TVA exchanges $400 million of leases on gas plant

TVA exchanges $400 million of leases on gas plant

August 10th, 2013 by Dave Flessner in Business Around the Region

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TVA distributors who bought into a gas-fired generation plant five years ago are cashing out that investment to put $400 million into a virtual power source derived from new load management programs.

Seven States Power Corp., the Chattanooga-based financing group organized by the Tennessee Valley Public Power Association, announced Friday the corporation is giving up its ownership share of TVA's Southaven Combined Cycle Plant in Desota County, Miss. Seven States will take that money and invest with TVA in new demand-response and peak-shaving programs that help better manage the power load for TVA and its 156 distributors.

'These customer-driven programs will help TVA and local power companies continue to provide reliable, low-cost, affordable power to Tennessee Valley customers," TVPPA President Jack Simmons said in announcing the deal.

Through Seven States, TVA distributors purchased a $400 million stake in 2008 in the Southaven gas plant in Mississippi, which TVA operates to supply power across its 7-state region. TVA is replacing Seven States' lease agreement for the Southaven plant with a new lease-purchase agreement with an investment group organized as Southhaven Combined Cycle Generation LLC.

The outside equity group paid $400 million to TVA Friday to acquire most of the 774-megawatt gas facility in place of Seven States. TVA will lease a 90 percent interest in Southaven to the investment group and TVA will operate the plant for the next 20 years in a lease arrangement with the outside investors.

Bonds for the Southaven deal were backed by TVA and sold at average interest rate of 3.846 percent. TVA enjoys the implied backing of the federal government, but U.S. Treasurys have risen this spring and the bond sale is the biggest yet involving TVA since President Obama proposed in April a possible sale or privatization of TVA, which could undermine the utility's low-cost financing.

"There was a lot of investor interest in this deal and we think we got some very favorable rates," TVA spokesman Duncan Mansfield said.

The lease-back arrangement with the outside investment group for the Southaven plant is similar to a $1 billion lease-back arrangement TVA entered into last year for the John Sevier gas plant near Rogersville, Tenn.

"This lease financing provides TVA with a cost-effective way to pay for this long-term capital project as we continue to move toward a more diversified generation portfolio," TVA Chief Financial Officer John Thomas said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.