Calpine buying, building, selling gas-fired generation

Calpine (NYSE: CPN) said Nov. 6 that it is generating more electricity from existing power plants while buying or building new gas plants in competitive markets, and selling certain non-core generation.

“2012 is shaping up to be a good year for Calpine and our shareholders,” said CEO Jack Fusco during the third quarter earnings conference call.

The company has announced the purchase of the Bosque power plant in Central Texas as well as the sale of the Broad River plant in South Carolina.

Calpine is selling the South Carolina project to a subsidiary of Energy Capital Partners, LLC for roughly $504/KW. Calpine expects the deal to close in December subject to regulatory approvals.

Houston-based Calpine is buying the 800-MW Bosque combined-cycle plant from Bosque Power Co., LLC for $432m.

It is selling the 847-MW Broad River peaker plant for $427m. The company had already announced sale of its 600-MW Riverside combined-cycle plant in Wisconsin and the Midwest ISO for an estimated $392m. Calpine will soon close on the sale of Riverside to the Wisconsin Power & Light (WPL) subsidiary of Alliant (NYSE: LNT).

Calpine expects to close the Bosque purchase this month.  

“Meanwhile, we plan to bring almost 800 MW of contracted growth projects in California online by mid-2013 and continue to advance more than 800 MW of development projects in Texas and Delaware,” Fusco said. “Finally, we have completed approximately $427 million of our previously announced $600 million share repurchase program.”

Calpine touts improved operations; mulls market factors

Calpine said during its quarterly earnings call that it recorded its highest third quarter production on record by generating 33 million MHW of electricity. That represents a record for the period and a 14% increase compared to the third quarter of 2011.

So far in 2012, Calpine has held operating expenses essentially flat, despite a 31% increase in generation.

Calpine said it is adding exposure in a tightening market with “meaningful upside potential while divesting non-core positions with limited upside potential,” Fusco said. The regulated Southeast market offers limited upside for Broad River, Fusco said.

Calpine aid it is “bullish” on its prospects in the Texas market where ongoing load growth is outpacing net capacity additions. It is also upbeat on the PJM market in the Mid-Atlantic.

The Calpine outlook for California, however, is only “neutral,” however. During recent times, Calpine benefited from a nuclear plant outage and more normal hydroelectric levels. The potential return to service of Edison International’s (EIX)’s San Onofre Unit 2 nuclear facility affect the California market would affect the market, Calpine said.

Calpine officials said they expect to see continued coal-to-gas switching in the East in 2013, but not in Texas.

Calpine praised its improving operations. The company said that year-to-date repair and maintenance costs are down 11% compared in 2012 compared to the same period in 2011.

During the quarter, Calpine has signed a 15-year power purchase agreement for 260 MW of capacity, energy and ancillary services from its Oneta power plant starting in June 2016. Under the contract, Oneta will supply American Electric Power (NYSE: AEP) subsidiary Public Service of Oklahoma (PSO)

Calpine reported third quarter 2012 adjusted EBITDA of $706m, compared to $638m in the prior year period, and adjusted recurring free cash flow of $463m, or $0.99 per diluted share, compared to $361m, or $0.74 per diluted share, in the prior year period.

Net Income for the third quarter was $437m, or $0.94 per diluted share, compared to $190m, or $0.39 per diluted share, in the prior year period. Net Income, as adjusted, for the third quarter of 2012 was $215m compared to $195m in the prior year period.

Executive Vice President and COO Thad Harris said Texas is looking at some market tweaks. The options include a forward capacity market and an energy-only market. Any options would include “some Texas distinctions,” Harris said.

The Sutter plant in California is expected to continue operating at least through 2013, Calpine officials said.

New power plant development continues

As far as new project development in California, construction at the Russell City plant continues to move forward. Upon completion, this project will bring online approximately 429 MW of net interest baseload capacity (464 MW with peaking capacity) representing Calpine’s 75% share.

Upon completion, Russell City is contracted to deliver its full output to Pacific Gas & Electric (PG&E) under a 10-year PPA. Construction is ongoing and commercial operation is expected during the summer of 2013.

During 2009, Calpine and PG&E negotiated a new PPA to replace the existing California Department of Water Resources contract and facilitate the upgrade of the Los Esteros Critical Energy Facility from a 188-MW simple-cycle generation power plant to a 309 MW combined-cycle generation power plant.

This project will also increase the efficiency and environmental performance of the Los Esteros by lowering the heat rate. The existing 188-MW simple-cycle facility was shut down at the end of 2011 to allow for major maintenance on the combustion turbines and installation of the new heat recovery steam generators and a steam turbine generator in connection with the new PPA. Commercial operation is expected during the summer of 2013.

In Texas, Calpine is actively permitting the addition of 520 MW of combined-cycle capacity at existing Channel and Deer Park sites. “At both our Deer Park and Channel Energy Centers, we have the ability to install an additional combustion turbine generator and connect to the existing steam turbine generator to expand the capacity of these facilities and to improve overall plant efficiency,” Calpine said. Air permit applications were filed in late 2011 to expand the projects by 260 MW each. Engineering, procurement and construction (EPC) agreements were executed during the third quarter. Commercial operation is targeted for mid-2014.

Finally, PJM has completed a feasibility study for the first 309-MW phase of the 618 MW (net) Garrison power project in Delaware. Calpine expects to receive an air permit in the fourth quarter and have the project running in mid-2015. Calpine has secured a site for the plant in the Dover area.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.