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TECO Grabs Share of Panda's Merchant Plants

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 combined-cycle technology.

"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 and beyond."

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 development.

Rocco Canonica

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