DALLAS — The Oklahoma Municipal Power Authority is dedicating most of the proceeds from today’s negotiated sale of $145.1 million of revenue bonds to ensure it can provide power to its 35 member cities for many more decades.
OMPA will spend $257 million through 2010 to purchase a portion of large generating facilities now under construction in Oklahoma and Arkansas. It will use $116 million of the proceeds from the sale for the first phase of financing.
The authority will acquire 8% of the Red Rock Generating Facility, a 950-megawatt, coal-fired base load plant that will be built next to Oklahoma Gas & Electric Co.’s Sooner Generating Station at Noble County in north-central Oklahoma.
The plant will be built and operated by Public Service Co. of Oklahoma, which will hold a 50% share in the facility. OG&E will own 42% of the facility.
Total cost of Red Rock for OMPA will be $156 million, of which $71 million will be provided from today’s sale.
The bonds will also provide $45 million of the $101 million the authority will pay for a 6.667% share of the John W. Turk Jr. Power Plant, a 615-MW coal-fired plant being built in Hempstead County, Ark., by Southwestern Electric Power Co., a unit of AEP Inc.
Together, the facilities will provide OMPA and its member customers with up to 113 megawatts of electricity. Operations are expected to begin in 2011 at Turk and in 2012 at Red Rock.
Proceeds will also help finance a new $3.3 million headquarters building in the Oklahoma City suburb of Edmond, pay for renovations at a number of existing substations and new supervisory control software and computers, and reimburse the authority for previous capital improvement projects.
Stephanie Maile, manager of financial services, said OMPA expects to issue approximately $106 million of bonds in 2009 to complete the financing of its shares in the two coal-fired generating facilities.
Financial Guaranty Insurance Co. insures the bonds, which have unenhanced ratings of A2 from Moody’s Investors Service and A from Standard & Poor’s.
JPMorgan is the lead underwriter for the bonds. Co-managers include A.G. Edwards & Sons Inc., BOSC Inc., Lehman Brothers, and Merrill Lynch & Co.
With the 2007 bonds, OMPA will have about $530 million in total debt. The authority had $381 million of outstanding revenue bonds outstanding at the end of 2006.
The issue consists of $31.7 million of 30-year bonds that will reach final maturity in 2037 and $92.1 million of 40-year bonds with a final maturity of 2047.
OMPA provides wholesale power to 35 municipal power companies throughout Oklahoma. Its members serve a total of slightly more than 105,000 customers in a population of some 216,000.
Approximately 80% of the authority’s power supply is consumed by its top 10 customers. Its headquarters city of Edmond, with a population of more than 71,000, accounts for a third of OMPA’s total electrical requirements. Ponca City accounts for another 16%.
The typical member customer serves a small, rural community with approximately 1,200 customers and an average population of 2,243.
The need to serve small municipal utilities is the reason OMPA was established, Maile said, and the impetus behind the sale of the power supply system revenue bonds.
“OMPA was formed to provide an adequate, economical, and reliable source of electric power for its members,” she said. “All members benefit from OMPA’s joint-action approach. The participants enjoy the financial benefits of a large utility while obtaining control of their own wholesale electric utility. This allows for additional benefits for the locally owned and controlled electric system.”
Generating facilities must be large to be economical and efficient, Maile said, which means small municipal utilities cannot afford to build their own. Acquiring power on the open market is also expensive, she noted.
OMPA was established by the Oklahoma Legislature in June 1981 to accomplish economies of scale in the power supply market for small muni utilities, she said. Operations began in 1985.
The state wanted to keep public power viable and capable of providing electricity to rural users, according to Maile.
“OMPA was created because a single city could not afford to build a power plant alone,” she said. “Wholesale rates were also prohibitive, at times even higher than comparable retail, and future supplies of power were uncertain. By working together through a joint action agency, economies of scale could be achieved, and some common goals could be realized.”
Demand for power by OMPA utilities has increased by an average of 1.8% a year for the past 10 years, but remained relatively stable at 600 megawatts between 2001 and 2005. Demand in 2006 was up 8% to 664 megawatts said, due to weather conditions.
Estimated demand in 2007 is 627 megawatts.
“In a normal year, approximately 32% of OMPA’s energy comes from power purchase contracts versus assets we own,” Maile said.
The authority owns three separate generating units and holds a share ranging from 2.3% to 23%. Totaling generating capacity is 344 megawatts, with generation facilities owned by OMPA participants providing another 76 megawatts.
Coal-fired units provide about 64% of its capacity, with natural gas facilities accounting for 25%. The remaining capacity is provided by hydropower and wind power.
OMPA also has agreed to five long-term power purchase contracts of between 25 megawatts and 75 megawatts. One pact will expire at the end of 2013 but others extend through 2040.
Total capacity, including owned facilities, plants owned by member utilities, and long-term supply contracts, totals 732 megawatts.
OMPA’s broad based, low-cost power supply is one of its strengths, Maile said, along with a stable debt service coverage history that exceeds its bond resolution requirements.
“Such diversity results in minimal reliance on any one particular fuel type,” she said.
Total debt service coverage by net revenues averaged 1.38 times from fiscal 2002 to 2006, with coverage of 1.46 times for fiscal 2006.
OMPA faces challenges in its role as an energy supplier, Maile said, but nothing that cannot be overcome through proper planning.
“One challenge is the ability of OMPA to hire experienced and qualified employees to succeed an aging workforce in our industry,” she said. “Also, OMPA has very few of its own transmission assets, so securing transmission arrangements is a continuing concern. We envision capacity shortfalls post-2013 as we experience load growth and expiring power purchase contracts, but nothing that OMPA will not overcome through diligent long-term planning.”
