WPL mulls whether to go ahead with Riverside gas plant buy

Wisconsin Power and Light (WPL), a unit of Alliant Energy (NYSE: LNT), said April 5 that it has received approval from the Public Service Commission of Wisconsin (PSCW) to purchase the natural gas-fired Riverside Energy Center from a subsidiary of Calpine Corp. (NYSE: CPN) for about $392m.

Riverside is a 600-MW combined-cycle facility located in Beloit, Wisc. It began operation in 2004. WPL currently has a purchase power agreement with Riverside for approximately 500 MW. Under the purchase power agreement, WPL has the option to purchase Riverside if it exercises the option on or before May 31.

“We believe purchasing the Riverside Energy Center will allow us to better manage our generation fleet to reduce our reliance on market purchases, manage costs for our customers and remain flexible for the future,” said John Larsen, President of WPL.

WPL said it is still evaluating the potential purchase and the PSCW order. WPL will make a decision whether to exercise its option to purchase Riverside on or before May 31. If WPL does exercise its option, closing is expected to occur by Dec. 31, 2012. The actual final approval order from the commission was not in the case docket on the commission website as of April 10.

In a March 26 filing in this case, WPL rebutted several points in a PSC staff briefing memorandum. That memo said the Riverside generating unit is essentially a 500-MW combined-cycle plant with an additional 100 MW of duct firing capacity. The memo questioned how WPL valued the duct firing portion of Riverside, and provided an example to attempt to estimate how duct firing may affect the price. Staff’s example assumed that the $654/kW value reflects the value of a combined cycle unit and solely applies that value to the 500 MW of combined cycle capacity at Riverside, WPL noted.

“That is an incorrect assumption,” said WPL. “The purchase price for Riverside ($392 million) is for the entire plant. The price accounts for the fact that Riverside is nominal 600 MW plant, consisting of essentially 500 MW combined cycle capacity and 100 MW of duct firing capacity. The $654/kW value reflects the average cost per kilowatt of Riverside as a whole (i.e. inclusive of the combined cycle and duct firing capacity). While WPL agrees that the value of the duct firing capacity is less than the value of the combined cycle capacity, it is inappropriate to assume, as staff’s example does, that the value of the combined cycle capacity is equal to the average value of Riverside as a whole.”

The Wisconsin Citizens Utility Board (CUB) filed its own March 26 brief looking at what it saw as both sides of this deal. “The documents submitted in this proceeding reveal that there are both positive and negative aspects to WPL’s proposed purchase of Riverside,” said CUB. “For instance, on the positive side: purchase of the plant allows WPL to meet its short-term capacity needs, and, as a natural gas-fired combined cycle unit it aids in diversifying WPL’s largely coal-fired generating fleet. On the negative side: the potential for increased maintenance costs at the plant is significant, and there are risks to ratepayers from obligations stemming from pre-existing agreements with third parties. In order to ensure that WPL’s ratepayers are not harmed by the negative aspects associated with purchase of the plant, the conditions discussed in detail below related to maintenance issues and obligations to third parties should be attached to any approval of WPL’s proposal.”

To address the maintenance cost issue, WPL should be required to clearly identify maintenance costs, outage durations and causes of outages at the plant in each of its future rate cases, CUB said. In a heavily redacted section, CUB said the commission should condition approval of the purchase on ratepayers being held harmless for all costs associated with obligations to third parties occasioned by the purchase of the plant.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.