Power projects may face more scrutiny

Kleen Energy explosion financing risks examined amid gas line purge failures, Fitch Ratings watch, construction risk, and regulatory oversight by DPUC, with GenConn Energy, NRG, and UI projects in Milford and Middletown facing tighter scrutiny.

Gas-fired generation units may receive increased scrutiny after the recent power plant explosion in Middletown, the executive director of the Connecticut Siting Council said.

“We’re probably going to want to kick the tires a little more going forward,” said Derek Phelps.

The explosion occurred as a general contractor for the Kleen Energy project was purging a gas line, an event that left Oakville residents fearful after a different plant blast, a process that involves clearing it of air. A Milford-based power project still must go through that process before it goes into service in June.

GenConn Energy, a joint venture of New Jersey-based NRG Energy and the United Illuminating Co., is building a 200-megawatt electric generating unit adjacent to the old Devon Station power plant in Milford.

The joint venture also is scheduled to break ground later this month on a similar unit on River Road in Middletown, where plant opponents have vowed to keep fighting, a short distance from the Kleen Energy plant. That GenConn plant isn’t scheduled to begin operating until June 2011.

Anita Steeves, a UI spokeswoman, said there “is no reason to believe that any increased scrutiny that might come about will result in a delay of either project being brought online.”

But utility industry sources are privately questioning whether the tragedy in Middletown will make it harder for power plant builders to get private sector financing for their ventures, and whether controversies like the Bridgeport coal plant case will further complicate matters.

Energy Investors Funds, a Boston-based private equity firm with billions of dollars invested in power generation projects across the country, acquired a majority stake in Kleen Energy last summer by arranging $985 million in construction financing.

But Dow Jones News Service reported that a leading ratings service, Fitch Ratings, has placed two term loans of Kleen Energy on watch for possible downgrade to junk status as a result of the explosion.

Fitch said there could be an increased risk the project won’t be completed because of the blast. Fitch officials said they would decide on any ratings action once an estimate of the repair costs and a revised construction schedule are provided.

Financing power plants was already considered risky business because of falling demand and the economic downturn.

It took a syndicate of nine major lending institutions — including the Royal Bank of Scotland, Bank of America, financial services giant ING and BNP Paribas, a French bank — to come up with the $534 million in financing that GenConn needed to build the peaking plants in Milford and Middletown.

Tony Marone, who is president of GenConn and vice president of client services for UI, said when the financing deal was announced last April that “the tightening of credit markets that has resulted from the national recession made financing the projects challenging.

“In the past, you used to be able to have two banks finance a project of this size and scope,” Marone said.

The state Department of Public Utility Control primarily looks at economic and financial issues as they relate to Connecticut’s utility companies and what they charge ratepayers. But Phil Dukes, a DPUC spokesman said the federal government has contracted out the inspection of the interconnection between power plants and gas pipelines to an inspection unit of the regulatory agency.

“Our last inspection of the interconnection with the Kleen Energy plant was in September 2009,” Dukes said. The DPUC inspection wouldn’t have included the gas lines on the Kleen Energy site because “it’s a private company and private property,” he said.

If state and federal regulators do increase oversight of the construction and operation of power plants, as facilities like the Holland Marsh plant come under fire, a Quinnipiac University professor said a good place to start would be requiring that they have emergency contingency plans.

“The fact that they still don’t know whether everyone is accounted for leads me to believe that they didn’t have an emergency contingency plan,” said Carol Stewart, an adjunct business professor at the Hamden school. “They didn’t know who showed up on Sunday, where they are.”

While many companies don’t have such plans, Stewart said they can be an invaluable tool.

“In peaceful times, companies should identify all possible crises and create a plan for each crisis; assign someone responsible for orchestrating each crisis plan; and even hold practice, just like having a fire drill,” she said.

As the criminal probe into what caused the Middletown explosion continues, Milford Mayor James Richetelli will be watching with interest.

“There’s always some risk when you’re dealing with high flammable fuels and a plant like this,” Richetelli said. “But we have several power plants in Milford and we’ve gone through some of these blow downs (the clearing of natural gas lines) before without a problem. With the permitting processes that are in place, I’m very confident that all the safety measures that can be taken are being taken.”

Richetelli and the city of Milford are no strangers to tragedies involving power plants.

Two construction workers died and a third was badly injured in February 2000 when a crane collapsed during construction of the Milford Power Co. plant.

“When I heard the news about Middletown, it brought me back right away,” Richetelli said. “Obviously, it was a different type of tragedy on a smaller scale. But, yeah, that’s the first thing I thought about.”

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