The Tennessee Valley Authority said Aug. 9 that it has completed a lease-purchase transaction that provides $400m in financing to acquire the Southaven Combined Cycle Plant in Desoto County, Miss.
The deal will give TVA sole ownership of the 774-MW natural gas facility that TVA has operated under joint ownership since 2008 with Seven States Power Corp., a member-owned generation and transmission cooperative formed by local power companies served by TVA.
TVA will lease a 90% interest in Southaven to Southaven Combined Cycle Generation LLC, for which TVA will receive $400m in proceeds. TVA will operate the plant under lease for 20 years, will continue to be responsible for all maintenance and fuel for the plant, and will receive all electricity generated from the plant to use in serving TVA customers.
“We are pleased with the success of this financing, which drew broad investor support and establishes a new opportunity for programming with TVA’s customers,” said utility Chief Financial Officer John Thomas.
Seven States will use proceeds from TVA’s acquisition of its stake in Southaven to develop load management programs benefiting local power companies and TVA. “These customer-driven programs will help TVA and local power companies continue to provide reliable, low-cost, affordable power to Tennessee Valley customers,” said Jack Simmons, Seven States Power president and CEO.
The financing consists of a $40m equity investment and $360m from the sale of senior notes, both of which are secured by TVA’s rental payments. The notes have been rated Aaa by Moody’s Investors Service, AA by Fitch Ratings, and AA-minus by Standard & Poor’s. The financing issued by Southaven Combined Cycle Generation LLC is not a direct obligation of TVA or the U.S., and is not federally guaranteed.
“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,” Thomas said. “It also offers us greater financial flexibility and helps diversify our investor base.”
TVA said it has used lease financing to fund its capital investment projects in the past, most recently with a lease-purchase financing of the John Sevier Combined Cycle Plant in 2012. TVA also uses traditional power bonds and other third-party financing arrangements, such as power pre-payments.
TVA operates 11 high-efficiency, low-emission combined cycle gas units at five sites, including three units at Southaven, all of which it has built, leased or acquired since 2007. TVA has lately been moving, under pressure from federal and state authorities, to shut or retrofit its coal-fired capacity for clean-air reasons, with gas a major replacement for that capacity, along with nuclear.