for the participants,” Moody’s wrote.
Moody’s said that the biggest credit risk could be regulation in the future that would reduce output of coal-fired generating units. However the proposed EPA revision of the Clean Power Plan by President Donald Trump’s administration reduces an immediate regulatory risk for Prairie State.
“Prairie State has demonstrated its economic value through its strong capacity factor,” said Moody’s analyst Dan Aschenbach. “We view carbon regulation as a longer-term risk for Prairie State, particularly since we don't expect Illinois to step up its regulation on carbon.”
While the plant was touted for its state-of-the-art pollution controls, environmental groups fought the project warning that it would still be a major producer of greenhouse gases.
With the refunding bonds, AMP’s outstanding debt tied to the project will total $1.5 billion. Prairie State Energy Campus Management Inc., the management group responsible for operating the Prairie State facility, has a preliminary capital improvement plan that calls for investing $150 million in improvements over the next 5 years. AMP's share of the CIP is $34 million but Moody’s said it does not anticipate and additional debt to be issued for the improvements.
