Carlyle seeks FERC approval of Cogentrix power plant buy

Three Cogentrix Energy LLC affiliates filed a Sept. 27 request with FERC for authorization under the Federal Power Act to have their assets taken over by Carlyle Power Holdings LLC.

The Carlyle Group (NASDAQ: CG), a global asset manager, said Sept. 7 that its infrastructure fund has agreed to acquire from Goldman Sachs Group Inc. (NYSE: GS) the North American power generation assets held by Cogentrix Energy. That includes five coal and solar power projects in Florida, Virginia, Colorado and California, as well as a development pipeline of gas and renewable power projects.

Filing the Sept. 27 request at FERC was Cogentrix of Alamosa LLC, James River Genco LLC and Portsmouth Genco LLC, which asked that certain indirect interests in these companies be transferred from Cogentrix Energy to Carlyle Power Holdings. As a result of the proposed transaction, Carlyle Power will indirectly own:

  • 55% of the Series A Units and 100% of the Series B Units in a newly formed upstream owner of Alamosa (NewCo2); and
  • Cogentrix’s 50% ownership interest in each of James River and Portsmouth. An affiliate of Cogentrix will own the remaining 45% of the Series A Units in NewCo2. Cogentrix will no longer hold any ownership interests in James River or Portsmouth following the transaction.

The transaction will not have any adverse effect on competition, rates, or regulation and will not result in any cross-subsidization concerns, the companies told FERC. “Accordingly, the Transaction is consistent with the public interest and should be authorized by the Commission pursuant to FPA section 203.” The parties asked for expedited action.

  • Alamosa owns and operates a 30-MW concentrating photovoltaic solar facility in the San Luis Valley in Alamosa County, Colo. It is interconnected to the transmission system owned and operated by Public Service Co. of Colorado (PSCo). Alamosa operates as a qualifying facility (QF) under the Public Utility Regulatory Policies Act of 1978 (PURPA). Alamosa also is an exempt wholesale generator (EWG) under the Public Utility Holding Company Act (PUHCA). The commission has authorized Alamosa to sell energy, capacity, and ancillary services at market-based rates. All of its output is sold to PSCo under a long-term power purchase agreement that took effect upon commercial operation of the facility in early 2012. Alamosa currently is a wholly-owned indirect subsidiary of Cogentrix.
  • Portsmouth owns and operates a 120-MW, coal-fired facility in Portsmouth, Va. It is interconnected to the transmission system owned by Dominion Virginia Power and operated by PJM Interconnection LLC. Portsmouth is an EWG under PUHCA. The commission has authorized Portsmouth to sell energy, capacity, and ancillary services at market-based rates. Portsmouth sells the full net electrical output of its facility (115 MW) to Northern Virginia Electric Cooperative (NOVEC) under a long-term power purchase agreement that has been in effect since 2008. Portsmouth currently is indirectly owned by Cogentrix (50%) and Quantum Virginia Power LLC (Quantum) (50%).
  • James River owns and operates a 120-MW, coal-fired facility in Hopewell, Va. It is interconnected to the transmission system owned by Dominion and operated by PJM. Hopewell currently operates as a QF under PURPA. James River also is certified as an EWG under PUHCA. The commission has authorized James River to sell energy, capacity, and ancillary services at market-based rates. It has a steam host that consumes the steam equivalent of about 26 MW of the facility’s electrical output. James River sells the remaining net electrical output (89 MW) to NOVEC under a long-term power purchase agreement that has been in effect since 2008. James River currently is indirectly owned by Cogentrix (50%) and Quantum (50%).

As part of the proposed transaction, Carlyle Power also will acquire an indirect interest in Cedar Bay Generating Co. LP and Sunray Energy Inc. Cedar Bay owns a 250-MW, coal-fired cogeneration facility located in the Jacksonville Electric Authority balancing authority area (BAA). Sunray owns two solar parabolic trough generating facilities with a combined capacity of 43.8 MW located in the California Independent System Operator region. These facilities are QFs. Neither Cedar Bay nor Sunray currently is required under FERC’s PURPA regulations to have rate tariffs on file with FERC. As QFs, Cedar Bay and Sunray are therefore eligible for certain federal regulatory exemptions, including the exemption from commission regulation under FPA section 203, the application noted. So, Cedar Bay and Sunray are not included in the Sept. 27 application.

Goldman Sachs has interests in other coal-fired power assets

Cogentrix Energy is a wholly-owned indirect subsidiary of Goldman Sachs Group (GS Group). GS Group, together with its subsidiaries, is a leading global investment banking, securities, and investment management firm that provides a wide range of services worldwide.

GS Group is affiliated with J. Aron & Co., an international commodities dealer that is primarily engaged in the purchase, sale, processing, storage, and shipment of various commodities, including electricity, natural gas, precious metals, base metals, currencies, crude oil, and petroleum products. J. Aron also develops and provides products that assist suppliers and users of these commodities in managing risks associated with their businesses. FERC has authorized J. Aron to sell energy, capacity, and ancillary services at market-based rates. GS Group also is affiliated with Power Receivable Finance LLC, a power marketer whose market-based rate authority is limited to the balancing authority area of the California ISO.

GS Group is affiliated with certain entities that own or control electric generation facilities in the United States. Aside from the Alamosa facility, none of these facilities is located in the PSCo balancing authority area (BAA). Investment vehicles associated with GS Group hold interests in Texas-based power generator Energy Future Holdings Corp. (EFH). EFH’s energy assets are located primarily within the Electric Reliability Council of Texas (ERCOT).

GS Group also is affiliated with Power Network New Mexico LLC, which is wholly-owned by funds affiliated with the GS Infrastructure Partners family of funds and managed by direct or indirect subsidiaries of GS Group. Power Network is developing a new 1,500-MW merchant transmission collector system for renewable power in New Mexico. Power Network does not currently own or control any electric generation or transmission facilities.

The Carlyle Group also indirectly controls two investment funds called Carlyle Strategic Partners II LP and CSP Co-Investment II LP (collectively, the CSP II Entities). The CSP II Entities are owners of non-voting debt securities of Somerset Cayuga Holding Co. Inc. (SCHC) that can be converted into SCHC common stock. SCHC owns Somerset Operating Co. LLC (Somerset) and Cayuga Operating Co. LLC (Cayuga). Somerset owns and operates the Somerset facility, a single coal-fired generating unit with a summer rating of 678 MW located in Barker, N.Y. Cayuga owns and operates the Cayuga facility, which consists of two coal-fired units with a combined summer rating of 313 MW located in Lansing, N.Y. Both plants are interconnected to the transmission grid operated by the New York Independent System Operator (NYISO), and both were acquired earlier this year from a bankrupt affiliate of AES Corp. (NYSE: AES).

In the Carlyle buy of the Cogentrix entities, prior to the closing of the transaction, the upstream ownership of the companies will be restructured. Specifically, Cogentrix will transfer all of its indirect ownership interests in James River and Portsmouth to Rhea Holdco LLC, a newly-formed wholly-owned direct subsidiary of Cogentrix. As a result, Rhea Holdco will indirectly own 50% of the membership interests in each of James River and Portsmouth. Quantum’s indirect membership interests in James River and Portsmouth will not be affected by the reorganization. In addition, NewCo2 will be created as an intermediate holding company that will indirectly own Alamosa after the transaction.

In this transaction, Carlyle Power will acquire Cogentrix’s 100% direct membership interest in Rhea Holdco. As a result, Carlyle Power will indirectly own 50% of the membership interests in each of James River and Portsmouth. Cogentrix will not retain any ownership interests in James River and Portsmouth following the transaction. Quantum will continue to indirectly own the remaining interest in James River and Portsmouth.

Through a series of steps, Carlyle Power also will indirectly acquire 55% of the Series A Units and 100% of the Series B Units in NewCo2. NewCo2 will own 100% of the indirect membership interests in Alamosa following a series of simultaneous membership contributions. Carlyle Power will indirectly own its Series A and Series B Units in NewCo2 through Rhea Holdco.

“The Transaction will have no adverse effect on competition,” the filing said.

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.