Utah power agency sets final bond issue for cleaner fuel transition

Utah's Intermountain Power Agency (IPA) will wrap up financing for its transition to cleaner fuels with a $114.6 million power supply revenue bond sale next week. 

The deal comes after state lawmakers in June amended a 2024 law to keep Utah's largest coal-fired power plant in operation to address IPA's concerns it would put nearly $2 billion of bonds it issued in 2022 and 2023 in jeopardy.

Bloomberg News

"IPA continues to cooperate with the Utah Legislature as it seeks options to preserve the (Intermountain Power Project) coal units and appreciates the legislature's efforts to amend past legislation to ensure that it would not interfere with completion of the IPP Renewed project," IPA General Manager Cameron Cowan said in an email. "Legislators continue to indicate that they have no intention to interfere with IPP Renewed's completion."

The law allowed the state to explore ways to allow IPA's coal-fired power plant near Delta, Utah, to operate beyond its planned July 2025 shutdown. 

Fitch Ratings, which rated the upcoming IPA bonds AA-minus with a stable outlook, said amendments made during a special legislative session removed restrictive deadlines.

"Fitch does not expect the potential revision to the planned coal unit decommissioning to create additional costs for the renewal project purchasers or derail the natural gas project renewal operations, which has continued state support," the rating agency said in a report. "Hurdles to keeping the coal units in operation are significant and include a new air permit, water rights, and transmission to deliver energy to customers willing to purchase coal-fired power, in addition to capital reinvestment in the older generation units."

Moody's Ratings gave the bonds an Aa3 rating with a stable outlook. Both agencies said their rating reflects the relationship IPA has with its biggest power purchaser — the Los Angeles Department of Water and Power, the nation's largest municipal utility, which is also its operating agent and project manager. 

The transition to cleaner fuels will allow IPA's California power purchasers to meet their state and local renewable and clean energy targets and requirements.

IPA sold $797.6 million of tax-exempt and taxable revenue bonds in 2022 to begin financing its transition from a coal-fired plant to more environmentally friendly electricity generation using natural gas and hydrogen. Another $835 million of bonds were sold in 2023.

Cowan said while IPA doesn't anticipate additional debt for the transition project beyond the upcoming issue, "circumstances may arise that changes that."

The deal's $105.5 million of tax-exempt bonds are structured with serial maturities from 2026 through 2045, according to the preliminary official statement. Taxable bonds totaling $9.11 million have serial maturities from 2026 through 2034 and a term bond due in 2045.

Goldman Sachs and RBC Capital Markets are the bonds' underwriters. Orrick, Herrington & Sutcliffe is the bond counsel and Stifel, Nicolaus & Co is the municipal advisor. 

IPA, a state of Utah political subdivision organized in 1977, has 23 Utah municipalities as members.