The Arkansas Public Service Commission on July 11 approved Entergy Arkansas Inc.’s application to purchase KGen Hot Spring LLC’s gas-fired Hot Spring facility located in Hot Spring County, Ark.
In July 2011, Entergy Arkansas, a unit of Entergy Corp. (NYSE: ETR), applied to purchase the Hot Spring plant. It said that it needs load-following, peaking and reserve capacity to meet customer load requirements. It said a combined cycle gas turbine (CCGT) generating plant addresses its needs because it is capable of flexible operation, runs efficiently, and is fueled by natural gas, providing fuel diversity for the utility’s generation portfolio, which is heavily reliant on nuclear and coal baseload resources. Entergy Arkansas said its acquisition of the Hot Spring plant will reduce its reserve and load-following capacity deficit as well as risk associated with reliance on the price and availability of capacity in the short-term wholesale market.
Earlier this year, Entergy Mississippi got approval to purchase the Hinds combined-cycle gas plant in Mississippi from another KGen subsidiary.
Entergy Arkansas will purchase the Hot Spring plant for approximately $253m, the commission noted in its approval order. Entergy Arkansas estimates that its total investment in the Hot Spring plant will be about $277.1m if the sale is closed before Aug. 1, at which time the purchase price will increase by $5m. The estimated total investment includes the $253m purchase price, $11.6m of post-acquisition capital improvement projects, and $12.5m in transaction and contingency costs. Entergy Arkansas will take full ownership of the plant upon closing and will dedicate all of the output to its Arkansas retail customers.
The 620-MW Hot Spring plant began commercial operation in June 2002 and is located about 50 miles southwest of Little Rock. It has an average standard baseload heat rate of about 7,100 Btu/kWh.
Kurtis Castleberry, the Director, Resource Planning at Entergy Arkansas, wrote in April 16 response testimony supporting this case that facilities studies showed this is the right course to pursue. “The results of the Facilities Studies indicate that a minimal level of transmission upgrade costs will be required to designate the Hot Spring Plant for network transmission service,” he wrote. “The Hot Spring Plant has been identified through a Request For Proposals process as among the most viable resources recommended for award and was the most economically attractive resource located in Arkansas. The Hot Spring Plant is a modern, fuel-efficient, load-following natural gas-fired combined cycle resource that will help fill the Company’s need for flexible capacity and peaking capacity as it enters post-System Agreement operations in December 2013. The Company’s ability to generate energy from the low heat rate Hot Spring Plant (approximately 7,100 Btu/kWh in baseload operations) will diversify EAI’s generation portfolio, which relies primarily on coal and nuclear generation, and in the process help reduce EAI’s exposure to fuel price risk, particularly given the recent decline in natural gas prices”
KGen Hot Spring is a special purpose limited liability company that is a wholly owned subsidiary of KGen Power Corp. KGen Power was incorporated in 2006 to acquire, own, and operate power plants.
In July 2011 testimony to open this case, Castleberry noted that the utility’s gas-fired capacity is aging. “With the exception of the Ouachita Plant units purchased in 2008, all of EAI’s natural gas capacity is at least 41 years old, with the oldest unit having been in service for over 61 years,” he wrote. “These older technology gas fired units with heat rates around 10,000 Btu/kWh or higher are currently economic for load following and peaking/planning reserve capacity roles. However, as generating units age, it is reasonable to expect that their maintenance requirements may increase and/or their reliability may decrease. Therefore, EAI expects to deactivate several units totaling 1,156 MW by 2016.”
He later added: “With the acquisition of the Hot Spring Plant, EAI will still have a current need or deficit of capacity that the Company plans to supply with limited-term purchases of capacity from the wholesale market.”