will not be met are mitigated by the project’s interconnections with two different pipeline sys-
tems, Texas Gas and Gulf States, each capable of meeting the project’s full requirements.
Although at the time of the project financing the Gila River project had not entered into any
long-term fuel-supply arrangements, Pace considered this to be the best approach, given the
project’s access to abundant gas supplies.
Fuel transport risk
The Union project interconnects with two large pipeline systems via its affiliate-owned
pipeline, the El Dorado Project Pipeline. One of these systems, the Trans-Union Pipeline,
has filed with the FERC as an open-access pipeline and may be required to provide trans-
port services to other users in the region. However, a ‘precedent agreement’ that UPP
signed with Trans-Union Pipeline for 419,000 million cubic feet per day (Mcf/d) is suf-
ficient for the plant’s peak daily usage. Pace believes, based on its knowledge of other
recent regulatory proceedings, that the daily amount in the precedent agreement cannot
be pro-rated and reduced by the addition of new customers. Furthermore, during the reg-
ulatory proceedings, only one other potential customer with a 9,000 Mcf/d need
expressed any interest.
The Gila River project has minimised risks associated with reliance on the El Paso
Natural Gas system by:
- establishing hot taps into two different loops of the system to reduce redundancy in the
event of delivery failure; - entering into firm transport contracts for approximately 50 per cent of the project’s peak
fuel transport needs and 65 per cent of average requirements; and - using backhauls and delivered deals with other suppliers holding El Paso’s capacity
rights.
The project has rights of first refusal for 70,000 Mcf/d of firm capacity, or 27 per cent of its
average daily consumption. Finally, Pace expects new pipeline expansions in the west to ease
any current capacity shortfalls that have contributed to historically high prices.
Operator risk
A subsidiary of TPS provides O&M services for the projects. TPS and its affiliates have more
than 100 years of operating experience and currently operate over 4,400 MW of generating
capacity in the United States and other countries. Over the years TPS has gained experience
with many technologies, including simple-cycle and combined-cycle facilities, coal-fired
boilers, oil-fired boilers, and integrated gasification combined-cycle facilities. TPS affiliates
own and operate several power projects using the GE Frame 7F technology.
Equity funding risk
The sponsors, guaranteed by TECO, committed themselves to making cash contributions dur-
ing the construction period to supplement the equity bridge facility, in order to maintain a
60/40 debt-equity ratio.
PANDA ENERGY–TECO POWER JOINT VENTURE, UNITED STATES