CEO’s Report: Fitch upgrades PPGA rating in advance of bond refunding

In a significant affirmation of its financial strength and operational stability, Public Power Generating Agency (PPGA) has received an upgraded credit rating from Fitch Ratings.

Fitch has assigned an ‘A’ rating to the approximately $150 million in Whelan Energy Center 2024 Bonds, Series 2024A, and simultaneously upgraded PPGA’s Issuer Default Rating (IDR) and several existing bonds to ‘A’ from ‘A-‘.

The rating outlook is stable.

PPGA is an interlocal agency established for the sole purpose of constructing and operating Whelan Energy Center Unit 2.

This positive rating trajectory is a testament to PPGA’s low operating risk and our collective unwavering commitment to financial stewardship.

Key rating drivers

Heartland Energy and Municipal Energy Agency of Nebraska (MEAN) are the largest members of PPGA, accounting for 72.7% of the entitlement shares. Given our sizable shares, the PPGA rating is capped at the lower of these two ratings.

Heartland received a rating upgrade in October 2023 to ‘A’ with a stable outlook.

Fitch rates PPGA’s revenue source characteristics as strong due to long-term take-or-pay agreements and the solid credit quality of the members.

These agreements ensure debt service payments are made even if the unit is inoperable, with added bondholder protection through a step-up provision.

PPGA’s strong credit rating is further supported by its members’ solid operating performance, low financial leverage, and autonomous rate-setting ability.

Fitch rates PPGA’s operating risk as low, reflecting WEC 2’s strong performance, low costs, and resilience during severe weather events. The coal-fired unit consistently outperforms industry averages in availability and outage rates, contributing to low average operating costs.

Fitch noted the credit quality of the dominant members, MEAN and Heartland, is driven by our strong operating performance and role as wholesale power providers to a wide range of retail systems across the upper Midwest.

Fitch also pointed out Heartland’s credit quality in their report in that we reflect low financial leverage, adequate liquidity, supply arrangements with 29 municipal electric systems, along with midrange member credit quality.

The other members of PPGA include Grand Island Utilities (6.82%), Hastings Utilities (15.91%) and Nebraska City Utilities (4.55%).

Long-term resource

WEC 2 has proved to be a reliable resource for us since coming online in 2011.

A 220-megawatt pulverized coal-fired generating plant located near Hastings, NE, WEC 2 provides dependable long-term baseload power. The plant was built with the latest emissions control technologies, which should limit the need for large capital expenditures in the near term.

Heartland holds a 36.4% share in the project, equating to 80 MW. It is the largest generating resource in our power supply portfolio.

WEC 2 is economically dispatched into the Southwest Power Pool (SPP) market. The unit has proved its resiliency with 100% unit availability during Winter Storms Uri in 2021, Elliot in 2022 and Gerri in 2024.

Bond refunding

The following bonds also received a rating upgrade to ‘A.’

• Approximately $160 million Whelan Energy Center Unit 2 revenue bonds, 2009 series B (taxable);
• Approximately $124 million Whelan Energy Center Unit 2 revenue refunding bonds, 2015 series A (tax-exempt);
• Approximately $141 million Whelan Energy Center Unit 2 revenue refunding bonds, 2016 series A (tax-exempt).

The proceeds from Series 2024A will be used to refund WEC Unit 2 revenue bonds 2015 series A&B and potentially tender the 2016 bonds series A. The bonds are expected to be priced during the week of September 16, 2024.

We extend our sincere gratitude to our partners in PPGA, whose dedication and collaboration have been instrumental in achieving this positive outcome. Together, we continue to strengthen our commitment to providing reliable and affordable energy to the communities we serve.