By the OGJ Online Staff
HOUSTON, Jan. 9, 2002 – Florida energy holding company TECO Energy Inc. Wednesday said it is making progress lining up $1.2 billion to complete two power projects for which an Enron Corp. subsidiary is serving as construction contractor.
If the proposal isn’t approved by Jan. 11, TECO and its joint venture partner Panda International Inc., Dallas, Tex., have until Jan. 31 to find another lender.
Tampa-based TECO also said it will delay construction of other power projects and issue new shares to shore up the balance sheet. Last week 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.
Because Enron guaranteed Nepco’s obligations under the construction contracts, the Enron’s Chapter 11 bankruptcy filing allowed project lenders to stop funding construction costs for the $1.1 billion, 2,200 Mw Union power plant in El Dorado, Ark., and the 2,200 Mw project in Gila Bend, Ariz. The two plants are the largest independent power projects in the US.
The proposed financing plan involves TECO Energy replacing Enron as the guarantor of NEPCO’s obligations under the construction contracts for these two projects. Under a proposal to the lead project lenders, TECO said, funding will resume upon final bank approval at the previously agreed upon 60-40 ratio of nonrecourse debt to project equity.
The new plan includes a provision to accelerate $200 million of project equity contributions to midyear 2002. As a result, the complete project equity commitment of $1.12 billion would be expected by October 2002, TECO said, rather than the originally planned mid-2003 date.
The other two projects, Dell and McAdams, are owned by a unit of TECO Energy and were in the process of being financed. TECO said it will resume efforts to fund the projects after financing is in place for the Union and Gila River projects.
Because of the accelerated equity commitments for the Union and Gila River projects, TECO said it is exploring various options to strengthen its balance sheet. As a first step, the company will reduce capital expenditure forecast for 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.
TECO said the plan will cut 2002 expenditures by $320 million. It said most of the reduction will occur in 2003, when expenditures are $280 million lower than forecast in October 2001.
TECO said the plan will cut the need for external financing to less than $1.6 billion in 2001-2004 from the previously forecast $2.3 billion. The company said it expects to raise about half through common equity and mandatorily convertible securities.
TECO Energy reported a 14% increase in 2001 earnings per share to $2.26 from $1.99/share for 2000. Fourth quarter earnings increased 2% to 47-/share from 46-/share in 2000.
Full-year 2001 net income was $303.7 million, up 21% compared with 2000’s net income of $250.9 million. Net income for the quarter was $64.8 million, 12% higher than the $57.8 million recorded in 2000. Full-year 2001 revenues rose 15% to more than $2.6 billion, up from $2.3 billion last year.
TECO Energy Chairman Robert Fagan said the company is targeting earnings-per-share growth of 5% or more this year. He called 2002 a transition year, “while we continue the construction of major TPS generating projects expected to come on line and add to earnings in 2003.”