March 20, 2012 / 7:57 PM / 6 years ago

TEXT-Fitch rates Energy Northwest, Wash. revs 'A-'

March 20 () - Fitch Ratings assigns an 'A-' rating to Energy Northwest's
approximately $13.63 million wind project revenue bonds, series 2012.	
	
The series 2012 bonds are not to exceed $17 million but the final par amount
will depend on market conditions. Proceeds will refund outstanding bonds for
savings. Bonds are expected to price via negotiated sale during the week of
March 26, 2012.	
	
Fitch also affirms the following outstanding ratings for Energy Northwest Nine
Canyon Wind Project:	
	
--$16.68 million wind project revenue bonds, series 2003;	
--$54.76 million wind project revenue bonds, series 2005;	
--$69.33 million wind project revenue bonds, series 2006.	
	
The Rating Outlook is Stable.	
	
SECURITY	
	
Bonds are secured by a net revenue pledge of the Wind Project System, which
consists of three phases. Each phase has a separate group of municipal power
purchasers, although certain purchasers are involved in multiple phases.
Purchasers are committed only for their respective fixed costs of the phase or
phases in which they are involved. Debt service on the series 2012 bonds is
included in Phase II power purchaser costs. However, based on the net revenue
pledge of the Wind Project System as a whole, the rating reflects the net
revenues of the project.	
	
KEY RATING DRIVERS	
	
PURCHASERS' CREDIT QUALITY: The rating largely reflects the credit quality of
the larger municipal purchasers, as the step-up provision is sufficient to cover
the default risk of the smaller participants.	
	
SUFFICIENT FINANCIAL PERFORMANCE: Financial metrics are in-line with 'A-' rated
joint action agency systems, with debt service coverage at 1.13 times for fiscal
year 2011 and very strong unrestricted cash reserves (at 859 days operating cash
for fiscal year 2011).	
	
SOLID PROJECT OPERATIONS: The Nine Canyon wind project consists of a 95.9
megawatt (mw) capacity wind generation project, which was constructed on-time
and within budget. The project's 63 turbines became fully operational in May
2008, and by 2011 Nine Canyon had achieved solid capacity (32.5%) and
availability factor levels (98%).	
	
TAKE-OR-PAY CONTRACTS: The wind project bonds are secured by payments made
pursuant to absolute and unconditional take-or-pay power sale contracts with 10
Washington-based public utility districts, which extend for the life of the bond
(2030). Obligations to Energy Northwest (ENW) are paid as operating expenses of
each utility, prior to its own debt service.	
	
STEP-UP PROVISION: In the event a purchaser defaults on payments to ENW, the
power sale contract also includes a 25% payment step-up provision for the
non-defaulting purchasers in each of the three phases of the project. However,
the step-up is limited within each of the three phases.	
	
VALUABLE RENEWABLE RESOURCE: The project provides each of the power purchasers
with a renewable energy resource which contributes to the state/local renewable
energy goals.	
	
LOSS OF REPI CREDITS: Given the federal budgetary concerns, Congress is unlikely
to appropriate any further funds to the renewable energy production incentive
(REPI) program. The REPI credits (federal grants) historically helped to offset
the cost of wind production. ENW revised its wholesale cost of wind to account
for this projected and ongoing loss of REPI credits beginning in fiscal 2010.	
	
WHAT COULD TRIGGER A RATING ACTION	
	
CHANGE IN PARTICIPANT CREDIT QUALITY: A material change in the credit quality of
the purchasing municipal utilities could impact the project's debt rating.	
	
CREDIT SUMMARY	
The Nine Canyon Wind Project is a project developed by ENW to provide renewable
energy to 10 public utility districts in the state of Washington. The state has
a required renewable energy target of 15% by 2020, and certain of the larger
project participants are required to meet the target. The project provides a
renewable source of energy and consists of three phases that became operational
between 2002 and 2008. The turbines are located in Benton County on land that is
under long-term leases that exceed the final repayment of the bonds.	
	
The rating on the bonds reflects the security provisions of the long-term power
sale contracts between ENW and each project participant that extend through the
life of the bonds. The power sale contracts for each phase obligate the
purchasers to pay their portion of the debt service regardless of the
operational status of any of phases that make up the Wind Project. To mitigate
participant default risk, the power sale contracts include a step-up provision
(25%) for fixed and variable costs. The remaining participants within each phase
can be required to increase their payments by 25% to cover a default by a
participant in that phase.	
	
Additional bondholder support comes from favorable limitations on the
purchasers' ability to assign their Wind Project payment obligations. The bonds
are not secured by an ownership interest in the wind turbines.	
	
The power purchasers and their respective shares of the Wind System projects in
aggregate are as follows:	
	
--Grays Harbor County PUD No. 1 (20.9%; rated 'A' by Fitch);	
--Okanogan County PUD No. 1 (16.6%; not rated by Fitch );	
--Grant County PUD No. 2 (12.5%; rated 'AA');	
--Franklin County PUD No. 1 (10.5%; NR),	
--Douglas County PUD No. 1 (10.2%; NR);	
--Benton County PUD No. 1 (9.4%; rated 'A+');	
--Chelan County PUD No. 1 (8.3%; rated 'AA+');	
--Lewis County PUD No. 1 (6.3%; NR);	
--Mason County PUD No. 3 (3.2%; NR);	
--Cowlitz County PUD No. 1 (2.1%; rated 'A').	
	
Financial performance of the project has been impacted by the reduction in the
amount of Department of Energy Renewable Energy Production Incentive (REPI)
payments available to the project. Since 2003, ENW has received declining
proportions of its claimed amount (100% for 2002; down to 15% in 2009; and zero
thereafter) as a result of lower appropriations by Congress and more qualifying
wind projects in the country.	
	
The result has been the use in fiscal 2008 of reserves that had been initially
funded at the project and a large rate increase to project participants in
phases I and II. Nevertheless, the project costs for each phase are likely to
remain in the $65- $80 per megawatt hour (MWh) range, which is still competitive
for a renewable energy resource.	
	
	
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.	
	
In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria, this action was additionally informed by
information from Creditscope.	
	
Applicable Criteria and Related Research:	
--'Revenue-Supported Rating Criteria' (June 20, 2011);	
--'Public Power Rating Guidelines' (March 28, 2011).	
	
Applicable Criteria and Related Research:	
Revenue-Supported Rating Criteria	
U.S. Public Power Rating Criteria

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