Institutional investors quickly oversubscribed the Midwest Independent Transmission System's first long-term debt offering of $100 million, CEO Matthew C. Cordaro said Friday.
"These notes establish MISO's [Midwest Transmission System Operator's] financial independence," Cordaro said, adding that the funds will provide additional basis for the Midwest ISO's independence as required under FERC Order 2000. He said the unsecured long-term senior notes resulted in attractive pricing for the issue.
Funds from the 8.75% notes, scheduled to mature in 2012, will be used to pay for the MISO's integrated control center communications systems as well as its preoperational start-up costs, Cordaro said. MISO is a nonstock, not-for-profit corporation that will have functional control over a substantial portion of the high-voltage electricity transmission assets in the midwestern US. The MISO control center systems are scheduled to be fully operational by November 2001.
MISO received positive outlooks in ratings from the three major rating agencies. Moody's Investor Services Inc. assigned an A3 rating to the issue, Standard & Poor's and Fitch IBCA, each a BBB+. Key credit considerations among the rating services included strong regulatory support, good credit, strong member credit, and the proposed integration of the Mid-Continent Area Power Pool (MAPP) into MISO.
The Federal Energy Regulatory Commission ruled MISO is entitled to charge a "cost adder" to recover its costs. The "cost adder" is capped at 15�/Mw-hr for the MISO's first 6 years of operation. The adder was established to recover all MISO's operating costs, capital costs (including depreciation) and financing costs, including interest expense.
Nearly all of the transmission-owning members of MISO hold investment-grade debt ratings, Cardaro noted.. Plus, MISO requires any potential members who do not hold an investment-grade debt rating to post cash collateral equal to one month's anticipated fees.
Another favorable event that factored into the ratings was the expected integration of MAPP into MISO, which will create an even larger service area, generating additional revenue with relatively little increase in fixed costs.
The Midwest ISO is the nation's largest independent transmission system operator, servicing more than 255,000 square miles of electrical needs from Ohio to the upper Midwest. Utilities with more than 52,000 miles of transmission lines, 78,000 Mw of electric generation, and about $8 billion in installed assets are participating in the Midwest ISO.
The transmission owners who have signed the MISO agreement are Alliant Energy Corp.; Ameren Corp.; Central Illinois Light Co., an AES Corp. unit; Cinergy Corp.; Commonwealth Edison Co.; Hoosier Energy Rural Electric Cooperative; Illinois Power, a Dynegy Inc. unit; LG&E Corp.; Madison Gas & Electric Co.; Northern States Power Co.; Southern Illinois Power Cooperative; Southern Indiana Gas & Electric Co.; Wabash Valley Power Association; and Wisconsin Electric Power Co.
Merrill Lynch & Co. acted as financial advisor and sole manager of the senior notes.