October 8, 2009

A bridge loan to nowhere:

State officials' criticisms of loan trampled in rush to subsidize AMP coal plant project

Do AMP member communities know they are already on the hook for $30 million even if AMP can't get financing to build the plant?

Paul Ryder, Organizing Director
Ohio Citizen Action

On June 9, Ohio Governor Ted Strickland announced that the State would give AMP-Ohio (now called "AMP") a $30 million interest-free "bridge loan" for five years for its proposed coal plant in Meigs County. The loan comes out of stimulus money administered by the Ohio Air Quality Development Authority.

But internal state documents unearthed by an Ohio Citizen Action public records request show that the premises of the loan had been lacerated by state officials during the review process in April.

The key memo examining the premises of the loan application was written on April 2 by Bob Brown, Project Manager, Ohio Coal Development Office, which is part of the Ohio Air Quality Development Authority. In it, Brown argued --
No information has been provided on the status of efforts to line up financing of $3.2 Billion for the project. If the project is to start construction by January 2010, negotiations with banks should be in an advanced stage. . .Also, there is a catch 22 here as follows -- should OCDO [Ohio Coal Development Office] invest $30 million in a project that cannot possibly obtain funding at the banks and if funding is likely, why is a $30 million bridge loan important in obtaining that funding?
AMP had originally asked for an unrestricted $30 million "bridge loan" to begin construction on the plant because it had not found long-term financing. $30 million represents less than 1% of the $3.2 billion cost of the proposed plant.

A "bridge loan," according to Forbes, is "A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate or inventory."

The memo continues:
The last line of the AMPGS [AMP Generating Station] budget states it is anticipated the OCDO loan will be used within the first few months after receipt on project-critical items. No further information is provided defining project critical items. . . It appears there is no commitment of AMP to invest funds into the project in parallel with OCDO funding.
. . . AMP anticipates repaying the OCDO loan over 5 years via issuance of long term debt. Since OCDO funds are such a small part of the project, shouldn't the OCDO funds be repaid when capital has been secured to start construction of the project? Since this is to be a bridge loan, should there be a deadline of about a year at which time the OCDO funds would be due. If the project is to proceed according to the schedule presented, funds for the project will have be be in place by that time. If AMP cannot obtain the funding within a year, why should OCDO funds remain tied up by AMP?
After AMP submitted its loan application, it learned that an Authority loan could not be unrestricted, and said instead that the money would be restricted to capital expenditures for the commercial deployment of the experimental Powerspan pollution control technology. It later provided an estimated Powerspan-only disbursement schedule from the third quarter of 2009 through the third quarter of 2010, coincidentally totalling exactly $30 million.

The restriction of the loan to Powerspan-related expenditures answers none of the questions raised in the April memo, and in fact, strengthens them.

On May 12, seven weeks after his initial memo, Brown recommended, without qualification, that the Technical Advisory Committee of the Ohio Air Quality Development Authority approve the loan. The Committee accepted his recommendation, and the Authority Board followed suit. It is not important whether Brown retracted his objections because he had changed his mind or because he was pressured. What is important is that the arguments in his April 2 memo still fit.

On September 23, AMP offered short-term Bond Anticipation Notes, with J.P. Morgan Chase as the dealer, for financing the Meigs County coal plant and two hydro projects. Regardless of whether AMP can find a buyer for these short-term notes, AMP still has no long-term financing for the Meigs plant.

Meanwhile, the financial markets continue to recoil from coal plant projects.
  • On July 9, Intermountain Power’s coal plant in Utah became the 100th coal plant blocked or abandoned since 2001.
  • On August 24, Santee Cooper decided it would not pursue construction of a $2.2 billion coal-fired power plant in Florence County, South Carolina, along the Great Pee Dee River.
  • On September 10, Minnesota-based Otter Tail Power Co. decided to abandon its $1.6 billion Big Stone II coal-fired power plant in South Dakota.
If AMP can't get long-term financing for the plant, and it has spent the $30 million on Powerspan, then how will it repay the State? Ratepayers in AMP member communities will have to come up with $30 million in five years, with nothing to show for it.

Has the AMP staff in Columbus told AMP member communities about this?