After the Tennessee Valley Authority successfully completed a lease-purchase agreement in mid-January that infused it with $1 billion to spend on capital construction, the federal power producer expects to begin working on a second transaction this spring.
TVA is nearing the $30-billion debt cap—congressionally mandated in 1979—and needs to raise capital to complete planned projects. It expects to spend $2 billion on large capital projects this year and $9 billion through 2014, says Chief Financial Officer John Thomas. TVA's debt now hovers at around $26 billion.
TVA completed a transaction with an unnamed large institutional investor that put up $100 million in equity and sold $900 million in bonds to purchase the 880-MW John Sevier natural-gas-fired plant under construction in Rogersville, Tenn. TVA will lease back the plant for 30 years, after which it will have ownership. The utility also will operate and maintain the facility, set for completion by midyear. "Use of lease-purchase financing gives us greater financial flexibility," Thomas says.
TVA also plans to sell and lease back $1 billion worth of pollution-control upgrades at its Gallatin, Tenn., coal-fired plant, Thomas says. The equipment must be installed by December 2017 under a pact with the U.S. Environmental Protection Agency. TVA also is considering a similar transaction for a $650-million pollution-control project at the Allen coal-fired plant near Memphis. Work must be finished by the end of 2018.
The multibillion-dollar second nuclear unit under construction at the Watts Bar plant in Tennessee is another candidate, Thomas says. After cost and schedule slippages, the 1,180-MW project now is set to come on line in 2014, two years later than the original estimate and significantly over budget, he notes. Lease-purchase must be completed before the facility comes on line.
The in-service date is not as critical as how effectively the project can be completed, said TVA CEO Tom Kilgore on Feb. 3. Bechtel Power is the engineer-procure-construct contractor, but TVA assumed management oversight last fall (ENR 10/31/11 p. 19). So far, construction is about 70% complete at a cost of $2.3 billion, nearly reaching the original $2.5-billion total cost estimate.
TVA expects to have a good cost and schedule estimate by late March, once it completes an intensive construction review. "We're looking for an optimal level of resources," Kilgore says. On Jan. 18, TVA ordered a stand-down at the site after finding two critical construction errors; workers were not allowed to return until Jan. 23. TVA found that cables had been incorrectly removed in December from Watts Bar 1, the 1,170-MW nuclear unit in operation, rather than from the unit under construction. The error had the potential for fatal consequences, Kilgore says. In the second incident, workers removed a valve that was providing a safety barrier for other work on another component or system, he adds.