Fitch Affirms Muni Electric Auth of Georgia's Combined Cycle Project Revs at 'A+'

Fitch Ratings has affirmed the following Municipal Electric Authority of Georgia (MEAG Power) bonds at 'A+':

--$119.505 million combined cycle project revenue bonds, series 2010A

--$91.925 million combined cycle project revenue bonds, series 2012A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by revenues received by MEAG Power attributable to the combined cycle project, including payments pursuant to power sales contracts with each project participant. The bonds are also secured by various funds established by the resolution.

KEY RATING DRIVERS

STRONG JOINT ACTION AGENCY FUNDAMENTALS: MEAG Power's combined cycle project is supported by the authority's strong fundamentals including a diverse mix of generating resources, sound financial performance and liquidity, competitive wholesale and retail rates, and strong court-validated power sales contracts with the project participants.

FULL FAITH AND CREDIT OF PARTICIPANTS: The 37 city and county-owned electric systems that participate in the combined cycle project also exhibit solid breadth, diversity and creditworthiness. Participant obligations under the power sales contracts are general obligations of which their full faith and credit are pledged.

SEPARATE PARTICIPANT OBLIGATIONS: The combined cycle project obligations are separate and do not include broad 'step-up' provisions for payment if another participant defaults - unlike other MEAG projects. Fitch views this difference as a weakness, but does not believe that the project warrants a lower rating given that MEAG Power's billing procedures generate a single invoice for power and do not differentiate by power supply source. Also, requirements under the resolution are to maintain fully funded debt service reserve accounts and minimum cash reserves at the project level equal to 45 days of working capital.

NUCLEAR CONSTRUCTION CONSIDERED: MEAG Power's participation in the construction of the Plant Vogtle Nuclear Units 3 & 4 and the projected impact of the related borrowings on the authority's financial metrics and wholesale cost of power supply have already been factored into the rating.

SIZABLE ACCUMULATED TRUST FUNDS: Mitigating the impact of the planned construction expenditures on MEAG Power and its participants is the availability of funds held in the Municipal Competitive Trust (MCT; $663 million at Oct. 31, 2013), which have been accumulated over time and include portions that may be used by the participants to reduce current power costs, or redeployed to address future generation costs, including those related to the Vogtle expansion.

RATING SENSITIVITIES

ADVERSE NUCLEAR DEVELOPMENTS: Adverse developments related to the Vogtle construction that weaken the authority's current and forecasted metrics could lead to downward pressure on the rating or Outlook.

WEAKENING PARTICIPANT DEMOGRAPHICS: A continuing downward trend in population, customer growth or energy demand among the participants, which results in excess capacity, higher unit costs and/or economic strain, could lead to downward rating pressure.

CREDIT PROFILE

MEAG Power is a joint action agency created to provide bulk electric power to municipally-owned electric distribution systems located throughout the state of Georgia. The authority effectively supplies the full energy requirements of 49 systems via participation in a series of power supply projects. The participating systems, in turn, provide electric service to approximately 308,000 retail customers, representing a total population of 614,000.

STRONG, COURT-VALIDATED CONTRACTS

All 49 participants have entered into power supply contracts related to the projects in which they participate, including the 37 combined cycle project participants. The project power sales contracts currently extend until all of the project debt has been paid and have been validated by the Superior Court of Fulton County, GA. They cannot be challenged in any subsequent proceeding. Each participant's obligation under the power sales contracts is also supported by a general obligation pledge, which would compel the participant to assess and collect an annual tax, if necessary, to meet its obligation to MEAG Power under the contract.

DIVERSE POWER SUPPLY RESOURCES

MEAG Power currently has ownership interests in 2,069 MW of generating capacity, including the natural-gas fired combined cycle project (503 MW). The project entered commercial operation in 2004 and has performed solidly in-line with industry averages for similar units. The majority of the authority's capacity is co-owned with Georgia Power Company, Oglethorpe Power Corporation, and the City of Dalton; however, the combined cycle project is owned exclusively by MEAG Power.

The portfolio of resources available to serve participant requirements during 2012, which also included 341 MW of Southeastern Electric Power Authority (SEPA) hydroelectric capacity and purchased peaking capacity, was comfortably above peak demand (1,920 MW). For the first nine months of 2013, the fuel mix for delivered energy exhibited solid diversity: 48% nuclear, 27% coal, 15% natural gas, 7% hydroelectric and 3% purchased power.

VOLATILE ENERGY DEMAND

Electric demand of the MEAG Power participants has exhibited high volatility in recent years reflecting variable weather conditions and modest growth. Total energy sales declined in each of the last two years, but 2012 sales were 2.4% above levels reported for 2009. Based on MEAG Power's conservative integrated resource plan study, demand growth is expected to moderate at 1.2% annually.

VOGTLE PROJECT WILL NOT MATERIALLY AFFECT RATES

MEAG Power is participating in the development of the Plant Vogtle nuclear unit 3 & 4 expansion project. Construction has accelerated following issuance of the construction and operating license in early 2012; however, challenges have resulted in revisions to the estimated project schedule and cost. Estimated commercial operation dates for units 3 and 4 have been revised from April 2016 and 2017 to the fourth quarter of 2017 and 2018, respectively; while completion cost estimates for MEAG Power's share have increased from $3.5 billion to $3.9 billion.

MEAG Power's pre-funding strategy, whereby approximately 65% of the authority's capital requirements for the Vogtle expansion have already been funded, mitigates a considerable portion of the project funding risk. Additionally, a conditional commitment from the Department of Energy (DOE) Loan Guarantee program brings total funding and commitments above expected needs.

Fitch does not believe that the Vogtle expansion project or the recent revision of cost estimates will materially impact, or jeopardize the competitiveness of, MEAG Power's wholesale power rates, assuming project completion. The new Vogtle Units will account for only a small portion of the authority's total power supply, particularly given the contracted sale of project capacity to JEA (electric system revenue bonds rated 'AA' with a Stable Outlook) and PowerSouth Energy Cooperative (revenue bonds rated 'A-' with a Stable Outlook) through 2037. The project's effect on rates will be further mitigated by funds available to the participants through the MCT.

SOUND FINANCIAL POSITION AND STRONG LIQUIDITY

MEAG Power's Fitch calculated debt service coverage (DSC) was 1.0x for fiscal 2012. Fitch's debt service calculation excludes MCT credits; however, Fitch acknowledges the application of the MCT credits is consistent with the long-term plan that was developed with the funding of the MCT. Fitch expects the application of MCT credits to continue.

Including the MCT credits, DSC improves to 1.08x, which is more consistent with comparable wholesale power suppliers, but below the median for the Fitch rating category. Leverage metrics, including total debt to funds available for debt service (11.7x without MCT credits; 10.8x including credits) and equity/capitalization (0%) are also below the median for the current rating.

Bolstering the authority's financial position and mitigating Fitch's concerns are cash and investments on hand exceeding $3 billion at year-end 2012, a large portion of which is available to ease the capital funding requirements of the participants going forward.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Public Power Peer Study -- June 2013' (June 13, 2013);

--'U.S. Public Power Peer Study Addendum -- June 2013' (June 13, 2013);

--'U.S. Public Power Rating Criteria' (Dec. 18, 2012).

Applicable Criteria and Related Research:

U.S. Public Power Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696027

U.S. Public Power Peer Study -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710397

U.S. Public Power Peer Study Addendum -- June 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710641

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=813252

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