published Wednesday, January 18th, 2012

Accord worth $1 billion to TVA

The Tennessee Valley Authority gave up ownership of its biggest gas-fired power plant Tuesday to recoup $1 billion to help pay to build more power generation.

But under the new 30-year leaseback arrangement, TVA will continue to operate and get the power from its new combined cycle gas plant and will end up again owning the 880-megawatt station by 2042.

TVA Chief Financial Officer John Thomas said the deal attracted three times as many investors as needed this week. TVA’s financing costs for the $1 billion deal will remain under 5 percent, or about $10 million a year.

“There was a strong interest in TVA’s credit; we were very pleased with the transaction, and we felt pretty good about the interest rate we ended up with,” Thomas said Tuesday night.

Although the financing costs of the arrangement are about 25 percent higher than if TVA issued its own bonds for the plant, the leaseback arrangement will keep the debt off of TVA’s balance sheet. That will help TVA stay beneath its congressionally imposed $30 billion debt cap and free up money to help finance additional nuclear power plants, TVA spokesman Duncan Mansfield said.

A limited liability corporation bought the combined cycle gas-fired plant being built on the site of the soon-to-be-idled John Sevier coal plant near Rogersville, Tenn. TVA will lease and operate the gas plant and get all of its power.

A private investment group organized as John Sevier Combined Cycle Generation LLC funded the purchase with $100 million of equity and $900 million of bonds priced Tuesday at an interest rate of 4.626 percent.

TVA recently sold its own 10-year bonds priced at 3.875 percent — the lowest ever for TVA 10-year notes and well below the rate gained by the John Sevier investment group Tuesday.

But turning to outside investors will free up money to help TVA finance part the installation of more than $1 billion of extra scrubbers on TVA coal plants and the planned $4.9 billion completion of the first reactor at the Bellefonte Nuclear Power Plant.

Thomas said the transaction is similar to leasing a car, although in 30 years TVA will own the plant outright.

“From an operational standpoint, it is pretty seamless,” he said. “TVA will maintain the facility, purchase fuel for it and take all the power it generates.”

Thomas said TVA will next look at trying to undertake a similar leaseback deal on new environmental controls being installed at TVA coal plants. If that proves successful, TVA will explore a leaseback deal for the Watts Bar Unit 2 reactor being finished near Spring City, Tenn.

Those deals will help TVA pursue plans to spend another $4.9 billion to finish the first reactor at its incomplete Bellefonte Nuclear Plant in Hollywood, Ala., within the next decade.

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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