TVA to sell nuclear reactor

Power plant leasebacks and transfers* In 1988, El Paso Electric Co. sold and leased back approximately 40 percent of its 15.8 percent interest in Unit 3 of the Palo Verde Nuclear Generating Station for a purchase price of approximately $250 million.* In 1990, CMS Energy Corp. sold part of its Midland Cogeneration Venture power plant for $2.3 billion.* In 2005, a subsidiary of First Energy Corp., acquired control of the Beaver Valley Power Station, Davis-Besse Nuclear Power Station, and Perry Nuclear Power Plants from Cleveland Electric Illuminating Company, Ohio Edison Co., Pennsylvania Power Co,, and the Toledo Edison Co.

photo Harold DePriest, president and CEO of EPB

For the first time in its 78-year history, TVA plans to put a nuclear power reactor on the auction block - all in hopes of raising money to complete another nuclear plant.

With the plan, TVA hopes to sell the new Watts Bar Unit 2 reactor, along with the new John Sevier combined cycle gas plant, to finance the $4.9 billion completion of Bellefonte Nuclear Plant, a 37-year-old, half-finished reactor in Hollywood, Ala.

Kim Greene, TVA group president of strategy and external relations, said Tuesday that the utility expects to raise $900 million to $1 billion for the gas plant and up to $2.5 billion on the sale of the new Watts Bar reactor, which would then be leased back to TVA.

"There have been sale/lease-backs of nuclear units in the past, and I do believe the closer we are to completion of construction, the easier it will be [to sell the reactor]," she said. "At this point, we have indications from the market that there would be an appropriate amount of interest in the Watts Bar Unit 2 facility."

The Watts Bar reactor is expected to be completed in 2013.

But finding a buyer may prove harder than TVA anticipates.

"I support nuclear and want TVA to pursue it, but I don't want to own Watts Bar," said EPB President Harold DePriest, who also is the chairman of the Tennessee Valley Public Power Association and the vice chairman of Seven States Power Corp., a cooperative of TVA power distributors formed in 2007 to pursue joint ventures and shared ownership of the utility's power-generating equipment.

"I have no interest into buying into nuclear," said DePriest, who is one of several distributors who told TVA's board members last week that they should finish Bellefonte as a nuclear plant.

Seven States Power already has agreed to buy and lease back to TVA a combined cycle natural gas plant at TVA's Southaven plant in DeSoto County, Miss., and the distributors could buy other assets from TVA.

"We'll be talking with [TVA] to see what else we may do," DePriest said.

A decade ago, TVA rejected an offer for a lease-back arrangement on the unfinished Bellefonte with Chattanooga developer Franklin Haney. At the time, TVA still was evaluating its options for Bellefonte and wanted to try to finish the plant with its own money, officials said.

Ratepayer concerns

TVA officials have acknowledged the sale/lease-back financing method is likely to be slightly more expensive than if TVA funded the project entirely on its own with bonds.

But TVA's debt -- currently $24 billion -- is approaching a $30 billion cap set by Congress in 1979, so the federal utility may not have much choice if it wants to continue to build multibillion-dollar nuclear plants while adding air pollution controls to old coal plants or replacing other plants with new gas-fired units.

The lease-back is considered an alternate form of financing and does not fall under the debt cap.

Greene said TVA's financial health is good, but "clean air equipment, the combined [natural gas] cycle plant and Bellefonte cost money, and this is where we get into the discussion of how to finance this. We are looking for alternative ways to finance it."

photo Kim Greene is leaving her TVA position as group president of strategy and external relations to work for Southern Co.

Greene said TVA will not seek competitive bids on its proposed sale and lease-back of the John Sevier plant until the fall. The utility will not seek bids on the new Watts Bar reactor sale and lease arrangement until the spring, she said.

She said TVA hasn't pressed Tennessee's congressional delegation about raising TVA's debt limit, even though the utility is facing Bellefonte's $4.9 billion completion cost, $1.6 billion in new coal plant air scrubbers expenses and the cost of buying the plant in Mississippi.

"Given the situation with the country, this doesn't seem a good time politically" to seek a debt-limit increase, Greene said.

Within minutes of the conclusion of Thursday's TVA board meeting, U.S. Sen. Bob Corker and U.S. Sen. Lamar Alexander, both R-Tenn., went on record commending the board for its vote to complete Bellefonte. On Tuesday, neither would commit to changing TVA's debt limit.

Alexander said he would consider helping TVA navigate alternatives.

"I believe TVA should have financial flexibility to achieve its clean-energy goals, which requires building new nuclear power plants and putting pollution-control equipment on coal plants. If TVA has a better way than the current financial structure to achieve those goals, I will be glad to consider it, especially if it helps keep electric bills lower," Alexander said through spokesman Jim Jeffries.

Corker, too, said he wants to help TVA but would not say specifically if that meant raising the utility's debt limit.

"I'm glad TVA is expanding its nuclear power footprint and am continuing to discuss with them the most prudent ways to finance expansion of clean, reliable base load power while keeping rates in the valley as low as possible," the senator said in a statement released by Corker spokesman Chuck Harper.

TVA Chief Financial Officer John Thomas said Tuesday that TVA's debt limit, had it been raised proportionally with the consumer price index, would now be about $90 billion.

The interest TVA pays is about 11 cents out of every revenue dollar, Thomas said. In 1996, he said, the utility paid about 35 cents from every revenue dollar to cover interest costs.

Compared to eight other peer utilities -- including Duke, Southern and Entergy, all of which must pay interest and dividends -- TVA's debt burden is third lowest.

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