TVA to Lease John Sevier Gas Plant to Help Complete Bellefonte
A lease-purchase transaction for a new combined cycle plant in Rogersville, Tenn., completed by the Tennessee Valley Authority (TVA) on Tuesday could provide the U.S. government–owned corporation $1 billion in financing to support completion of the 1,260-MW Bellefonte Nuclear Plant in Hollywood, Ala., by 2020.
The utility said that after completing the 880-MW John Sevier Combined Cycle Plant this summer, it will lease the natural gas–fired plant to John Sevier Combined Cycle Generation LLC for $1 billion, over 30 years.
The TVA last August approved construction of the $4.9 billion Bellefonte Nuclear Plant in Alabama. That month the company’s board also discussed financing construction of the plant with the sale or lease of its Watts Bar Unit 2 reactor—which is scheduled to be completed later this year—and the $820 million John Sevier combined cycle gas plant.
Construction of the two-unit Bellefonte nuclear plant began in 1974, but work was suspended in 1988 in response to declining demand. Unit 1 was the furthest along, considered about 90% complete when work halted in 1988. Today it is considered about 55% complete due to the transfer or sale of many components and the need to upgrade or replace others.
The TVA decided to complete construction of the $2.5 billion Watts Bar 2 project in August 2007 to help meet its growing demand for power. When completed as is expected later this year, the 1,180-MW Unit 2 will be the first new reactor in the U.S. to achieve commercial operation since Watts Bar 1 was completed in 1996.
Construction of the John Sevier Combined Cycle plant began in April last year.
“The use of lease-purchase financing gives us greater financial flexibility as we pursue a number of significant capital projects to realize our vision of providing cleaner energy,” Chief Financial Officer John Thomas said in a statement on Tuesday. “As a supplement to traditional bond financing, the use of lease financing can help hold down costs and rates for our customers.”
Thomas described the transaction as “pretty seamless” from an operational standpoint: “TVA will maintain the facility, purchase fuel for it and take all the power it generates,” he said.
Financing for the lease purchase consists of a $100 million equity investment and a $900 million bond issue, both of which are secured by the TVA’s rental payments. The bonds are issued by the limited liability company and are rated Aaa by Moody’s Investors Service, AA by Fitch Ratings, and AA-minus by Standard & Poor’s. The bonds are not obligations of TVA or the United States and are not federally guaranteed.
The bonds have a coupon rate of 4.626% and will mature on January 15, 2042. Morgan Stanley, Bank of America Merrill Lynch, and Barclays Capital served as lead underwriters.
TVA has used leasing to fund its capital investment projects in the past, along with traditional power bonds and other third-party financing arrangements such as power prepayments. “Leasing is common in the utility industry, and such secured financing can provide TVA with a cost-effective way to pay for long-term capital projects. TVA’s ability to effectively use such financing reflects investor confidence in TVA, our strategy and the projects that are needed to realize our vision,” Thomas said.
Sources: POWERnews, TVA