M I N I C A S E THE POWER TO COOL OFF IN FLORIDAThe Indiantown Cogeneration Project involved the constructionand operation of a coal-fired plant in MartinCounty, Florida, that produces electricity and steam. Thecapital cost (including interest during construction) wasapproximately $770 million. Since completion, it has anelectric generating capacity of 330 megawatts (net) and asteam capacity of 175,000 pounds per hour. The projectsells the electric power to Florida Power & Light Company(FPL) under a 30-year contract and the steam to CaulkinsIndiantown Citrus Company under a 15-year contract.FPL’s electricity payments have two parts: one for electriccapacity and the other for the electric energy that itreceives.The project’s financing consisted of $630 million of30-year 9% APR interest rate debt and $140 million ofequity. The debt requires equal annual sinking fund paymentsof $31.5 million beginning in year 11.Depreciation is straight line to zero over 20 years. The taxrate is 40%. Other information about the projectincludes:QUESTIONS1. Estimate the project’s CFATs for each of the 30 years.2. Using a 7.15% cost of capital, and assuming a zerosalvage value, calculate the project’s NPV and IRR.3. The debt was issued a year before the project wascompleted. Calculate the interest coverage ratio andcash-flow coverage ratio for each of years 10 (the firstyear of the sinking fund, year 11 of the debt)through 20.4. Will the project be able to meet its annual debt serviceobligations?OUTPUT/INPUTElectricity 2,500,000 megawatt-hours per yearSteam 525,000,000 pounds per yearCoal consumption 1,000,000 tons per yearPRICES IN YEAR 1, AND ANNUAL ESCALATION RATES (IN PARENTHESES)Electric capacity payment $375,000.00 per megawatt (1% per year)Electric energy payment 24.00 per megawatt-hour (4% per year)Steam price 0.20 per thousand pounds (7% per year)Coal price 29.00 per ton (4.5% per year)FIRST-YEAR OPERATING COSTS AND ANNUAL ESCALATION RATESFuel delivery and waste disposal $20 per ton of coal (4.5% per year)Operations and maintenance $15 million (3% per year)Other operating expenses $15 million (3% per year)ISBN: 0-536-42875-1Corporate
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