TECO Grabs Share of Panda's Merchant Plants
TECO Energy's Power Services subsidiary (TPS) has secured a much
stronger foothold in the wholesale generation market by buying a
stake in two huge gas-fired merchant power plants being developed
by Panda Energy International and by announcing plans to build a
$1.2 billion, 850 MW unit adjacent to Citgo Petroleum Corp.'s oil
refinery in Lake Charles, LA.
Panda and TECO announced a joint venture last week on two power
plants that will have a combined capacity to produce 4,600 MW of
power. One plant will be located in El Dorado, AR, and the other in
Gila Bend, AZ. They are projected to cost $2.3 billion to build.
TECO's equity commitment is $960 million.
The El Dorado facility already is in the construction phase,
whereas the Gila River project is in an advanced stage of
development, with siting, permitting and other agreements in place.
Both projects will be similar in design, using efficient GE 7F
"With this transaction, TPS is now part of the top tier of
generation companies. Our 1,200 MW GenPower project acquisition
announced in October, combined with the El Dorado and Gila River
projects, puts TPS in the top 10 independent power companies in the
nation and the top 20 independent power companies worldwide," said
TECO Power Services President Rick Ludwig.
TECO Energy Chairman Robert Fagan said the Panda deal gives TECO
as a whole more than 10,000 MW of generation capacity. The 2,220 MW
El Dorado project is being constructed to interconnect with
Entergy-Arkansas' transmission substation with access to wholesale
customers throughout Arkansas and Louisiana, as well as portions of
Mississippi and Texas. The plant also will sell into the
surrounding states of Oklahoma, Missouri and Illinois.
The 2,350 MW Gila River project will be located southwest of
Phoenix, AZ, in Gila Bend. It will be interconnected with the Palo
Verde substation, with plans to sell electricity to wholesale
customers throughout Arizona, with excess energy available to
Southern California, Nevada and New Mexico. The first phase of both
projects should be in service by summer 2002, with the rest coming
on the following summer.
TECO said the projects are expected to be neutral to its
earnings during construction and to significantly increase earnings
in 2003, the first full year of operations. During construction,
TPS expects to utilize 100% debt construction financing, most of
which will be non-recourse, as is typical of project finance in the
independent power industry. The project equity investment of $960
million, which will be made by TPS at commercial operation in
2002-2003, will be financed through cash flow from operations and
other external financing by TECO Energy. TPS will receive a
preferred return on the projects, producing higher income in the
early years of the projects.
TECO also signed a memorandum of understanding last week with
Citgo Petroleum for the Lake Charles power project, which is
expected to begin operation in January 2005. Under the MOU, Citgo,
a subsidiary of Venezuelan state-owned Petroleos de Venezuela, will
supply the adjacent power plant with its fuel source - petroleum
coke, a heavy grade byproduct of the oil refining process, and
excess refinery fuel gas. TECO will use a gasification technology
from Texaco Development Corp. to convert the petroleum coke to a
synthetic gas to power the turbines to make electricity. Texaco
Power and Gasification Global Inc. has the right to participate in
developing the plant and take up to a 50% ownership interest. TECO
Power Services said 670 MW of the new power capacity will be
marketed into the southern wholesale electricity market, with half
of that total under contract. The new power plant will use 180 MW
of its generation to run the process to produce the synthetic gas.
In addition, the Citgo refinery will use excess steam from the
plant to generate electricity for on-site use.
In light of these new power projects, TECO Energy CFO Gordon
Gillette said the company is "on track to achieve 10% basic
earnings growth in 2001 with some additional upsides. Longer term,
our new independent power projects have added definition to our
earlier forecast in which we targeted 10% earnings growth for 2002
TECO's principal businesses are Tampa Electric, Peoples Gas and
TECO Power Services. Panda is a privately held, non-regulated
electric generation company. Overall, Panda has more than 17,000 MW
of electric generating capacity currently under advanced