Public Power - September/October 2007 - (Page 32)

What’s in Your Wallet? cost of the project once it is in service. Finally, if the PPA does not create an obligation to your utility unless the project is producing power, then your utility is not carrying the project as a liability (in other words, the project is “off balance sheet”). This type of arrangement can be structured with multiple partners. The best approach is to have the entity with the best credit rating act as the project developer. That entity can set up the initial project company and the first PPA and use the strength of its credit rating either to guarantee the project or be the initial power recipient. To help lower its project debt service, it could seek partners to pre-pay PPA obligations. The PPA price could be lowered to reflect an equitable sharing of the advance cost of capital as offset by any project risk assumed by the developer. One of the permutations of this type of arrangement is shown in the illustration. There are many options and arrangements for utilities to participate in development of new generation. In considering these, it is important to consider a few key factors: • What kind of generation technology are you proposing? Is it first-of-a-kind or mature? Are the constructors and engineers experienced in developing this type of technology? The answers to these questions help establish the construction risk for the project and set the initial boundaries for financing and ownership alternatives. • Should you partner in development of the project? If so, what is your partner’s risk profile? Is it some form of limited recourse entity? Is its credit rating lower than yours? Why? Assume an ownership structure that does not leave you with a greater risk profile in the project than your partner’s. • What project risks should your utility or customers bear? Are you willing to assume risks associated with purchasing power? How secure are your rights to power? Are you guaranteeing the project either directly or indirectly? Have you considered all of the alternatives? Balance project risk by creating a structure appropriate for holding and financing your project. When it is a big project, in terms of risk or capital, work with lawyers and bankers to make sure you have considered all reasonable alternatives available to you. There is no promise that you can always keep the Visigoths from chasing you. However, if you evaluate risks and alternatives associated with the development of new generation, and properly structure your participation in your next generation project, you may keep them off your doorstep. s Bob Temple is deputy general counsel for CPS Energy in San Antonio. Prior to joining CPS Energy, his law practice included drafting and negotiating purchase and sale of generating stations, power purchase agreements, and other large commercial contracts. He is currently working on one of CPS Energy’s future generation projects. EZ-THUMP TM URD FAULT LOCATION TOOL • Simple Push Button Operation • No Adjustments Whatsoever • Clear Alphanumeric readout displays exact location of transformers and fault • 12 kV, 500 Joule Operation • < 10 second thump cycle Easy to Use, Easy to Locate, EZ-ThumpTM HDW Electronics, Inc. 89 S Commerce Way Suite 940 Bethlehem, PA 610-861-8862 www.hdwelectronics.com E-mail: sales@hdwelectronics.com Visit us at booth #805 at ICUEE October 16-18, 2007 32 SEPTEMBER-OCTOBER 2007 PUBLIC POWER http://www.hdwelectronics.com

Table of Contents Feed for the Digital Edition of Public Power - September/October 2007

Contents Washington Focus 10 Questions Public Power (Every) Week Training Tomorrow’s Work Force What’s in Your Wallet? U.S. Lags in Broadband Deployment Now What? For Engineers Safety Community Broadband For Governing Boards Human Resources Hometown Connections Customer Service DEED Index to Advertisers Advertisers by Category Parting Shot

Public Power - September/October 2007

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