Transcript American Municipal Power

American Municipal Power, Inc.
American Municipal Power Inc.
Utility Investment and Debt and Interest
Rate Risk Management Policies
Robert W. Trippe, Senior Vice President and Chief Financial Officer
[email protected]
September 2009
American Municipal Power, Inc.
AMP Background Information
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American Municipal Power, Inc.
AMP History
 On July 1, 2009 AMP-Ohio changed its name to American Municipal Power Inc.
 AMP is a tax-exempt membership corporation originally organized in Ohio in
1971
 AMP manages the power supply arrangements for 128 public power systems in
Ohio, Michigan, Pennsylvania, Kentucky, West Virginia and Virginia which
currently have a combined peak load of approximately 3500 MW
 AMP is a private corporation (not a joint action agency) which owns and
operates electric facilities or, alternatively, provides for the generation,
transmission and distribution of electric power to its members
 AMP is exempt from federal income tax under IRC Sections 501(c)(12) and has
received IRS private letter rulings allowing it to issue tax-exempt debt on behalf
of its members
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American Municipal Power, Inc.
AMP Membership
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American Municipal Power, Inc.
AMP Corporate Governance
 AMP is owned and governed by its 128 Members in 6 contiguous states
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Ohio – 82 members
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Michigan - 7 members
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Pennsylvania – 29 members
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Virginia – 5 members
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West Virginia – 2 members
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Kentucky – 3 members
 Board of Trustees currently consists of 16 community representatives
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Eight Trustees are elected by the members within their own service area
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Eight Trustees are elected at large by all of the AMP members
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Trustees serve for three year staggered terms
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Each Trustee community appoints its representative
 Board of Trustee changes approved at AMP’s June 2009 meeting
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The Board will expand from 16 to 19 members in October 2009 at the AMP Annual Conference
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The Board will include (based on certain formulae) representatives from Michigan, Pennsylvania and Virginia
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Marc
American Municipal Power, Inc.
AMP Financial Monitoring Program
 AMP has instituted a Member Credit Scoring System
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Used to monitor existing members and for acceptance in generation projects
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Used as criteria for review and acceptance of new members
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Credit scores are completed annually upon the release of the member’s audited financials
 A team of four individuals is assigned to monitor and assist members
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Conducts at least six meetings annually throughout the AMP membership
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Provides updates on finance and accounting issues
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Supplies updated information on AMP projects for the benefit of participating members
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Assists in preparation of rating agency and investor presentations
 Team oversight responsibilities
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Compiles and reviews audit reports and interim financial statements
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Monitors continuing disclosure compliance
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Monitors loan agreements and bond issue covenants compliance
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Reviews internal controls of Members
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Monitor electronic media for information and data related to AMP and its members, counterparties, and vendors
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Marc
American Municipal Power, Inc.
AMP Financial Monitoring Program
 Team Consulting and Advisory Services
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Assistance with accounting issues
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Development of capitalization and investment policies
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Assist in review of cost of service studies completed by third party vendors hired by members
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Collection of member load, economic and demographic information for disclosure purposes
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Liaison with the Auditor of State
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(continued)
American Municipal Power, Inc.
Member Energy Requirements
• Increase in Membership and subsequent increase in
load=increase in power supply requirements
• Wholesale power market is inconsistent, bi-lateral market
challenging
• AMP currently is approximately 68% Power Market
Dependent-about 13% after Capital Program is complete
• Members are asking for stability and price certainty
• Independent consulting firm models long-term power
requirements for each Member
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American Municipal Power, Inc.
Generation Projects
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1999 AMP Builds Run of the River Hydro Generation Facility
– Member participants own a 42 MW hydroelectric generating facility, transmission
line and backup generation in Belleville, Ohio
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2001 AMP Builds Distributive Generation
– Owns 138.65 MW of gas and diesel generation
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2001-AMP Board Executive Management plans begin for building coal-fired power
plant-permits acquired construction expected to begin fourth quarter 2009 or first
quarter 2010
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2004 AMP builds only commercial wind turbine farm in state of Ohio
– Owns four 1.8 MW wind turbines located in Bowling Green, Ohio.
– In July 2004, AMP entered into a private placement arrangement of the payment
obligations of the participants to fund the project.
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American Municipal Power, Inc.
Generation Projects (continued)
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2007 AMP joins Prairie State Energy Campus development-AMP acquired a 23.26%
undivided ownership interest in the Prairie State Energy Campus, a planned 1,600
MW coal fired power plant and associated facilities in southwest Illinois.
– Between July 2008 and March 2009, AMP has issued $927,220,000 in long term financing.
– The 68 Participating members have entered into “take or pay” power sales contracts to
secure the debt. Also secured by a rate covenant and debt service reserve fund
requirements.
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2007 AMP acquires Hydro licenses from FERC for three currently existing dams on the
Ohio River– Issued $350 million Bond Anticipation Notes (BANs) April 2009
– The Hydro Phase I projects consist of three hydroelectric generation facilities located on
the Ohio River with generating capacity of approximately 208 MW.
– In April 2009, AMP issued a $350,000,000 Revenue Bond Anticipation Note.
– BAN proceeds to finance a portion of its capital expenditures, costs and expenses
associated with the acquisition, construction and permitting of the Hydro Projects.
– The 79 Participating members have entered into “take or pay” power sales contracts to
secure the debt. Also secured by a rate covenant and debt service reserve fund
requirements
– Ground broken August 2009
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American Municipal Power, Inc.
Capital Projects Summary
T o t al Est imat ed
Exp end it ur es
( $0 0 0 )
Pr air ie St at e Pr o ject
$
1,321,543
Hyd r o Phase 1
$
1,423,022
M eld ahl Hyd r o
$
549,464
A M P Gener at ing St at io n
$
3,940,080
T o t al
$
7,234,109
Includes: C annelt o n
Smit hland
W illo w Island
( a) Includes capitalized interest and financing costs
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( a)
American Municipal Power, Inc.
• Significant Capital Plan Necessitated changes in AMP Financial
Requirements, Operating Procedures and Policies
– Need for liquidity-$550 million Line of Credit (LOC) provided by
syndicate of 10 banks led by JP Morgan Chase (used for working
capital, credit support, and interim project financing not eligible for taxexempt financing)
– Need for lower cost borrowing options-$450 million Tax-exempt
Commercial Paper (TECP) Program secured under the Bank LOC
(used for interim, tax-exempt eligible project financing prior to the
issuance of permanent financing)
– AMP Board of Trustees adopts Derivative Risk Management Policy
– AMP Creates Treasury and Cash Management Department
– AMP Board of Trustees adopted Investment Policy to facilitate
investment of operating cash and cash from capital program bond and
note proceeds
– AMP adopts Debt and Interest Rate Risk Management Policy
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American Municipal Power, Inc.
Investment Policies
• AMP Adopted Investment policies for each entity owned or managed
• Investment Policy Details Include
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Authorization
Investment Philosophy
Investment Objectives
Authorized Investments
Transaction procedures
Diversification
Prohibited Investments
Monitoring and Adjusting Portfolio
Investment of Bond Proceeds
Safekeeping and Custody
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American Municipal Power, Inc.
Derivatives Risk Management Policy
• Derivatives Risk Management Policy Includes:
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Authority of AMP to enter into interest rate derivative transactions
Purpose of using derivatives
Guidelines for interest rate derivative transactions
Basis of award in competitive bid process if utilized
Management of derivative transaction risk
Counterparty approval guidelines
Form of derivative transactions and other documentation
Reporting requirements to AMP Board of Trustees
Derivatives Checklist
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American Municipal Power, Inc.
Debt and Interest Rate Risk Management Policy
• Provides a policy framework for structuring, issuance, management,
ongoing evaluation, and reporting on all debt obligations
• Formalized existing practices and procedures
• Considered a living document, to be reviewed, revised and adapted
as deemed necessary to reflect changes in financial industry best
practices
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American Municipal Power, Inc.
Debt and Interest Rate Risk Management Policy
(continued)
• Debt and Interest Rate Risk Management Policy Includes:
– Goals and Objectives
– Considerations for Debt Issuance
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Authorization and Approval
Debt Limitations
Funding of Capital Projects
Rating/Credit Objectives
– Debt Management
• Type of Debt-Fixed or Variable
• Debt Structuring considerations-e.g. final maturity, debt repayment, payment
structure, redemption provisions, etc.
• Method of Sale
• Refundings and Restructuring
• Investment of Bond Proceeds
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American Municipal Power, Inc.
Debt and Interest Rate Risk Management Policy
(continued)
– Variable Rate Exposure and Liquidity
• Rationale for Use of Variable Rate Debt
• Variable Rate exposure limitations
• Liquidity facilities
– Member Project Participation
– General Provisions
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Asset/Liability Management
Budgeting Methodology
Continuing Disclosure
Arbitrage Compliance
Policy Review and Revision
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American Municipal Power, Inc.
Summary
• Adoption of Investment and Debt Management Policies
places by AMP Board of Trustees serves as a guide for
common sense objectives and sound business
operating procedures
• Protects investors as well as Management and
Governance Boards
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Jolene
American Municipal Power, Inc.
Questions?
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