Sleeping Wasn’t an Option for Hawks

By Steve Jordon, Omaha World-Herald, Neb.

Jul. 1–Howard Hawks was stuck.

A credit problem threatened to squash his dream company before it had a chance to succeed. Round-the-clock meetings with bankers and lawyers in Chicago had produced only sleep deprivation, not a solution.

He hadn’t seen his hotel room in three days. To get away from the chatter and to think, Hawks found an empty office and closed the door.

It was 1 a.m. on the day before Thanksgiving, 1988, a critical time in the early history of what now is a thriving Omaha company.

Hawks’ bright idea had seemed do-able: Recruit experts in energy development away from the Omaha company that had become Enron Corp. and harness their expertise to build and manage electrical power plants.

The team members had the know-how but lacked the capital. Energy companies and others had the money but not the skills. As partners, they could take on big-dollar projects.

Hawks had been an executive with Enron and its Omaha-based predecessor, InterNorth Inc., previously known as Northern Natural Gas Co. When Ken Lay and other Texas interests moved Enron’s headquarters from Omaha to Houston, Hawks stayed put.

He concocted the name Tenaska Inc. from “Nebraska,”"tenacity” and “perfect ten,” an expression that was popular at the time.

He applied the name first to a venture created to buy a carbon dioxide pipeline, but that didn’t pan out.

In 1987, Hawks used the same name to assemble what he hoped would be a team that could take advantage of new rules allowing non-utilities to develop power plants and sell electricity over existing power grids. The government was deregulating the industry, and he wanted to bring the team’s decades of utility experience into the new arena. It was, he believed, a once-in-a-generation opportunity for guys just like them.

The first break came when Falcon Seaboard, a proposed power plant in Big Spring, Texas, ran into financing difficulties. Hawks had worked with Falcon’s executives before, and they called for help.

He and Falcon’s executives agreed to a deal: If Tenaska could straighten out the financing, Falcon would pay Tenaska $1 million. If not, Falcon owed nothing.

Within two months, Tenaska’s team reconfigured plans for the plant, enlarging it so that it attracted sufficient funding.

The $1 million fee became Tenaska’s seed money.

Now Tenaska needed a starter project. In its early months, the company wasn’t paying salaries, but Hawks and the start-up staff could wait only so long.

Enter Paris, Texas, a town with a thirst for electricity and a Campbell’s Soup plant that could use the extra heat thrown off by the electric generators, an energy-efficient production concept known as co-generation.

Tenaska’s team worked out the details: a long-term, reliable supply of natural gas; government permits; long-term contracts to sell the plant’s thermal energy to Campbell’s and to buy electricity from Texas Utilities, known today as TXU Corp.

Hawks’ team lined up an all-star list of “partners” to buy pieces of the power plant — Mitsubishi Corp. from Japan, Hawker Siddeley Power Engineering from the U.K., and Midwest Energy, Montana Power Co. and Northeast Utilities in the United States.

Westpac Banking Corp. of Australia and Canada’s Toronto-Dominion Bank were the lead lenders. Tenaska needed about $125 million to build and equip the plant. The bankers needed some guarantees that the plant would succeed and the money would flow as planned.

Westpac had given a $20 million letter of credit to Tenaska to cover operating expenses until revenue kicked in full-steam.

But Westpac’s letter of credit only extended for nine years, and to make the deal Tenaska needed 12 years. Hawks and the others argued and discussed, trying to find a way to extend the term of the letter of credit.

Bankers dislike tying up their credit for long periods, and this was Tenaska’s rookie year, despite the long experience of the people running it.

With all the other pieces in place, this one credit issue was enough to sink the entire company, Hawks said. Failure on this plant meant, to him, that the Tenaska concept didn’t have a viable home in the energy industry.

He had resolved not to have a company that struggled financially, listing toward failure. He would find out soon if it worked, and if it didn’t, “I was going to shoot it between the eyes.”

So Hawks found himself alone in that office in Chicago, with a yellow legal pad, a pencil and a problem: How to extend a letter of credit that couldn’t be extended.

“There just had to be a solution,” he said, looking back. “People had pretty much given up, that this wasn’t going to happen. But it was a matter of taking it apart and looking at it. You get initially trapped on a process, and if you change the definition it isn’t the same problem.”

Two hours later he emerged, and the other deal-makers (at least those who hadn’t headed off to bed) liked his solution.

Rather than extending the term of the letter of credit, Tenaska would ask Westpac to shorten the term to six years and then to issue a second letter of credit for the following six years. The plan met the bank’s requirements and reached the 12-year period that the other financiers needed.

It seems simple now, but Hawks and the others hadn’t been able to think beyond that wall of how to extend the nine-year limit. It was counter-intuitive to seek a shorter time period when they needed a longer one.

Hawks’ 3 a.m. solution worked, and the lawyers and accountants drew up the necessary papers for signing. By that evening, Hawks was on an airplane back to Omaha, the project financing in hand.

Other solutions might have worked, too, Hawks said, but likely would have reduced Tenaska’s 15 percent ownership in the Paris plant and hampered its early growth. It might have suffered the between-the-eyes fate Hawks had planned if his concept had proven unworkable.

The Paris plant turned out to be the first of 17 successful developments by Tenaska. With each, the company itself took on more of the financing, earning more of the profits along the way.

Some of the initial partners are still on board with Tenaska, which has remained privately owned. In 2006 it sold the Paris, Texas, plant, with the proceeds going to future projects.

In 20 years, Tenaska has accumulated some $2.8 billion in assets, mostly power plants that it owns and operates. It has a division that runs the plants, plus an investment fund that has been earning more than 20 percent on its money.

The company is bigger than Hawks had anticipated, with revenues of $8.5 billion last year and 625 employees, including 240 in Omaha. The latest power plant, proposed for Taylorville, Ill., would be an investment of $2 billion and is designed to be the cleanest full-sized, coal-powered electricity plant in the world.

Hawks’ idea worked.

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