Noting that it already buys the power from this facility, Public Service Co. of New Mexico applied Jan. 3 at the New Mexico Public Regulation Commission for approval to purchase the 132-MW oil- and gas-fired Delta Person power plant.
PNM wants to purchase all of the ownership interests in Delta Person LP, the entity that currently owns the Delta Person plant and related facilities located in Albuquerque, N.M. Among other things, the utility wants the commission to grant a Certificate of Public Convenience and Necessity to own and operate this facility as a jurisdictional generation plant.
PNM, a subsidiary of PNM Resources (NYSE: PNM), announced Dec. 11 that it had signed a purchase and sale agreement for this plant.
The Delta plant began commercial operation in July 2000. It consists of a General Electric 7FA combustion turbine which is capable of operating on natural gas or fuel oil and can generate in excess of 132 MW when operated on natural gas. The Delta plant has an estimated remaining useful life of 27 years.
PNM currently purchases energy and capacity from the Delta plant under a Power Purchase Agreement dated Oct. 4, 1996, as amended, by and between PNM and Cobisa-Person LP (the predecessor to the Delta Partnership). PNM and the Delta Partnership are also parties to other contracts entered into in conjunction with the Delta PPA, e.g., a site lease agreement and an interconnection agreement. The Delta PPA has a primary term ending on June 30, 2020, with PNM having the right to extend the term for five years, i.e., to 2025.
PNM touts plant’s quick-start capabilities
“Due to the Delta Plant’s location within the Northern New Mexico load center, the Delta Plant is a critical PNM load-side resource for generation, to relieve transmission system constraints and to provide voltage support to PNM’s transmission system,” the application noted. “The Delta Plant can be started in 30 minutes using either natural gas or fuel oil. The Delta Plant also has a quick start capability of providing 21.5 MW in ten (10) minutes, consistent with the reserve requirements of the Southwest Reserve Sharing Group. Further, the Delta Plant can be used for load following and to balance generation to load when load and intermittent resource generation fluctuates.”
The Delta plant includes an on-site 420,000 gallon fuel oil tank and is located near commercial fuel supply systems which allow it to operate on fuel oil in the event of a natural gas shortage. “Commission approval of this Application will ensure that this important generation resource remains in PNM’s portfolio over the long-term to provide reliable generation capacity and energy supply and to support reliable service to retail customers,” PNM added.
On Dec. 7, 2012, PNM entered into a Purchase and Sale Agreement with the current owners of the Delta Partnership, which are Delta Person GP LLC and BHB Power LLC. The Delta Partnership is a single-purpose entity that owns and operates the Delta plant as its sole business activity and it has been determined by the Federal Energy Regulatory Commission to be an Exempt Wholesale Generator. PNM anticipates making a FERC filing with respect to this transaction in January 2013.
Under the purchase agreement, PNM has agreed to acquire the Delta Partnership for a total cost of $40.7m. The $40.7m purchase price is composed of $23m for the equity investment and the assumption of the outstanding Delta Partnership debt of $17.7m (assuming a June 30, 2013, closing of the purchase transaction). An independent appraisal report prepared for PNM has assessed the market value of the Delta plant at approximately $45.9m.
A final approval order entered by the New Mexico commission on or before May 31, 2013, will meet the needs of sellers and will allow PNM’s customers to realize the benefits of PNM owning and operating the Delta plant rather than continuing under the existing Delta PPA, the utility said.
Patrick O’Connell, Director, Planning and Resources for PNM, said in attached testimony that in August 2012, the Delta Partnership issued an offering memorandum soliciting offers from parties interested in purchasing the plant. PNM and the Delta Partnership then agreed to enter into direct negotiations that resulted in this proposed transaction.
O’Connell noted that the Delta Partnership is owned by BHB Power, which is a limited partner having a 99.99% ownership, and Delta Person GP, which is the general partner with a 0.01% ownership interest. BHB and DPGP are both wholly owned by Delta Person LLC, which in turn is owned by the following entities: DPC Person LLC (6%), John Hancock Mutual Life Insurance Co. (40%), Epsilon Power Funding LLC (40%), and ArcLight Person LLC (14%).
Conversion to a combined-cycle facility an option being looked at
PNM’s customers will realize several near-term and long-term benefits as a result of PNM’s ownership of the Delta plant, O’Connell noted, including:
- Under the Delta PPA energy costs are billed at a contract heat rate, which is 12,063 Btu/kWh when operating on gas. Under PNM ownership, the cost to dispatch the unit will be based on the actual heat rate of the plant which PNM estimates to be 10,200Btu/kWh, so customers should realize fuel cost savings, estimated to be $390,000 in 2014;
- Purchasing the Delta plant will make it unnecessary to replace the Delta PPA after 2025 and will secure a valuable load-side generation resource for the long-term at a lower cost than the likely future alternatives;
- Under the Delta PPA, PNM incurs an additional cost if the plant is dispatched at an amount greater than the Delta PPA’s defined Dependable Capacity of 132 MW. However, the actual dependable capacity is likely higher than 132 MW, and PNM will perform the necessary testing after taking ownership of the plant to determine the Delta plant’s actual capacity. As the owner, PNM will be able to dispatch the Delta plant at it actual, presumably higher, capacity without incurring a cost penalty;
- PNM is currently obligated to pay the direct cost of plant maintenance under the General Electric maintenance agreement presently in place, and that obligation will not change when PNM becomes the owner of the Delta plant.
- Possible upgrades that PNM has determined to be technically feasible, if needed, include expanding the Delta plant from a simple-cycle configuration to a more efficient combined-cycle generating facility without significant changes to the existing air quality permit.
- Increased scrutiny under NERC has heightened the need for utilities to have a comprehensive plan in place for “blackstart” capability – meaning a unit that can start without an outside electrical supply. Although the Delta plant currently needs a supply of electricity to start, PNM believes that it could modify it to provide blackstart capabilities.