AMP Confident In Financing For Ambitious Power Plant Expansion Bid
Money still is tight in the credit markets, but executives at American Municipal Power Inc. think they can land enough financing to cover $5B in power plant construction in the coming years.
"We know we have to work at it harder," said Marc Gerken, CEO of the Columbus-based nonprofit power supplier, which serves 128 municipal electric systems in six states. "But it's going well."
AMP recently broke ground on the first of five hydroelectric power plants it expects to build on dams along the Ohio River at combined cost of nearly $2B. The first project, near Hawesville, Ky., carries a $416M price tag and will generate 84 megawatts of electricity – enough to power about 84,000 homes for an hour at a time. It will be among four AMP hydro plants under construction by the first quarter of 2010, Gerken said. Work on a fifth is expected to begin by 2012.
Gerken said AMP also is moving forward with plans to build a $3B coal-fired power station in southern Ohio, with construction possibly starting in the first quarter of 2010. It is to feature what AMP is calling state-of-the-art equipment to limit emissions of carbon dioxide and other pollutants, but the project has been criticized by environmental groups for lacking the latest clean-coal technology.
Financial plan seen as solid
Investors are interested in the sort of "green" hydroelectric projects being developed by AMP in a climate in which Congress is considering caps on carbon dioxide emissions from coal-burning power plants, said Christopher Jumper, an analyst who tracks the energy industry for Fitch Ratings Ltd.
"It's about being able to tap a natural resource," he said, "to provide clean energy."
Fitch in April assigned an F1 rating – its second-highest for short-term credit issues – to AMP's $350M in bond anticipation notes to support construction of three of the hydro plants. Fitch also gave an implied long-term rating of A to the projects, its third-highest rating for investment-grade bonds.
Jumper said the favorable ratings stem from how AMP plans to pay down debt for the projects and its experience with power plants. AMP has three member-owned hydroelectric plants on the Ohio River and a coal-burning power plant in Marietta.
On the repayment front, Jumper said investors like that AMP has long-term "take-or-pay" contracts in which municipal electric systems agree to pay their share of construction costs even if a power plant never goes on line. The contracts also contain provisions in which participating power systems are required to boost their stake in a project by up to 25 percent of their original investment if another participant defaults.
Another strength, Jumper said, is the financial stability and diversity of the municipal power systems participating in the hydro projects. Systems in 79 communities are investing in the hydro projects, said Gerken. Putting money to work
But Fitch's analysis also said there are risks to AMP's hydro projects. They include AMP's ability to maintain lines of credit sufficient to support the bond anticipation notes and construction issues associated with timely completion and cost.
Jumper said there is more uncertainty with AMP's proposed coal-fired plant project in Meigs County, because of the debate in Congress over so-called cap-and-trade legislation on carbon emissions and questions about long-term power demand in the Midwest.
"At this point," Jumper said, "(AMP) is sitting there, weighing what the market is like in Ohio, what their members will need in the slower economy in that region and the downturn in (electricity) usage nationwide."
Gerken said one of the main reasons AMP is doing the hydroelectric and Meigs County projects is to give members greater control over where they will get their power. AMP members buy 63 percent of their electricity on the open market where prices are volatile, he said. That will drop to about 17 percent once all the new plants are working.
Building the power plants also will boost local economies, Gerken said, with 200 to 400 construction jobs expected at each site. Once operational, each plant is to have about a dozen permanent employees.
"We're trying to get $1.9B into the economy and stimulate jobs that pay taxes to local governments," Gerken said.
The economic impact will be felt in Columbus where AMP has its headquarters. It has 135 employees here and plans to hire 20 more in 2010 to support the construction projects, Gerken said. He expects AMP's employment, including jobs at the power plants, to reach 400 by 2014, up from 237.
SOURCE: American Municipal Power Inc.