By the OGJ Online Staff
HOUSTON, Jan. 22 -- Construction funding has resumed on the 2,200 Mw Union and 2,200 Gila Bend power plants, the nation's two largest merchant energy projects, TECO Energy Inc. and Dallas-based Panda Energy International Inc. reported Tuesday.
Funding for the $1 billion projects was halted because a unit of Enron Corp. is the engineering, procurement, and construction (EPC) contractor for the Union plant in El Dorado, Ark., and Gila River plant in Gila River, Ariz. Enron had guaranteed its Nepco subsidiary's obligations under the construction contracts. After Enron filed for protection from its creditors, project lenders halted funding under the $1.6 billion, 5-year nonrecourse financing.
Under an agreement with lenders, TECO, Tampa, Fla., replaced Enron as the guarantor of certain Nepco's obligations, including payment of any project cost overruns, currently estimated at $63 million. TECO said it also has begun efforts to obtain financing for the Dell and McAdams power stations, for which Nepco is also serving as EPC contractor.
Earlier this month, credit rating agency Fitch IBCA downgraded Teco Energy and its Tampa Electric unit, citing TECO's increased leverage, the business risk associated with independent power projects, and its exposure to Nepco.
Responding to credit concerns, the company reduced planned capital expenditures in 2002-2004 by about $700 million, primarily by delaying generation projects not yet under construction, including the recently announced Bayside Units 3 and 4 repowering project. The company said it expects to raise money through the sale of common equity and mandatorily convertible securities.
