Fitch Upgrades Ratings for Keys Energy Services to ‘AA-‘
April 24, 2023
by Paul Ciampoli
APPA News Director
April 24, 2023
Fitch Ratings on April 12 upgraded revenue bonds for Florida public power utility Keys Energy Services to AA-.
Specifically, the rating agency upgraded approximately $76 million in outstanding electric system revenue bonds, series 2019 and series 2014 to ‘AA-‘ from ‘A+’ and the Issuer Default Rating (IDR) to ‘AA-‘ from ‘A+’.
The bonds and IDR have been assigned a Stable Rating Outlook.
Keys Energy Services is the public power utility for the Lower Florida Keys. Headquartered in Key West, Florida, it provides electricity from Key West to the Seven-Mile Bridge and serves more than 30,000 customers.
Keys Energy Services’ rating upgrade to ‘AA-‘ from ‘A+’ “reflects the utility’s very strong and improved financial performance, evidenced by consistently strong operating margins, strong liquidity position, and lower leverage, since 2017,” Fitch said.
Over the past five years, net adjusted debt to adjusted funds available for debt service has declined from approximately 6x to approximately 4.6x, as the utility “has demonstrated significant resilience in demand and financial performance following disruptions from Hurricane Irma in late 2017, impact of the coronavirus pandemic in 2020, and inflationary pressures felt in 2022.”
The rating also considers “the system’s strong revenue defensibility underpinned by the highly monopolistic nature of its revenue source, independent legal ability to raise rates, and favorable demographic trends within its service area,” Fitch said.
The utility’s strong operating risk profile is based on the system’s access to a diverse resource base as an all-requirements member of the Florida Municipal Power Agency and a low operating cost burden, and also factors the system’s isolated geographic location and related risks, Fitch said.
TVA Prices $1 Billion of New Five-Year Global Power Bonds
March 31, 2023
by Paul Ciampoli
APPA News Director
March 31, 2023
The Tennessee Valley Authority priced $1 billion of new five-year maturity global power bonds on March 27, with an interest rate of 3.875%. This is TVA’s first bond offering with a five-year maturity since 2020.
TVA said the bonds attracted interest from a wide variety of domestic and global institutions, including official institutions, state and local governments, pension funds, money managers and insurance companies. Barclays Capital, BofA Securities, Morgan Stanley & Co, and RBC Capital Markets served as joint book-running managers for the transaction.
The new bonds will mature on March 15, 2028, and are not subject to redemption prior to maturity. Interest will be paid semi-annually each March 15 and September 15. Application has been made to list the bonds on the New York Stock Exchange.
TVA plans to use the proceeds to pay down other debt and for general corporate purposes. The transaction will not, in and of itself, materially change TVA’s debt balance, which remains at the lowest level in 30 years. TVA’s business plan calls for debt to increase in fiscal year 2023, and in the coming years, as TVA continues to invest in its power system.
Calif. Community Choice Aggregator Taps Green Bond to Lower Costs of Renewable Energy Procurement
March 13, 2023
by Paul Ciampoli
APPA News Director
March 13, 2023
California’s community choice aggregator Clean Power Alliance has arranged for the issuance of a municipal non-recourse Clean Energy Project Revenue Bond through the California Community Choice Financing Authority.
The nearly $1 billion bond issuance is expected to reduce CPA’s renewable energy costs by approximately $66.7 million over the initial eight-year period of the bonds, or an average of $8.3 million annually.
Energy prepayment bonds are long-term financial transactions available to municipal agencies like CPA to provide power procurement cost savings.
The savings from this prepay transaction are locked in until 2031, when the bond will be repriced. The bond received an investment-grade Baa1 rating by Moody’s and received a ‘Green Bonds’ designation by Kestrel Verifiers.
“This prepay structure has historically been utilized for natural gas procurements and as part of the clean energy transition it is exciting to see it now being used for renewable energy procurements,” said Susan Santangelo, Chair of CPA’s Finance Committee and Mayor of the City of Camarillo. “As a public agency, we utilize our tax-exempt status to reduce our power procurement costs and can pass these appreciable savings along to our many Southern California customers.”
A Clean Energy Project Revenue Bond is a form of wholesale electricity prepayment that requires three key parties: a tax-exempt public electricity retailer (CPA in this transaction), a taxable energy supplier (J Aron & Company, LLC in this transaction), and a municipal bond issuer (CCCFA in this transaction).
The three parties then enter into long-term power supply agreements for zero-emission clean electricity sources such as solar, wind, geothermal, and hydropower. The municipal bond issuer issues tax-exempt bonds (underwritten by Goldman Sachs in this transaction) to fund a prepayment of energy that will be delivered over 30 years.
The energy supplier utilizes the bond proceeds and provides a discount to the tax-exempt public electricity retailer in exchange for the prepayment on the respective power purchases. This discount is historically in the range of 8 to 12 percent.
CPA has assigned three power purchase agreements to this prepay transaction, two solar-plus-storage projects, and one geothermal project. The bond will be utilized to prepay the purchase of 503 megawatts of clean electricity.
The demand for the bond was more than one-and-half times the available supply, reflecting strong institutional investor interest in this issuance. The bond proceeds were $998,780,000 and the bonds yield an average of 4.60 percent.
Founded in 2017, Clean Power Alliance is the locally operated not-for-profit electricity provider for 30 cities across Los Angeles County and Ventura County, as well as the unincorporated areas of both counties.
Rep. Mike Thompson Receives APPA’s Public Service Award
March 1, 2023
by Paul Ciampoli
APPA News Director
March 1, 2023
Rep. Mike Thompson (D-CA) on March 1 received the American Public Power Association’s Public Service Award at APPA’s Legislative Rally in Washington, D.C.
Thompson was honored by APPA for exceptional leadership on numerous issues of importance to public power — particularly his vital role on the House Ways and Means Committee helping public power utilities obtain direct pay credits to develop cleaner energy resources.
Thompson has long cared about local governments, APPA said. For example, in 2017 he joined 122 Democratic and Republican colleagues writing in support of tax-exempt financing when the threat from tax reform loomed large. And in 2019, he was in the lead when the routine task of extending expiring tax provisions became a broader discussion of extending, expanding, and improving a host of energy tax credits.
As a result of his leadership, the Renewable Energy Extension Act of 2019 evolved into the Growing Renewable Energy and Efficiency Now Act of 2020, which included a refundable, direct payment tax credit available to all utilities, including public power, APPA said.
This provision was repeated in the 2021 version of the bill, which Thompson shepherded into the Build Back Better Act of 2021, and, eventually, the Inflation Reduction Act of 2022, which was signed into law on August 16, 2022.
“Representative Thompson’s leadership on the direct pay issue has been absolutely critical,” said APPA Senior Vice President of Advocacy and Communications & General Counsel Desmarie Waterhouse. “The direct pay incentives that became law in the Inflation Reduction Act are truly game-changing for our industry. We are incredibly grateful to Representative Thompson for his role in pushing our industry forward while creating jobs and growing the economy.”
Greenville Electric Utility System Recognized for Excellence in Financial Reporting
February 23, 2023
by Paul Ciampoli
APPA News Director
February 23, 2023
The Government Finance Officers Association of the United States and Canada has awarded the Certificate of Achievement for Excellence in Financial Reporting to Texas public power utility Greenville Electric Utility System for its annual comprehensive financial report for the fiscal year ended September 30, 2021.
The report has been judged by an impartial panel to meet the high standards of the program, which includes demonstrating a constructive “spirit of full disclosure” to clearly communicate its financial story and motivate potential users and user groups to read the report.
The Certificate of Achievement is the highest form of recognition in the area of governmental accounting and financial reporting, and its attainment represents a significant accomplishment by a government and its management, GEUS said.
Federal Appeals Court Affirms Sequestration Decision Against Public Power
February 23, 2023
by Paul Ciampoli
APPA News Director
February 23, 2023
The U.S. Court of Appeals for the Federal Circuit recently affirmed a July 2021 decision by the U.S. Court of Federal Claims blocking public power utilities from recovering direct payment bond refunds cut by sequestration.
“Having considered all of Appellants’ arguments, we find no basis to overturn the decision,” the Appeals Court found in its decision. The American Public Power Association expressed disappointment with the decision.
Based on Office of Management and Budget reports, APPA estimates that sequestration has cut $2.4 billion in direct payment bond refunds, with $221 million to public power issuers alone.
APPA said that Congress fully intended refunds to issuers of direct payment bonds to be exempt from budget sequestration and that OMB appears to have the authority to exempt these refunds from sequestration.
APPA said it will continue to work to advance legislation that would end sequestration.
Government Releases Details on Investment Tax Credit for Projects in Low-Income Communities
February 15, 2023
by Paul Ciampoli
APPA News Director
February 15, 2023
The U.S. Treasury Department, the U.S. Department of Energy and the Internal Revenue Service on Feb. 13 released details on a program included in the Inflation Reduction Act that offers a boost of up to 20 percentage points to the investment tax credit for solar and wind energy projects in low-income communities.
The notice released by the federal agencies outlines the program goals, including increasing clean energy facilities in low-income communities, encouraging new market participants, and benefitting individuals and communities that have experienced adverse environmental impacts or lacked economic opportunities.
The program will allocate 1.8 gigawatts of capacity available in 2023 across four categories for solar and wind projects with maximum output of less than five megawatts.
The notice announces allocations for 2023: 700 MW for facilities located in low-income communities; 200 MW for facilities located on Tribal land; 200 MW for facilities serving federally-subsidized residential buildings, including housing supported by the Low-Income Housing Tax Credit and Section 8 of the Housing Act; and 700 MW for facilities where at least 50 percent of the financial benefits of the electricity produced go to households with incomes below 200 percent of the poverty line or below 80 percent of area median gross income.
The application process for the Low-Income Communities Bonus Credit program will open in 2023 in two phases.
Applications for facilities that are part of low-income residential buildings and those that benefit low-income households will be accepted first, with applications for other projects to follow. The guidance maintains Treasury and IRS discretion to reallocate excess capacity to oversubscribed categories, and any unallocated 2023 capacity will rollover to the following calendar year.
Future guidance will provide additional information about the application process and eligibility.
Qualifying Advanced Energy Project Credit
A second notice released by the agencies establishes the expanded Qualifying Advanced Energy Project Credit program under Section 48C of the Internal Revenue Code. This program renews and expands an investment tax credit initially included in the American Recovery and Reinvestment Act of 2009.
The program provides incentives for clean energy property manufacturing and recycling, industrial decarbonization, and critical materials processing, refining, and recycling. The notice provides a broad range of examples of projects eligible to apply for an investment tax credit of up to 30 percent, including manufacturing of fuel cells and components for geothermal electricity and hydropower, equipment for carbon capture, and critical minerals processing facilities.
The Inflation Reduction Act provided $10 billion in new funding for the Qualifying Advanced Energy Project Credit program. In the Inflation Reduction Act, Congress required that at least $4 billion be reserved for projects in communities with closed coal mines or retired coal-fired power plants.
The initial funding round outlined will include $4 billion, with about $1.6 billion reserved for projects in coal communities.
The application process for the Qualifying Advanced Energy Project Credit program will begin on May 31, 2023.
The Treasury Department and IRS will administer the programs, working in close collaboration with the Department of Energy.
Silicon Valley Clean Energy Project Bond Deal to Result in $4.5 Million Savings Annually
February 10, 2023
by Paul Ciampoli
APPA News Director
February 10, 2023
The savings are approximately $4.5 million annually, a 10 percent discount on the cost of power supply contracts representing about 55 megawatts. The Clean Energy Project Bonds are valued at $841,550,000, the CCA said.
The goal of the prepayment transaction is to reduce the cost of power purchases on quantities delivered under the prepay structure with minimal risk to SVCE.
The prepay structure enables publicly owned utilities, including CCAs, to reduce their energy costs by financing the acquisition of long-term energy supplies with tax-exempt bonds. For decades, municipal utilities have used the prepayment structure as an industry standard practice to reduce costs for the purchase of natural gas.
In June 2021, four CCAs, Central Coast Community Energy, East Bay Community Energy, Marin Clean Energy and Silicon Valley Clean Energy, jointly formed the California Community Choice Financing Authority, a Joint Powers Agency.
CCCFA was created with the goal to reduce the cost of power purchases through a pre-payment structure. These prepayments allow CCAs to reduce customer costs and increase funding available for local programs.
A tax-exempt public electricity supplier, a taxable financial counterparty, and a municipal bond issuer enter into a long-term supply agreement called a Clean Energy Project Revenue Bond to pre-purchase wholesale zero-emission clean electricity from sources like solar, wind, geothermal, and hydropower.
The municipal bond issuer – in this case, CCCFA – issues tax-exempt bonds to raise the funds for the transaction, flowing the funds to the financial counterparty. The financial counterparty utilizes the bond funds and provides a discount to the CCA on the power purchases based on the difference between the taxable and tax-exempt rates.
Groups Urge Congress to Take Action to Prevent Elimination of $14 Billion in Subsidy Payments
December 19, 2022
by Paul Ciampoli
APPA News Director
December 19, 2022
The American Public Power Association (APPA) and other trade groups are urging congressional leaders to waive the statutory Pay-as-You-Go-Act of 2010 (PAYGO) before the close of the 117th Congress.
“Failure to do so will result in the elimination of $14 billion in subsidy payments to public entities across the country,” the groups said in their Dec. 15 letter. “Subsidy payments from our federal partners are currently included in the budgets of thousands of jurisdictions. Without certainty of receipt, essential public services may become acutely impacted.”
APPA and the other groups are members of the Public Finance Network, representing nearly fifty thousand public organizations and issuers of municipal securities.
APPA is also urging its members to reach out to their congressional delegation to ask for relief from Statutory Pay-As-You-Go Act of 2010 sequestration.
“As we collectively worked to emerge from the Great Recession over a decade ago, state and local governments and public entities across the country utilized options made available to stimulate the economy and undertook several hundred billion dollars in critical, long-term infrastructure obligations through the issuance of direct subsidy bonds,” the groups said.
At the time, the understanding was that federal payments related to these bonds would not be subject to the appropriation process and would not be subject to sequestration, APPA and the others said.
“To our dismay, the federal government appears on the brink of completely reneging on this deal by eliminating $14 billion in payments to state and local entities. Specifically, unless new legislation is enacted that will waive the PAYGO as relates to the budgetary effects of the American Rescue Plan, thousands of state and local entities will not receive any Build America Bond (BAB), Qualified School Construction Bonds (QSCB), Qualified Zone Academy Bonds (QZAB), New Clean Renewable Energy Bonds (New CREB), or Qualified Energy Conservation Bonds (QECB) payments otherwise guaranteed to them under the law.”
Entities that issued these bonds generally in 2009, 2010, and 2011 did so in partnership with the federal government. For example, a BAB is a type of municipal bond designed to expand the pool of investors for municipal debt at a time when investment in traditional tax-exempt municipal bonds was in decline.
Additionally, projects financed with these bonds helped provide jobs and needed infrastructure investments when the economy needed it most. Unlike a traditional municipal bond, interest on a BAB is taxable to the bondholder and the interest rate paid is higher than for a traditional tax-exempt bond. However, Treasury is required to reduce this additional expense by providing a payment to the bond issuer equal to 35 percent of the interest paid to the bondholder, the groups noted.
In all, nearly 2,400 communities issued BABs to finance $180 billion in infrastructure projects, including school construction, water and sewer improvements, hospital and other health care system upgrades, highway and public transit investments, and electric power utility transmission, generation and distribution.
“Insofar as Congress fails to prevent these credit payments from being eliminated under PAYGO sequestration, it will be our residents who ultimately pay for the increased project costs.”
The groups also noted that Congress sought to make energy investment incentives available to not just investor-owned utilities and merchant generators through the creation of new CREBs to be issued by public power utilities and rural electric cooperatives. This change was made to ease the concentration of tax creditable energy project ownership by merchant power generators.
More than 800 public power utilities, school districts, city governments, and rural electric cooperatives were allocated more than $2.2 billion in new CREB bonding authority to finance, wind, solar, hydropower, and biomass projects. If Congress allows new CREB payments to be eliminated, it will result in their customers either seeing an increase on their monthly bill or in reduced resources available for investments in grid security and reliability, the groups warned.
“Payments to issuers of these special purpose bonds are already laboring under a steady stream of cuts triggered by the Budget Control Act of 2011 due to the failure of the Joint Select Committee on Deficit Reduction. These ‘Joint Committee Reductions’ began in 2013 and are now expected to continue through 2031. Joint Select Committee reductions will have cut payments by nearly $3 billion by the end of Fiscal Year 2022 and will cut payments by another $1.6 billion by the end of Fiscal Year 2031,” the letter said.
Allowing joint committee reductions to continue “is a travesty because so many public entities depend on this federal-state-local partnership. However, allowing PAYGO to eliminate these payments entirely would be catastrophic to communities that stepped up during the Great Recession to try to create jobs when job creation was desperately needed, to students in schools that are already underserved and to renters and homeowners that are already struggling to pay utilities, taxes, and other bills,” the groups said.
“As a result, we hope Congress will overcome its differences and fix this problem for all Americans. Thank you for your time and consideration.”
The letter was sent to House Speaker Nancy Pelosi, D-Calif., Rep. Kevin McCarthy, R-Calif., House Minority Leader, Sen. Charles Schumer, D-N.Y., Senate Majority Leader, and Sen. Mitch McConnell, R-Kentucky, Senate Minority Leader.
Fitch Revises Rating Outlook for Heartland Energy to Positive
November 23, 2022
by Paul Ciampoli
APPA News Director
November 23, 2022
Fitch Ratings has affirmed ratings of Heartland Energy at ‘A-‘ and revised the rating outlook to Positive from Stable.
Specifically, Fitch affirmed the following ratings at ‘A-‘: $6.6 million taxable electric system revenue bonds, series 2018 and Long-Term Issuer Default Rating.
Fitch noted its rating on Heartland’s implied second lien revenue obligations has been withdrawn as no debt is outstanding under the lien and the rating is no longer considered to be relevant to the agency’s coverage.
Heartland Energy’s ‘A-‘ ratings “reflect the strong wholesale take-and-pay power sales contracts (PSCs) with purchasers exhibiting midrange purchaser credit quality, as well as an independent ability to adjust rates. The utility’s low operating risk is driven by a low operating cost burden derived from a portfolio of high availability and low-cost generation,” Fitch said.
The revised Positive Outlook reflects the increased stability in Heartland’s operating profile, as well as Fitch’s view that lower, sustained financial leverage could support positive rating action.
Heartland Energy provides wholesale power to public power communities across South Dakota, Minnesota, Iowa and Nebraska.
Based in Madison, SD, Heartland Energy also provides a suite of customer service programs including economic development, energy efficiency, cybersecurity and more.