ATLANTA -- Tallahassee, Fla., has conditionally approved building a $273 million coal-fired power plant to be financed with tax-exempt revenue bonds, a city official said last week.

According to Kevin G. Wailes, assistant director of Tallahassee's electric department, construction of a facility to replace the city's 238-megawatt natural gas-burning plant was authorized July 8 by a 3-to-2 vote of the city council.

Although the new plant will not add any power capacity to the city-owned electric system, Mr. Wailes said, it will enable Tallahassee to tap for power generation a fuel other than natural gas.

The city views such diversification as a desirable means of saving on fuel costs, he said, given the rise in the price of natural gas expected to follow the federal environmental legislation passed last year. According to a study conducted by electric department staff, he said, by 2015, natural gas as an energy source will be three times more expensive than coal.

In addition, Mr. Wailes said, the city hopes to save because it will obtain a no-interest $75 million loan from the U.S. Department of Energy to fine-tune this coal-burning process, which has never been developed on such a large scale. This "circulating fluidized bed" process, he explained, adds lime to burning coal, permitting more complete and cleaner oxidation than that possible in older coal plants.

Mr. Wailes cautioned that the development of the plant could be postponed or delayed, given the two conditions of city council approval: If a developer can build the plant at a lower cost than that currently proposed and if the September study of fuel costs demonstrates that coal will not result in savings.

Opponents of the plant have questioned the assumptions of a previous study, which was conducted in December 1990.

'The city council has moved forward using what many people view to be the reasonable assumption that the new plant would save money because coal is cheaper fuel than natural gas," he said. "But if that assumption can be proved erroneous, there would be problems."

Mr. Wailes said that because most of the $75 million loan from the federal government is expected to be repaid by the developer, the city would only have to pay $212 million of the $273 million of bonds for the project in order to cover additional costs such as issuance expenses and the debt-service reserve fund.

Robert Inzer, Tallhassee's treasurer, said that over the coal plant's three-year construction period, the city could actually sell as much as $350 million of tax-exempt debt for its electric utility system if it also decides to upgrade its electric distribution system at that time. He said he expects construction to begin in mid- to late-1992 and to be finished by the end of 1995.

Mr. Inzer said that bonds would probably not be sold for the coal plant until next spring, when the first large cash needs are expected. At that time, he estimated, about $50 million in bonds would be sold. This sale, he said, could be followed by larger annual sales of perhaps $100 million in size as construction picks up speed.

Like the city's other electric debt, he said, the bonds would be backed by electric user fees charged to the city's 80,000 electric customers.

Mr. Inzer said the negotiated offerings would be underwritten by a Goldman, Sachs & Co.-led team that had been chosen for the city's electric facilities revenue bond deals in 1989. That team, he said, also includes Merrill Lynch & Co.; Smith Barney, Harris Upham & Co.; Clayton Brown & Associates; William R. Hough & Co.; Lehman Brothers Inc.; and Grigsby Brandford Powell Inc.

Gennette Curtis, environmental services administrator for the electric department, said the project must also be approved by state and federal environmental agencies before the facility can be built. She said such approval, however, could come as early as next February, allowing for ground breaking by June 1991.

According to Mr. Inzer, Tallahassee currently has about $100 million of electric revenue debt outstanding. The city's senior lien electric revenues bonds are rated A1 by Moody's Investors Service and AA minus by Standard & Poor's Corp.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.