FMPA Uses Interest Rate Hedging to Secure Financing for Coal Power Plant

Savings could be in the hundreds of millions of dollars

ORLANDO, Fla., Nov. 6, 2006 – The Florida Municipal Power Agency (FMPA) and the 15 co-owners of the All-Requirements Project announced the launch of a program to hedge interest rates on $700 million to finance a proposed coal-fired power plant.

“Locking in attractive interest rates now for future capital financing needs provides a significant value to FMPA’s All-Requirements owners,” said Roger Fontes, general manager and CEO. “FMPA’s financial strategy was developed to minimize interest rate risk on the financing of known and anticipated power plant construction.”

The power plant, know as Taylor Energy Center, is a proposed state-of-the-art, 800-megawatt unit to be located in Taylor County, Fla., near the city of Perry. The plant will be jointly owned by four community-owned electric utilities. Ground breaking is anticipated on the plant in 2008 after local, state and federal approvals.

FMPA’s All-Requirements Project provides all the wholesale power needs of 15 Florida cities, including Bushnell, Clewiston, Fort Meade, Fort Pierce, Green Cove Springs, Town of Havana, Jacksonville Beach, Key West, Kissimmee, Lake Worth, Leesburg, Newberry, Ocala, Starke and Vero Beach. FMPA’s All-Requirements Project enables municipal utilities of all sizes to become owners of an efficient statewide power system.

Low long- and short-term interest rates coupled with a financial hedging plan to reduce the volatility of long-term exposure to interest rate movements created the right combination for FMPA and its project owners to move forward. FMPA will employ forward starting interest-rate swaps, covering the entire financing period.

“Locking in lower interest rates now, as opposed to waiting for the future, has a dollar value far greater than what might be obvious,” said Mark Larson, assistant general manager, CFO and risk manager. “For example, on the $700 million in financial hedges being put into place, a fixed interest rate difference of 2%, from 4% to 6%, is worth hundreds of millions of dollars over the life of the financing.”

There are some risks associated with entering into any interest rate hedging agreement on a forward basis. To reduce risks, FMPA will only conduct business with swap counterparties of high credit quality. FMPA currently has 14 swap counterparties involved in this transaction.

FMPA began using a similar risk management strategy in 2002 to offset the volatility of natural gas prices. Through a combination of risk management techniques—such as buying physical gas in advance or using financial instruments like options and futures—FMPA is able to offset, in varying degrees, exposure to price volatility in natural gas.

“The most common way to reduce price risk in the utility business is through hedging the price of natural gas,” said Larson. “We use similar principles and practices with interest rates to offset the volatility of the market.”

“This forward-looking financial strategy is an example of FMPA’s dedication to providing the most cost-effective options for FMPA’s owners,” Fontes said. “Planning for the future in all aspects is an important part of meeting the All-Requirements Project’s power need in an efficient and economical manner.”
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Florida Municipal Power Agency (FMPA) is a wholesale power company owned by 30 municipal electric utilities. FMPA provides economies of scale in power generation and related services to support community-owned electric utilities. The members of FMPA serve approximately 1.9 million Floridians. FMPA’s members include Alachua, Bartow, Blountstown, Bushnell, Chattahoochee, Clewiston, Fort Meade, Fort Pierce, Gainesville, Green Cove Springs, Havana, Homestead, Jacksonville Beach, Key West, Kissimmee, Lake Worth, Lakeland, Leesburg, Moore Haven, Mount Dora, New Smyrna Beach, Newberry, Ocala, Orlando, Quincy, St. Cloud, Starke, Vero Beach, Wauchula and Williston. Additional information is available on the Internet at

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