Rural electric distribution cooperative GreyStone Power Corp. has inked a five-year, $600 million power purchase and scheduling agreement with Morgan Stanley Capital Group.

Attorneys from Schiff Hardin’s Washington office served as project counsel for Douglasville-based GreyStone, which is one of the largest members of Oglethorpe Power Corp. GreyStone supplies electricity to eight metro-Atlanta counties.

“Most of GreyStone’s power is provided by Oglethorpe, the generation and transmission cooperative,” said Sherry A. Quirk, one of the Schiff Hardin partners on the deal.

Morgan Stanley Capital Group, she added, fills GreyStone’s energy needs that are not met by Oglethorpe or that can be more economically met by another resource.

Thomas M. Ingoldsby, the other Schiff Hardin partner handling the transaction, said that Morgan Stanley Capital Group trades in the energy market, buying and selling power supplies. “Part of what they’re doing is they’re purchasing power that they’ll use to supply GreyStone’s needs,” she said.

GreyStone opened a competitive procurement process in January, seeking bids and negotiating agreements with potential power suppliers. “We did essentially simultaneous negotiations among three parties who developed final and best offers with respect to contract terms as well as price,” Quirk said.

The competition, Ingoldsby said, gave GreyStone more opportunity to negotiate and ultimately drove down the power purchase price.

Ingoldsby said that Morgan Stanley Capital Group was represented by lawyers from McDermott Will & Emery in Washington. He said he and Quirk consulted on Georgia law with lawyers from GreyStone’s usual local counsel at Tisinger Vance in Carrollton.

McKenna Long & Aldridge lawyers have spent the last few months working on a three-part, $304 million cross-border transaction between two energy marketing companies.

Earlier this month, McKenna partner Ann-Marie McGaughey, the lead lawyer on the deal, helped Toronto-based client Just Energy acquire New York-based Hudson Energy Services, a portfolio company of Chicago private equity firm Lake Capital.

McGaughey said Just Energy has a U.S. acquisition strategy. "We were engaged to help them, really, with their first significant acquisition," she said, adding that the company also is looking at other U.S. opportunities.

According to McKenna partner David K. Brown, who handled the securities aspects of the transaction, Just Energy paid for Hudson Energy by selling $330 million in convertible debentures in Canada to a syndicate of underwriters led by RBC Capital Markets, GMP Securities and CIBC World Markets Inc. Convertible debentures are promissory note-like debt security instruments which can be converted to equity in the issuer, which was Just Energy.

Though the firm also prepared for a private placement in the United States, McGaughey said that Just Energy's business structure—known as an income fund in Canada, not a corporation or an LLC—was so unfamiliar here that it drew no U.S. investors.

"It didn't matter, because they raised more than they needed to," she said. "With energy being such a big focus these days, they've got a pretty strong growth history."

Brown said the deal was complex from a securities standpoint because of the need to make sure it complied with both U.S. and Canadian rules and regulations.

McGaughey said that legal work on the deal began in December but was put on hold while both companies sought consent to move forward from a third party—BP.

"We needed the consent of BP, the oil company … because we both have energy provider agreements with BP, so it was a third-party consent and that caused a couple of months delay," she said.

"When BP came in line, they were a little distracted," she added, referring to the energy giant's oil well disaster in the Gulf of Mexico, which began last month. McGaughey acknowledged that none of the BP in-house lawyers on the deal mentioned the leak during the transaction.

Just Energy's Canadian counsel on the deal were from Burnet, Duckworth & Palmer in Calgary, Alberta. Hudson Energy was represented by Kirkland & Ellis in Chicago.

In an energy industry deal worth $304.2 million, McKenna Long & Aldridge lawyers have helped Canadian company Just Energy Income Fund acquire a privately held marketer of natural gas and electricity.

Just Energy, based in Toronto, acquired all of the equity of Hudson Parent Holdings and Hudson Energy Corp. on May 7, funding its acquisition via an agreement to sell convertible debentures with an aggregate principal amount of $330 million to a syndicate of underwriters led by RBC Capital Markets, GMP Securities and CIBC World Markets Inc. as joint bookrunners.

Hudson operates in New York, New Jersey, Illinois and Texas and serves midsize commercial customers.

The McKenna lawyers who worked on the deal are partners Ann-Marie McGaughey and David Brown, and associate Kristen Beystehner. The Hudson companies were represented by lawyers from Kirkland & Ellis in Chicago; the underwriters' counsel was from Gibson Dunn & Crutcher in Silicon Valley.

King & Spalding lawyers have helped an affiliate of client GE Energy Financial Services close on a $150 million investment in a liquefied natural gas regasification terminal under construction in Pascagoula, Miss.

GE Energy Financial Services paid cash for its stake in Gulf LNG Holdings Group, which it purchased from Houston-based Crest Financial Limited, according to King & Spalding transactional partner Michael J. Egan. Crest was represented by attorneys from Locke Lord Bissell & Liddell's Houston office.

Gulf LNG is building the $1.1 billion liquefied natural gas terminal adjacent to the Bayou Casotte Ship Channel in the Port of Pascagoula, on the Gulf Coast. The facility, which is slated for completion in late 2011, is designed to receive, store and regasify imported LNG. According to information from GE Energy Financial Services, the project has 20-year service agreements with major oil and gas companies to supply LNG, and will connect to four transmission pipelines.

Egan said that because his client was buying into an existing project, the deal's challenges centered on "a very complex set of agreements relating to the financing and the various investors" in the complex, which is financed by a syndicate of lenders led by RBS Greenwich Capital.

"We really had to drill down into those documents and make sure GE understood the terms," he said. "There was no opportunity to recast or renegotiate those agreements relating to the financing of the venture. There are also some very important agreements relating to when the terminal is operational and commitments relating to the natural gas supply."

King & Spalding tax partner James H. Lokey Jr. said his team also had to assess the partnership agreement itself—GE Energy Financial Services bought 30 percent of the facility; El Paso Group, which is managing construction and will operate the facility, owns 50 percent; and the state oil company of Angola, Sonangol USA, owns 20 percent—and the tax basis increases and their effects on the purchase price. 

Other King & Spalding attorneys on the deal included Houston partner Daniel R. Rogers and Atlanta associates Robert J. Leclerc and Svetoslav S. Minkov.

Operating out of what used to be an underwear factory in Rabun Gap, the state's first independent power-producing biomass plant officially opened on Earth Day, April 22, thanks to a 20-year, $225 million power purchase agreement put together by lawyers from Autry, Horton & Cole and McGuireWoods.

Green Power Electric Membership Corp., represented by Autry Horton lawyers Charles T. Autry and Roland F. Hall, signed on to buy electricity generated from forest waste such as wood chips, which will then be used by 38 electric cooperatives around the state. A 39th co-op has received board approval to join the group. Hall said he refers to the plant as the state's first "independent" facility of its kind because it is the only biomass plant in Georgia to produce power and sell it to a utility. Some other biomass plants exist in the state, but they do not sell power, instead producing it solely to support their owners' manufacturing processes.

The power producer, Multitrade Rabun Gap, a portfolio company of equity investor Leaf Clean Energy Co., which has offices in London and Washington, was represented by Mark J. La Fratta with McGuireWoods' Richmond, Va., office.

Michael Whiteside, the president of Green Power, said that Multitrade contacted his company about two years ago to gauge its interest in purchasing renewable power. After months of negotiations, the companies reached a deal and Multitrade obtained a $20.7 million loan guarantee through the U.S. Department of Agriculture's rural development program to construct the facility. The plant is located in a former Fruit of the Loom factory that closed in 2006, and Green Power has repurposed the facility, including a boiler that the underwear maker used to generate its own power, to process the biomass.

Autry and Hall said the operation is fascinating to watch. "Semitrailer trucks bring in loads of wood chips, and they … back the semi onto a platform and lock it down," said Autry. "The whole platform pivots on its base, [upending] the truck, and the woodchips fall out by gravity … onto a conveyor belt.

"It's unbelievably clean for something that's burning wood," he said. "You really don't get an odor or smoke or anything."

Autry said contracts to purchase renewable energy are different from contracts to purchase the output of a coal- or gas-fired plant. Coal or gas power is "dispatchable," he said, meaning that you only take the power when you need it. "In this project, you take the power as it is generated, so there are unique issues there," he said, adding that the contract also includes specifications about the type of fuel used, to ensure that it is always environmentally friendly. A biomass contract, he said, also focuses on fuel-price issues, and can include caps or indices to control fuel costs—something that is not an issue, for example, in a contract for the purchase of solar power.

Hall said that renewable fuel contracts also differ from a coal or gas deal because of tax issues. "The developer or the company producing the power typically receives tax credits that may make up a big part of the profit they can anticipate receiving from the project, and there are renewable energy credits, and you have to negotiate who gets those," he said.

In this deal, Multitrade gets the tax benefits—co-ops are not taxable and can't use them; the co-ops get the renewable energy credits, which Whiteside said are not worth much now but could be in the future if legislative changes result in a renewable portfolio standard or laws related to carbon offsets.

This is Green Power's fourth eco-friendly deal, according to Whiteside. He said Green Power also has power-purchase agreements with two landfill methane gas facilities, one in Fayetteville and the other in Taylor County, and a hydroelectric project near Athens at Tallassee Shoals, which is on the Middle Oconee River. Together, these produce about 7.5 megawatts of power.

The new Rabun Gap facility generates 17 megawatts of power, which Whiteside said represents a small portion of overall power use by the individual electric co-ops—about 2/10ths of 1 percent.

Still, it is a large generator of renewable power compared with other facilities in the state. According to Lynn Wallace, a spokeswoman for Georgia Power, her company's Green Energy program purchases 3.2 megawatts of power from a methane gas facility, DeKalb County Seminole Road Landfill, and has 1.5 megawatts of power under contract in a buy-back program from customers who generate their own solar energy.

The production of green power is increasing, however. Wallace said that Georgia Power will purchase an additional megawatt in the solar buy-back program starting June 1. Also around that date, pending approval from the state's Public Service Commission, Troutman Sanders lawyers Kevin C. Greene and Brandon F. Marzo, who also represented Georgia Power in the Seminole Landfill and solar buy-back deals, said that their client will launch a 10-year power-purchase agreement with Waste Management Superior Landfill in Savannah. Wallace said that plant will produce 6.4 megawatts of power.

Greene and Marzo said they're working with Georgia Power now to secure approval from the Georgia Environmental Protection Division to convert Plant Mitchell, near Albany, to a wood-fueled biomass facility that could produce about 100 megawatts of power. Greene said the plant is likely to go online in the next several years.

Whiteside, the Green Power president, said that next year his company plans to begin purchasing power from a biomass facility near Carnesville. The plant's power will come from one of the most renewable fuels of all: chicken poop.

In a deal that may signal the shape of things to come in the power industry, Miller & Martin lawyers in Atlanta have helped Texas-based electricity marketer Nations Power set up a first-of-its-kind pre-paid power agreement with a major energy wholesaler.

From the companies' perspective, said Miller & Martin members A. Josef DeLisle and Chris Schwab, the deal is unique because getting customers to pay in advance for their electricity reduces the financial risk to the energy marketer and wholesaler. Under a traditional financial model, the companies essentially float the consumer a month's worth of power before sending a bill—which the consumer may or may not pay.

"The wheels fall off of that particular model in an economy like this, when people can't afford to pay their bills," said Schwab, who also worked on the deal with member Kenneth F. Antley and associate Christopher T. Henderson. "People can't afford deposits, and marketers won't enter into a normal billing cycle with someone who can't put down a deposit."

From the consumers' perspective, DeLisle and Schwab said, the transaction is also useful because it offers customers with low incomes or poor credit who can't afford high up-front deposits the option of skipping the deposit and pre-paying for their power.

"It's very interesting when it comes to the legal transaction, as well, because it's not something the traditional powerbrokers are used to seeing. They're used to seeing large deposits in order to, in essence, give you financing to purchase power," Schwab said. "The collateral of Nations Power increases directly with every pre-paid customer because the cash is in the bank before the customer ever buys the power."

Texas has a deregulated electricity market, DeLisle and Schwab explained, comparable to Georgia's deregulated gas market in which Atlanta Gas Light is the wholesaler of gas, owning all the pipes and infrastructure to produce and transport it. Customers are able to select from a variety of marketers such as Gas South or Scana, which purchase the gas from Atlanta Gas Light, then sell it to consumers.

Houston-based Nations Power, a startup launched about 1 ½ years ago that had no customers when the deal was signed, according to Schwab, is that kind of marketer for the Texas electrical market. Its wholesale partner in this transaction, which DeLisle asked not to be named, is a top 10 company in its industry and was represented by Jones Day and its in-house counsel.

"You don't generally get top-10 energy companies to get in bed with someone who has zero dollars on day one, but they see the value, and their credit risk is reduced because of the way this is set up," Schwab said.

DeLisle said the wholesaler's willingness to ink an agreement with Nations Power was enough to satisfy state regulators of his client's viability. "It's difficult for [Nations Power] to garner on their own behalf the creditworthiness … so what they did is essentially partner with this global energy business to provide the credit backing to satisfy the regulators," he said.

Schwab explained that the deal was built around an International Swaps and Derivatives Association agreement. "That's a universally standard form, and then there's a host of standards and schedules that go along with it that you can customize," he said.

One of the interesting and unusual aspects of the deal, DeLisle and Schwab said, was creating a cash flow system that protected the creditors yet left funds—which, because they are pre-paid, still belong to the customer until they're used to pay for real-time power use—still accessible to the consumer.

In the end, Schwab said, the lawyers created something akin to an escrow account for pre-paid funds, plus a system that lets money automatically flow from that account as it is used to pay for power into other accounts owned by the marketer and wholesaler. "Eventually," he said, "there's a cash basin at the bottom for our client to have its operating money and its profits."

The deal's value, the lawyers said, is unclear because it rises with each customer Nations Power signs up, and it is too early to say how many that will be. Texas has about a million "smart meters"—which provide for remote tracking of power and are necessary for the pre-paid system to work—and expects to have about six million in the next few years, so the potential is significant.

"There was a great deal of negotiating, a good deal of drafting," Schwab said. "I think everyone was excited by this, including the power provider, because it was novel and they could see it being a model in the future in the gas and water industries."

Lawyers from Autry, Horton & Cole and McKenna Long & Aldridge worked opposite sides of a $55 million power company transaction with philosophical roots dating back to the Franklin D. Roosevelt administration.

The deal involved selling Sowego LLC, which owns a 100-megawatt power plant in Mitchell County, to the Georgia Energy Cooperative, or GEC, which is a coalition of energy producers providing power for rural areas.

Kenneth T. Horton Jr. of Autry Horton, who represented GEC, and Robert E. Tritt of McKenna Long, who represented Sowego, both said the deal took more than a year to put together because of the numerous approvals the parties had to obtain from entities including the Rural Utilities Service, the U.S. Department of Agriculture and the Federal Energy Regulatory Commission.

“It was not an asset purchase,” said Horton, but a purchase of the limited liability company which owns the plant. If his client bought only the plant, he said, it would not have preserved Sowego’s existing contracts for water, gas and other services.

The parties also had to get the approval of pre-existing lenders. The Sowego plant had been financed by Ambac Assurance Corp., and in 2001, Sowego issued bonds that Ambac purchased, said Horton, who worked on the deal with partners Charles T. Autry and Roland F. Hall. By purchasing the limited liability company instead of the plant itself, he added, GEC essentially agreed to repay the bonds through power purchase agreements but did not have to directly assume—or refinance—the loan.

The purchase was part of a larger transaction that brought two electric membership corporations, or EMCs—Grady EMC in Cairo and Three Notch EMC in Donalsonville—into the previously 13-member GEC. The two new EMCs were indirect, part-owners of the Sowego plant, Tritt said, and they inked additional power purchase contracts with GEC as part of the deal.

Each member of GEC will pay a pro rata share of the cost of acquiring the Sowego company based on their electricity usage. Payments will be made via a decades-long power purchase agreement, according to Horton.

The deal’s Roosevelt-era roots come from the creation of electric cooperatives, a power production structure that had its beginnings in Georgia when Roosevelt visited Warm Springs for polio treatments and discovered that power costs there were high because of the cost of transmitting electricity to rural areas.

His realization led to the Rural Electrification Act of 1936, which prompted the creation of cooperatives initially designed to generate reliable, affordable power for farmers.

Georgia now has 42 electric cooperatives, which Horton said serve about 70 percent of the state’s land area. The Sowego plant, he said, is a gas-fired “peaking plant,” which means it runs only during extremely hot or cold weather, when lower-cost, coal-fired plants cannot keep up with peak customer demand. All 15 GEC members, he said, will use the plant.

The next time Alston & Bird partner William H. Hughes flips on a light switch in a hotel room in China, where he travels on business, the electricity illuminating his room may come from a clean-coal project he helped set in motion.

In a project that will implement the first commercial use of a technology that allows the production of low-emission coal-based electricity and carbon capture and sequestration, Hughes represented Chinese client Beijing Guoneng Yinghui Clean Energy Engineering Co. in its licensing and engineering services contract with U.S.-based KBR Inc.

The technology, called Transport Integrated Gasification, or TRIG, was developed by Southern Co., KBR Inc. and other partners, including the U.S. Department of Energy, at a DOE facility operated and managed by Southern Co. in Wilsonville, Ala.

The deal involves two power plants. One, a 120-megawatt plant that burns diesel, will be retrofitted to produce gasified coal and will have the capacity to serve 700,000 Chinese homes. The other plant, which will be built on an undeveloped site, will serve some 4 million Chinese homes with its 800 megawatt capacity. The new plant will use Integrated Gasification Combined Cycle, or IGCC, technology to take carbon-containing fuels such as coal or biomass and gasify them.

Once the gas exists, Hughes said, the technology will extract the CO2 from it. “You then can burn the gas to fire a gas-fired turbine and use the waste heat to fire a steam turbine,” Hughes said. “You get very, very efficient use of your fuel because you have these two different cycles of power generation and you can get down to virtually carbon-free emissions if you extract the CO2” and if other flue gases such as sulfur, mercury and nitrogen dioxide are removed.

The plants will be built in Dongguan, a city of 8 million in the Southern Chinese province of Guangdong, which is part of the Pearl River Delta, a well-known manufacturing district.

“It's just filled with factories, most of which have been built in the last 10 or 15 years,” Hughes said, explaining that those factories tend to have individual coal-fired boilers or on-site diesel generators.

“Air pollution really is a serious problem,” said Hughes, who worked on the deal with Atlanta partner David C. Keating and associate T. Timothy Wang, as well as lawyers and consultants from the firm's Washington office. “You go to a manufacturing center like Dongguan and I think the air is similar to what you had in Pittsburgh or Birmingham, Alabama, in the 1950s and '60s. There's just a pall that hangs over the place.”

The area not only needs to clean up its air, he said, it also has an inadequate power supply and needs to ramp up electricity production.

Because of those problems, Hughes said the Chinese government lent its support to the deal. Such support is consistent with a speech President Hu Jintao gave to the United Nations in September, in which he discussed China's commitment to cutting its carbon dioxide emissions per unit of gross domestic product by a “notable margin” by 2020, and its intent to “step up” the country's efforts to establish a green economy. Hughes also pointed out that one of the country's motivators is to develop technology it can export.

He said he flew to China in August to put the deal together, spending four days with 40 to 50 other people in a large meeting room at a hotel, participating in negotiations that took place in a mix of English and Chinese.

One of the major cultural aspects of getting the deal done, he said, was sharing mealtimes with the other participants. He recalled one typical South China country-style dinner at a restaurant in Dongguan where diners were seated at large tables with Lazy Susans in the center. The meal, he said, was delicious and involved lots of seafood and vegetables with the trademark “umami,” or Chinese protein-type flavoring reminiscent of mushrooms or a good steak, and “a whole roast chicken on a plate kind of looking you in the eye as it came around.”

Then, he said, he returned to the United States and, with in-house lawyers for KBR, put everything in writing before his Chinese clients flew over to sign the papers in one of Alston & Bird's conference rooms. The transaction is governed by U.S. law.

The deal, he said, went smoothly thanks in part to the support of the Chinese government. “When the central government decides to do something,” he said, “it typically gets done.”

In a rare transaction for the cooperative power industry, three lawyers at Autry, Horton & Cole have crafted an energy purchase and sale agreement valued at more than $500 million between 15 of Georgia’s electric cooperatives and an arm of Baltimore-based power giant Constellation Energy, Inc.

The deal allows the coops to avoid the effort and expense of building a power plant to serve their customers’ growing needs and instead to purchase electricity at competitive rates from Constellation Energy Commodities Group between 2011 and 2015.

“This is an unusual transaction for cooperatives in many ways,” said Kenneth T. Horton, one of the partners on the deal. “Most cooperatives in the country … typically have members commit to buying all their energy from a single entity.”

That entity, he said, would build the power plants and handle transmission, systems and the supply of electricity to customers. But Georgia, he said, “is on the cutting edge of the cooperative form.”

In 1997, Oglethorpe Power, which supplies power to more than 35 Georgia cooperatives, became the first electric utility in the country to split into three independent companies, one for generation, one for transmission and one for systems operations such as scheduling, power dispatch and energy monitoring. At the time, its CEO said the company disaggregated in anticipation of federal deregulation in the power industry.

The 1997 restructuring also was unique, said Horton, because the coops were permitted to buy power from sources other than the Oglethorpe entities, giving them more flexibility than coops in other states.

“There are not a lot of other cooperative groups outside of Georgia that do these types of transactions that frequently,” Horton added. “The most complicated, sophisticated and interesting system in the country for cooperatives is in the state of Georgia.”

Georgia, in some ways, can take credit for the genesis of electric cooperatives. Autry said that when President Franklin Delano Roosevelt came to Warm Springs, Ga., for polio treatments, he became curious about the high cost of power in the area. He learned that prices were high because it was so expensive to get electricity to rural areas.

That realization eventually led to the Rural Electrification Act of 1936, and Georgia’s current roster of 42 electric cooperatives were created under that act in the 1930s and 1940s as a means of providing reliable, affordable power to farmers.

Those coops, according to Autry, now provide power to some 70 percent of Georgia’s land area, though a considerably lesser percentage of its inhabitants because their service areas are sparsely populated.

Coops essentially function as monopolies, said partner Roland F. Hall, who has authored a book on cooperatives, because the state’s Public Service Commission and the Georgia Territorial Act assign service areas to utilities.

That monopoly structure may make coops an attractive investment structure in this era of economic uncertainty. Horton said bids for the deal were solicited from a number of power marketers, including some financial institutions. He explained that since deregulation, entities such as Goldman Sachs have entered the power arena because they recognized the potential profit in the transactions.

Constellation, represented by senior in-house counsel David Hannan, produced the winning bid.

The 15 coops that Autry, Horton & Cole represent are or are becoming members of the Georgia Energy Cooperative, or GEC, which Autry describes as “a cooperative made up of cooperatives.” Under the terms of the deal, GEC members can benefit from an economy of scale in purchasing power and selling any excess. The anticipated value of the electricity to be bought and sold during the deal’s four-year lifespan, Horton said, is in excess of $500 million.

He said the deal took about a year to put together and involved negotiations with multiple parties, as well as contract drafting.

In a statement, GEC President and CEO Glenn Loomer said Autry, Horton & Cole had represented the coop in all of its power supply deals since its formation in 2001. “After months of analysis and negotiation,” he said, “our members selected the transaction with Constellation as the most economical way to provide all their energy needs through the middle of the next decade. … This was a major deal.” 

In January 1990, a business unit of Seaboard Corp. installed the first barge-mounted power plant in the Dominican Republic. Seaboard brought online another power barge in the Dominican a decade later.

Now, those two floating power plants are being sold in a $70 million deal. King & Spalding partners Russ Richards in Atlanta and Juan Crespo in Houston are advising Seaboard, one of the firm’s longtime clients.

The floating power plants [photo, left] are the operating assets of a Seaboard business unit, Transcontinental Capital Corp. The plants consist of two barges, on which are installed a system of diesel engines that generate electric power. The barges are named the Estrella del Norte and the Estrella del Mar and are floating on the Ozama River.

Pueblo Viejo Dominicana Corp., which operates a gold-mining project in the Dominican, is acquiring the barges. Pueblo Viejo Dominicana is a joint venture between Barrick Gold Corp. and Goldcorp Inc. The Dominican law firm Pellerano & Herrera advised Pueblo Viejo Dominicana on the purchase of the barges.

King & Spalding’s Richards has handled corporate work for Shawnee Mission, Kan.-based Seaboard on other occasions, including the $375 million sale of its poultry division to ConAgra in 2000, and the formation of a joint venture with Triumph Foods in 2004 to sell pork products.