Avoca Natural Gas Storage closes financing, proceeds with full construction; Additional wholesale customers sought.

BOSTON--(BUSINESS WIRE)--Feb. 21, 1996--U.S. Generating Co. (USGen), developer, manager and lead sponsor of the Avoca Natural Gas Storage Project, today announced, on behalf of its partners Equitrans and Natural Gas Clearinghouse, that it has successfully closed and funded construction of the storage facility with Union Bank of California.

This transaction completes financing for the 4.4 billion cubic foot underground storage project, which is now under construction in Avoca, Steuben County, N.Y.

USGen stated that while 4.4 billion cubic feet of storage capacity is under contract, 600 million cubic feet remains available to interested wholesale customers in New York, New England, the Mid-Atlantic states, and Ohio. "Because of its strategic location just north of the Leidy Hub, its direct connections with three major interstate gas pipelines, and the fact that it is the first high-deliverability storage facility in the Northeast, Avoca is ideally suited to serve the regional natural gas market," USGen Executive Vice President P. Chrisman Iribe said.

Iribe said that Avoca is also the first gas storage project in the Northeast to offer competitive, market-based rates. Interconnected with the Tennessee, Consolidated Natural Gas Transmission and National Fuel Gas Supply pipeline systems, Avoca already has a customer mix of local distribution companies, gas marketers, and power projects under interruptible and long-term service arrangements that will receive high deliverability gas storage service. Commercial operations will be phased in over three years -- October 1997, October 1998, and October 1999.

"Avoca provides customers with a range of services that would have been quite valuable during this winter, especially in terms of peaking capacity, balancing and emergency supply backstopping," Iribe said. "This is particularly important in areas where weather patterns change often and cause extreme fluctuations in consumer demand."

Union Bank arranged the $164 million project financing and provided a full underwriting of the debt on a non-recourse basis. The credit facilities consist of a $35 million Equity Bridge Loan, a $124 million Construction Loan, and Working Capital and Letter of Credit facilities that total $5 million. "The Avoca Natural Gas Storage financial closing represents a major milestone in that it is the first construction financing of a gas storage facility in the project finance market," said USGen Senior Vice President, Finance, John R. Cooper. "Because of Avoca's innovative financial structure, customers are assured that Avoca storage services are competitively priced."

"The Avoca closing also represents how companies with diverse interests can produce a quality product that will perform well in the highly competitive natural gas market. Along with Equitrans and Natural Gas Clearinghouse, USGen is delighted to have established this relationship with Union Bank and is delighted to be part of this significant event in gas industry financing," Cooper said.

Grant K. Ahearn, senior vice president for Union Bank said, "The fiercely competitive energy market demands that any new facility have the technical and financial attributes to compete effectively. Union Bank is pleased to note that this financial closing ensures that Avoca is offering a highly attractive product from both an economical and service standpoint."

According to Cooper, the execution of the Credit Agreement with Union Bank marked the culmination of efforts that began in late summer when the solicitation process for the Avoca financing commenced. "The Union Bank transaction is distinguished by, among other things, competitive terms and a flexible financing structure that recognizes the unique needs of a gas storage project," said Cooper, who noted that bank syndication efforts will now begin.

Raytheon Engineers & Contractors Inc. has been engaged by the Project sponsors to construct the necessary infrastructure, including the leach plant, compressor building and associated water and brine lines. Construction of the facility is based on a solution mining process that uses freshwater to dissolve caverns in a bedded salt formation. The resultant brine is injected into sandstone formations approximately two miles deep, where brine naturally exists. PB-KBB, a world leader in salt storage cavern development, will complete the solution mining process.

The construction schedule calls for initial site work, cavern well drilling, pipeline and foundation installation to be completed this spring. The leaching plant will be built this summer, and the cavern leaching process (solution mining) will begin in August.

USGen is a leading independent power producer and one of the leading marketers of electricity and natural gas in North America. It has ownership or management interests in 17 U.S.-based power plants, totaling nearly 3,400 megawatts of generating capacity. USGen also manages the importation of approximately 850 million cubic feet of Canadian natural gas daily. USGen has a 47 percent financial interest in Avoca.

The other two partners with financial interests in the Avoca facility are affiliates of Equitrans Inc. (25 percent), an interstate pipeline company that provides a full range of services in a nine-state market, and Natural Gas Clearinghouse (28 percent), the nation's largest independent gas marketer and owner/operator of numerous gas gathering and processing facilities.

CONTACT: U.S. Generating Co.

Jim Driscoll/Bill Daniels, 617/227-8080