6.1a ERMUSR 08-14-2018 - Laserfiche WebLink

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RATING SENSITIVITIES STABLE MARGINS,LOWER LEVERAGE: The Minnesota Municipal Power Agency's rating is predicated on Fitch's expectation of continued stable financial performance, maintenance of stable and competitive rates, and a steady improvement in overall leverage. CREDIT PROFILE MMPA provides wholesale power supply to 11 participating cities, all of which own and operate municipal electric systems. A 12th member, Elk River, MN, will begin purchasing power from MMPA on Oct. 1, 2018. MMPA's load center is concentrated in the northern and southwestern suburbs of the Minneapolis-St.Paul metropolitan area. Fitch views the membership as having a diverse economic base,which includes commercial businesses, light and heavy manufacturing, farming,tourism and services. MMPA supplies virtually all power requirements of the participating municipal systems on a take- and-pay basis through separate,but substantially similar long-term PSAs. Each of the contracts expires on Dec. 31, 2050,with the exception of two small participants whose contracts expire on Oct. 31, 2040. Collectively,the participating systems serve approximately 70,000 largely residential and commercial customers and a total population of approximately 150,000. Fitch believes the underlying credit quality of the participating member's utilities, especially the three largest systems, are supportive of the 'A+'rating on the bonds. WELL-POSITIONED POWER SUPPLY PORTFOLIO Power is currently supplied to the members through a mix of agency-owned resources and PPAs. MMPA's primary asset is the Faribault Energy Park, a 300 MW natural gas/oil-fired combined cycle plant. The remaining power and energy requirements of the participants are supplied through agency-owned renewable facilities(wind and bioenergy), member-owned resources and a portfolio of PPAs with third parties. Peak demand from all members was 312 MW in 2017, which is down about 7% in aggregate since 2011. However, energy sales have grown steadily by an average annual rate of 1.3% from 2009 -2017 reflecting the resiliency of the Minneapolis-St. Paul economy and the lack of significant customer concentration at the member level. Demand is expected to continue to increase modestly at the member level as well as with the addition of MMPA's newest member,the city of Elk River, MN,later this year. Demand will increase by roughly 20% from Elk River's approximately 70 MW of load requirements. MMPA has sufficient capacity to meet member load. After adding Shakopee Energy Park, a 46 MW quick-start natural gas-fired plant primarily used for peaking in 2017 and a long-term PPA with Sempra Energy for 78 MW of wind capacity in 2016, MMPA's supply resources total 532 MW of nameplate capacity. MMPA is in the process of adding additional capacity to meet member load requirements and to replace existing short-term contracts,primarily with carbon-free resources via longer-term PPAs. The new capacity will come online over the next few years, and by 2020, MMPA expects that roughly 60% of its energy will come from renewable resources. In addition, capacity will be sufficient to meet member needs (including Elk River)through at least 2030. MMPA previously expected to build additional gas-fired distributed generation similar to the Shakopee plant. However, given the relatively low cost of the power procured through intermediate-term PPAs, management no longer plans to build additional generation. 140