Calpine financial results down in Q2, new power projects on the way

Calpine Corp. (NYSE: CPN) on July 25 reported some lower financial results for the second quarter largely as a result of changes in its portfolio, milder weather and lower gas-fired generation due to the reversal in 2013 of the coal-to-gas switching that it benefited from during the first half of 2012.

“We remain steadfastly focused on positioning Calpine to take advantage of the secular shift in the U.S. power generation industry to clean, efficient and dispatchable combined-cycle gas turbines,” said Calpine CEO Jack Fusco.

“Today, we are reaffirming our Adjusted Free Cash Flow Per Share guidance of $1.50 for 2013, despite challenging market conditions during the first half of this year,” Fusco added. “Our second quarter and year-to-date results reflect milder weather this year, as well as the sale of two contracted power plants late last year. We expect these headwinds to be offset during the balance of the year by higher regulatory capacity revenues in PJM, the commencement of operations at our two new contracted plants in California and the acquisition of Bosque Energy Center in Texas. Our hedge position in the second half of the year also allows us to benefit from any improved conditions in our markets.

“Meanwhile, we continue to proactively enhance shareholder value through commercial origination and capital allocation. We recently signed new multiyear capacity contracts for 1,645 MW in California and the Southeast as we continue to identify solutions for our customers. In addition, we expect to bring approximately 900 MW of contracted capacity on-line in California during the third quarter. Construction is also advancing on our two expansion projects in Texas with in-service expected next summer, and we recently broke ground on our new 309 MW plant in Delaware. Finally, we recently completed our $1 billion of share repurchase authorizations, demonstrating our commitment to returning capital to our shareholders.”

Plant development work includes:

West:

Russell City Energy Center: Construction at the Russell City Energy Center continues to move forward. Upon completion, this project will bring on line approximately 429 MW of net interest baseload capacity (464 MW with peaking capacity) representing Calpine’s 75% share. Construction is ongoing and the commercial operation date is expected in the third quarter of 2013. Upon completion, the Russell City Energy Center is contracted to deliver its full output to Pacific Gas & Electric (PG&E) under a 10-year power purchase agreement (PPA).

Los Esteros Critical Energy Facility: 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 plant, which will also increase the efficiency and environmental performance of the power plant by lowering the heat rate. Construction is ongoing and commercial operation is expected in the third quarter of 2013.

Texas:

Channel and Deer Park Expansions: In September and November 2011, Calpine filed air permit applications with the Texas Commission on Environmental Quality (TCEQ) and the EPA to expand the baseload capacity of its Deer Park and Channel Energy centers by around 260 MW each. It received air permit approvals from Texas regulators for the Deer Park and Channel expansion projects in September and October 2012, respectively, and from the EPA in November 2012. Construction on both expansion projects commenced in the fourth quarter of 2012. Commercial operations of the expansions is expected during the second quarter of 2014.

North:

Garrison Energy Center: This is a 309 MW combined-cycle project located in Delaware on a site secured by a long-term lease with the City of Dover. Construction commenced in April 2013, commercial operation is expected by the second quarter of 2015. The project’s capacity cleared PJM’s 2015/2016 and 2016/2017 base residual auctions. Calpine is in the early stages of development of a second phase (309 MW) of this project. PJM has completed the feasibility and system impact studies for this phase and the facilities study is currently underway.

Deepwater Energy Center: Calpine is evaluating its Deepwater facility since the existing 158 MW fossil fuel steam-based plant is scheduled to be decommissioned by May 1, 2015. The Deepwater development opportunity would add approximately 350 MW of new combined-cycle capacity and leverage existing infrastructure; however, the Deepwater development proposal did not clear PJM’s 2016/2017 base residual auction. The project is continuing to advance entitlements (permits, zoning, transmission, etc.) for the potential development of Deepwater at a future date.

Mankato Power Plant Expansion: Calpine is proposing a 345 MW expansion of the Mankato plant in response to a competitive resource acquisition process established by the Minnesota Public Utilities Commission (MPUC) for Northern States Power d/b/a Xcel Energy. The process, which will be managed via a contested case hearing, is intended to address a capacity shortfall in the Northern States Power service territory of up to 500 MW over the 2017 to 2019 time frame. The MPUC will evaluate proposals for intermediate and/or peaking capacity to meet all or part of the 500 MW needed. Calpine expects that winning bidders will be identified in the fourth quarter of 2013.

All Segments:

Turbine Modernization: Calpine said it continues to move forward with a turbine modernization program. Through June 30, it had completed the upgrade of twelve Siemens and eight GE turbines totaling approximately 200 MW and has committed to upgrade approximately four additional turbines. Similarly, it has the opportunity at several of its power plants in Texas to implement further modernizations to add as much as 300 MW of incremental capacity across the region at attractive prices. The decision to invest in these modernizations depends upon, among other things, further clarity on market design reforms currently being considered by the Public Utility Commission of Texas.

Second quarter 2013 commercial operations achievements included:

  • Entered into a three-year PPA with South Carolina Electric and Gas to provide 200 MW of power from the Columbia Energy Center beginning January 2014;
  • Entered into two new resource adequacy contracts with PG&E for the Delta and Sutter Energy centers for the full capacity of each plant which commence in January and June 2014, respectively, and extend through December 2015 and 2016, respectively; and
  • Entered into two new PPAs with Marin Energy Authority to provide 3 MW and 10 MW of renewable power in 2014 and 2017-2026, respectively, from the Geysers assets.

Calpine generates more electricity than any other independent power producer in America, with a fleet of 93 power plants in operation or under construction, representing more than 27,000 MW capacity.

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.