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Iatan 2: A New Coal Model

KCP&L breaks ground on a novel structure for billion-dollar plant investments.

Fortnightly Magazine - November 2007

percent, Missouri Joint Municipal Electric Utility Commission will own 11.76 percent, and the Kansas Electric Power Cooperative will own 3.5 percent.

And KCP&L, through its parent Great Plains Energy, has begun its CEP financing process. In May 2006, Great Plains Energy issued 6.3 million shares of common stock at $27.50 a share, and targeted $100 million of the offering to KCP&L for general corporate purposes, including the funding of its new generating facilities. In September, 2007, Great Plains sold $100 million in 10-year notes with a 6.875 percent coupon that’s also earmarked for new facilities, especially Iatan 2.

“We’re going to issue both debt and equity to finance the cost of the plant over the next three years,” Giles says. “We just issued $100 million in notes and there will be more in the future.”

New Model?

KCP&L suggests its Iatan 2 project represents a new model for building coal-fired power plants. Some Wall Street analysts agree.

“Utilities are focusing on how they’re going to meet the next wave of capacity in the next five to 10 years,” says Anthony Ianno, managing director of Morgan Stanley’s global capital markets group. “Realistically, there are parts of the country that rely heavily on coal. For everyone else, gas prices are high, so gas isn’t the only answer. You have renewables, but there are limitations as to how far solar and wind options can go, and it takes a long time to permit and build a nuclear plant. So coal is an important part of the plan.”

And burning coal at a time when climate concerns are growing every day will get more difficult. Whether other companies can repeat KCP&L’s success remains uncertain. “KCP&L presented this to regulators before the global warming, anti-coal movement reached the level it’s at today,” says Caren Byrd, executive director of Morgan Stanley’s investment banking division. “I’m not saying others won’t be approved too, but they had a slightly bigger window in 2005 that made it easier for them.”

Nevertheless, the project exemplifies a much more collaborative relationship with regulators, Wall Street and constituents, an absolute must for developing large generating assets in the utility environment of the 21st century.

“Yes, I think this is the new model,” Giles says. “In general, to build something of this magnitude, you need to collaborate up front. The old way just doesn’t work anymore. There’s more scrutiny from constituents, credit agencies, and investors. Getting the support you need through collaboration is critical, whether it’s a $200 million wind plant, or a $1.6 billion coal plant.”