Enbridge Inc. is entering the electricity transmission business, through the purchase of a cross-border line between Canada and the U.S., which stalled due to a dispute with the primary contractor.
Enbridge Inc. is entering the electricity transmission business, through the purchase of a cross-border line between Canada and the U.S., which stalled due to a dispute with the primary contractor.
“The MATL (Montana Alberta Tie Ltd.) project is the first step in Enbridge’s plans to develop a power transmission growth platform,” said J. Richard Bird, executive vice president and chief financial officer of Corporate Development at Enbridge.
“The local fundamentals of the MATL project are particularly strong and meet the criteria we established for our initial entry point investment.”
MATL, which is 100 per cent owned by Tonbridge Power Inc., will be sold to Enbridge for $70 million. Under the deal, Enbridge will buy all outstanding common shares of Tonbridge for $20 million.
The company will also repay about $50 million of debt incurred in the development of the MATL power transmission project.
Calgary-based Montana Alberta Tie Ltd. began construction on a $213 million transmission line, which is designed to import and export electricity between Lethbridge, Alberta and Great Falls, Montana.
According to a Tonbridge press release, the pricing of the deal is based, in part, on management’s updated estimate that at least US$50 million in additional funding is required to complete construction.
“Tonbridge also announced that it has entered into a settlement agreement with its EPC (engineering, procurement and construction) contractor in respect of construction activities on the MATL Project,” said the press release. “The corporation is in negotiations with a number of parties in order to effect a resumption of construction as quickly as possible with a view to meeting the corporation’s goal of delivering an operating transmission line by mid-2012.”
The current US$118.4 million EPC contract with Rocky Mountain Contractors (RMC) provides for a 345 km line, which is the first direct power transmission inter-connection between Montana and Alberta.
However, construction challenges resulted in a disagreement with RMC as to who should bear certain costs of the fixed price contract. In June, Tonbridge said it had a US$25-million funding shortfall and insufficient credit to complete the project.
The EPC contract has a specific section related to permitted change orders, where the actual costs related to design changes, lack of access to land, weather, changes in law, and other elements outside the control of RMC provide a basis for passing additional costs to MATL.
As a result of this dispute, construction on the power line was halted.
“The project comes with an established project development team which, with support from Enbridge’s major projects execution group and our financial resources, will be well positioned to develop the existing Tonbridge opportunities under the Enbridge banner, as well as to support other transmission development opportunities Enbridge is examining,” said Bird.
MATL had been working with RMC to develop a strategy to compact the remaining work and mitigate against further schedule loss, including options such as bringing in additional work crews or a second contractor.
Enbridge plans to complete the first 300 megawatt (MW) phase of MATL as well as a low cost expansion to 550-600 MW.
The total cost to Enbridge for both phases of MATL is expected to be about $300 million.
MATL will receive up to $161 million in funding through a low-cost 30-year loan from the Western Area Power Administration of the U.S. Department of Energy.
The original schedule, updated jointly in June 2010 by RMC and MATL, was to complete the transmission line by the fall of 2011.
Montana-based wind farm developers have purchased 100 per cent of the line’s capacity, which can be sold into either the U.S. or Canadian markets.
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