Fitch Ratings has affirmed the 'AA-' rating on approximately $59.7 million Project 2015A Issue, Series 2021A revenue bonds issued by the Massachusetts Municipal Wholesale Electric Company.
“The Fitch AA- rating speaks to the strength of MMWEC’s legislative authority to apply ‘Take or Pay’ language and to the financial diligence of the municipal light departments’ governing bodies,” said Ronald DeCurzio, CEO and Secretary of MMWEC.
MMWEC is a not-for-profit, public corporation and political subdivision of the Commonwealth of Massachusetts created by an Act of the General Court in 1975 and authorized to issue tax-exempt debt to finance a wide range of energy facilities. MMWEC provides a variety of power supply, financial, risk management and other services to the state’s consumer-owned, municipal utilities.
It is the largest provider of asset-owned generation for municipal light departments in New England.
The 'AA-' rating reflects the credit quality of the project participants, particularly the credit quality of the largest purchaser, Peabody Municipal Light Plant, Fitch said.
The project, also known as the Northeast Reliability Center, is a 60-MW dual-fueled peaking generation plant that began commercial operation on June 29, 2024 after some delay related to cable installation and commissioning.
The initial commercial operation date was set for June 2023. However, there was no adverse impact on the cost of the project as a result of the delay. The Northeast Reliability Center is currently operating in line with expectations, Fitch said.
Payments from the project participants are made pursuant to identical take-or-pay power sales agreements with MMWEC that are absolute and unconditional, irrespective of whether the project is completed or operable, Fitch said.
The bonds are special limited obligations of MMWEC payable solely from revenue to be received by MMWEC from the 14 project participants pursuant to their respective take-or-pay PSAs.
Among the key rating drivers is revenue defensibility (“aa”), Fitch said.
“The very strong revenue defensibility assessment reflects the project's purchaser credit quality (PCQ) assessment, which is determined by Fitch's evaluation of the aggregate credit quality of the largest project participants using Fitch's portfolio stress model (PSM),” Fitch said.
Fitch's PCQ is capped by the credit quality of PMLP, the largest purchaser, that accounts for 32.5% of the project. The assessment also factors in the terms of the PSAs that provide for unconditional payments from the participating utilities to MMWEC but only provide for a limited reallocation of cost through the 25% step-up provision.
Rate flexibility is also assessed as very strong. MMWEC has the authority to establish charges under the PSAs, which are not subject to the approval of the Massachusetts Department of Public Utilities or any external party, Fitch noted.
Rates charged by each of the project participants are determined by each utility's governing board and are not subject to approval of the MDPU or any other external party.
The PCQ assessment reflects the very strong financial profiles exhibited by the project's largest participants, including PMLP.
“PMLP's financial profile factors its very strong service area, with solid income and unemployment metrics, and modest customer growth, as well as average retail rates that are well below the state average. PMLP's low operating risk benefits from a very low operating cost burden and a diverse resource portfolio that includes participation in various MMWEC projects and two owned generating assets,” the rating agency said.
Fitch-calculated leverage at PMLP is very low and has ranged between 5.5x and 7.8x during 2019-2023.
