TECO Energy’s Power Services subsidiary (TPS) has secured a muchstronger foothold in the wholesale generation market by buying astake in two huge gas-fired merchant power plants being developedby Panda Energy International and by announcing plans to build a$1.2 billion, 850 MW unit adjacent to Citgo Petroleum Corp.’s oilrefinery in Lake Charles, LA.

Panda and TECO announced a joint venture last week on two powerplants that will have a combined capacity to produce 4,600 MW ofpower. One plant will be located in El Dorado, AR, and the other inGila 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 ofdevelopment, with siting, permitting and other agreements in place.Both projects will be similar in design, using efficient GE 7Fcombined-cycle technology.

“With this transaction, TPS is now part of the top tier ofgeneration companies. Our 1,200 MW GenPower project acquisitionannounced in October, combined with the El Dorado and Gila Riverprojects, puts TPS in the top 10 independent power companies in thenation and the top 20 independent power companies worldwide,” saidTECO Power Services President Rick Ludwig.

TECO Energy Chairman Robert Fagan said the Panda deal gives TECOas a whole more than 10,000 MW of generation capacity. The 2,220 MWEl Dorado project is being constructed to interconnect withEntergy-Arkansas’ transmission substation with access to wholesalecustomers throughout Arkansas and Louisiana, as well as portions ofMississippi and Texas. The plant also will sell into thesurrounding states of Oklahoma, Missouri and Illinois.

The 2,350 MW Gila River project will be located southwest ofPhoenix, AZ, in Gila Bend. It will be interconnected with the PaloVerde substation, with plans to sell electricity to wholesalecustomers throughout Arizona, with excess energy available toSouthern California, Nevada and New Mexico. The first phase of bothprojects should be in service by summer 2002, with the rest comingon the following summer.

TECO said the projects are expected to be neutral to itsearnings during construction and to significantly increase earningsin 2003, the first full year of operations. During construction,TPS expects to utilize 100% debt construction financing, most ofwhich will be non-recourse, as is typical of project finance in theindependent power industry. The project equity investment of $960million, which will be made by TPS at commercial operation in2002-2003, will be financed through cash flow from operations andother external financing by TECO Energy. TPS will receive apreferred return on the projects, producing higher income in theearly years of the projects.

TECO also signed a memorandum of understanding last week withCitgo Petroleum for the Lake Charles power project, which isexpected to begin operation in January 2005. Under the MOU, Citgo,a subsidiary of Venezuelan state-owned Petroleos de Venezuela, willsupply the adjacent power plant with its fuel source – petroleumcoke, a heavy grade byproduct of the oil refining process, andexcess refinery fuel gas. TECO will use a gasification technologyfrom Texaco Development Corp. to convert the petroleum coke to asynthetic gas to power the turbines to make electricity. TexacoPower and Gasification Global Inc. has the right to participate indeveloping the plant and take up to a 50% ownership interest. TECOPower Services said 670 MW of the new power capacity will bemarketed into the southern wholesale electricity market, with halfof that total under contract. The new power plant will use 180 MWof its generation to run the process to produce the synthetic gas.In addition, the Citgo refinery will use excess steam from theplant to generate electricity for on-site use.

In light of these new power projects, TECO Energy CFO GordonGillette said the company is “on track to achieve 10% basicearnings growth in 2001 with some additional upsides. Longer term,our new independent power projects have added definition to ourearlier forecast in which we targeted 10% earnings growth for 2002and beyond.”

TECO’s principal businesses are Tampa Electric, Peoples Gas andTECO Power Services. Panda is a privately held, non-regulatedelectric generation company. Overall, Panda has more than 17,000 MWof electric generating capacity currently under advanceddevelopment.

Rocco Canonica

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