OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the following revenue bonds issued by the Municipal Energy Agency of Nebraska (MEAN, or the agency):

--Approximately $67,260,000 power supply system refunding revenue bonds, 2016 series A.

The bonds are scheduled to price via negotiation September 28. The bonds will refund a portion of outstanding parity bonds (2009 series A) for interest cost savings and pay issuance costs.

In addition, Fitch affirms the following rating:

--$163,550,000 million power supply system revenue bonds, 2013 series A and B, 2012 series A and 2009 series A at 'A'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of MEAN, principally derived from various power supply contracts with 70 participant municipal electric systems.

KEY RATING DRIVERS

BROAD WHOLESALE ELECTRIC PROVIDER: MEAN is small but mature joint action agency providing wholesale electric power to 70 participants in a broad, stable service territory spanning four states.

LONG-TERM REVENUE STABILITY: MEAN has transitioned in the past 10 years to greater reliance on long-term, all-requirements contracts with schedule M participants (54) that extend through 2041, two years beyond the final maturity of MEAN's existing debt. The participants generally exhibit solid credit quality, serve economically stable but geographically small service areas and accounted for approximately 85% of MEAN's total revenue in fiscal 2016.

IMPROVED FINANCIAL METRICS: MEAN's overall financial position showed notable improvement in fiscal 2016 with Fitch-calculated debt service coverage increasing to 1.58x and liquidity providing a robust 120 days of cash on hand. Median ratios for the rating category are 1.42x and 93 days, respectively. Fitch expects solid, but slightly weaker financial results through the current forecast period based on MEAN's financial projections ending in fiscal 2021 and its use of rate stabilization funds.

FIXED COST RECOVERY; COMPETITIVE RATES: Wholesale rates have stabilized following a trend of rate increases and meaningful changes in MEAN's rate structure implemented in recent years. The agency's all-in cost of power remains relatively competitive at slightly less than $67/MWh. More importantly, changes to the rate structure should allow for the full recovery of fixed costs each year and mitigate the impact of variable weather conditions and usage patterns.

DIVERSE POWER SUPPLY RESOURCES: MEAN's power supply is diverse by fuel type and number of units. The agency sets a target of no single generating unit contributing more than 15% of total capacity in order to limit the consequences of a plant outage. In addition, MEAN's newer coal-fired generating resources are equipped with environmental controls.

MANAGEABLE CAPITAL PROGRAM: Capital spending through 2021 is forecast at relatively modest levels without any reliance on additional debt issuance. Leverage and equity ratios approximate rating category medians, and should improve given the agency's lack of additional borrowing plans.

RATING SENSITIVITIES

SUSTAINED FINANCIAL PERFORMANCE: The continuation of strong debt service coverage, excluding the use of rate stabilization, a sustained decline in leverage and maintenance of current cash reserves by the Municipal Energy Authority of Nebraska (MEAN), would support positive rating action.

IMPROVED PARTICIPANT PERFORMANCE: Many of the MEAN's participants reported diminished operating margins and weakened cash flow metrics for fiscal year-end 2015 as a result of MEAN's recent rate increases and higher purchased power costs. Improved participant performance reflecting the full recovery of power costs would also be viewed positively.

CREDIT PROFILE

MEAN is a joint-action agency providing competitively priced, wholesale electric power to 70 small participants spanning a vast four-state region that includes Nebraska, Colorado, Iowa, and Wyoming. In aggregate, the participants serve an estimated 114,000 retail customers spanning a population estimated at 174,000. MEAN's participants are primarily residential-based municipalities with exceptionally small populations and limited local economies.

SOUND, LONG-TERM CONTRACTS

Sixty-two of MEAN's participants have take-and-pay, all-requirements power supply contracts for varying terms, exclusive of their allocations from the Western Area Power Administration. The eight remaining participants enter into periodic buy/sell transactions and/or receive scheduling services from MEAN. Contracts with schedule M participants (54) extend through 2041, two years beyond the final maturity of MEAN's existing debt. Schedule M participants account for nearly 90% of total revenue derived from MEAN's participants.

Schedule M participants are required to step up their payment obligations for the full amount of the agency's operation and maintenance expenses, as well as for debt service costs, should the other participants default on their obligations or elect not to sign renewal contracts.

ADEQUATE POWER SUPPLY

MEAN maintains a reliable, long-term, diverse power supply portfolio consisting of owned, leased and purchased power supply resources as well as transmission system arrangements. Capacity and energy are weighted towards coal-fired generation, although nearly all of MEAN's assets are compliant with current environmental regulations, including Mercury and Air Toxics Standards.

RATE ADJUSTMENTS VIEWED POSITIVELY

MEAN's full rate setting authority and currently competitive wholesale rates provide a solid degree of flexibility. Moreover, a pooled energy adjustment (PEA) can be automatically passed through to participants at management's discretion as means to recover changes in costs, and there is no rate regulation at the retail level except for Wyoming, which regulates rates for customers outside of municipal boundaries. These customers currently represent a small proportion of MEAN's annual energy sales and related revenues.

Fitch views positively MEAN's demonstrated willingness to increase and restructure its rates in recent years to offset declining and variable energy sales. A new rate structure put into place at the start of fiscal 2016 eliminated the existing base and incremental demand and energy charges in favor of a flat energy rate and a fixed cost recovery charge. The recovery charge will be established each year to cover the entirety of MEAN's fixed costs related to the ownership of generation resources and the operation of the agency.

IMPROVED FINANCIAL PERFORMANCE

MEAN's financial performance showed considerable improvement in fiscal 2016 as prior rate adjustments and meaningful changes in the rate structure were sufficient to counter a 13% decline in energy sales.

Participant distribution systems are small but appear to be in sound fiscal health. Financial and debt metrics of the 10 largest participants have demonstrated uneven, albeit generally adequate operating performance in recent years. Cash flow and liquidity metrics have been generally strong historically, but weaker operating margins in the latest fiscal year (2015) are a concern. Fitch expects that participant performance will improve as the systems fully reflect MEAN's higher power costs in retail rates.