PPL Corp.’s (NYSE: PPL) PPL Montana LLC subsidiary has reached an agreement to sell its hydroelectric facilities to NorthWestern Energy for $900m in cash, subject to certain adjustments.
The agreement includes PPL Montana’s 11 hydroelectric plants, which have a combined capacity of more than 630 MW, as well as the company’s Hebgen Lake reservoir. The sale is expected to close in the second half of 2014 and will require regulatory approvals, including approval from the Federal Energy Regulatory Commission (FERC) and Montana Public Service Commission, PPL noted in a Sept. 26 statement.
“This is an opportunity to secure attractive shareowner value for high-performing, non-carbon assets,” said William Spence, chairman, president and CEO of PPL Corp.
The agreement does not include PPL Montana’s interest in the coal-fired Colstrip facility or its J.E. Corette coal-fired plant located near Billings. The Colstrip plant is jointly owned by PPL Montana and five other companies, including NorthWestern Energy. PPL Montana previously announced that it plans to mothball the Corette coal plant in April 2015.
The agreement also does not include the Butte-based power marketing and trading operations of PPL Montana’s marketing and trading affiliate, PPL EnergyPlus LLC. PPL EnergyPlus will continue to market the output of PPL Montana’s remaining generation assets and continue to serve its current and prospective customers.
In a related transaction, PPL Montana will pay $271m to terminate a sale-leaseback arrangement for its interest in the Colstrip coal facility. Termination of the lease is expected to be completed by the end of 2013 and is subject to the approval of FERC.
PPL Montana’s hydro facilities include its: Thompson Falls Dam on the Clark Fork River; Kerr Dam on the Flathead River; Madison Dam on the Madison River; the Hauser, Holter, Black Eagle, Rainbow, Cochrane, Ryan and Morony dams along the Missouri River; and Mystic Lake Dam on West Rosebud Creek.
NorthWestern Corp. d/b/a NorthWestern Energy (NYSE: NWE) said these hydro facilities are situated in two separate river basins, covering both sides of the Continental Divide, and benefit from a history of strong and reliable operating performance, low variable operating costs and favorable environmental qualities.
“This is a unique opportunity to acquire hydroelectric facilities dedicated to serving our Montana customers for generations to come,” said Bob Rowe, NorthWestern president and CEO. “These facilities were originally built as part of the integrated system that we own today and complement our existing set of supply resources. The addition of Montana-regulated, clean, sustainable and reliable hydro power will provide supply diversity to our portfolio and will reduce risks associated with variable fuel prices.”
This transaction is expected to allow NorthWestern to reduce its reliance on third-party power purchase agreements and spot market purchases, more closely matching NorthWestern’s generation resources with forecasted customer demand. Upon completion of this asset buy, about half of NorthWestern’s total energy needs in Montana would be met with hydro and wind generation.
In addition, the facilities are anticipated to provide energy stability well below the cost associated with “new build” alternatives, making this acquisition an attractive option to help stabilize customer rates over the long-term, NorthWestern said.
“In joining our portfolio of wind, natural gas and coal assets, these hydroelectric facilities will increase our energy capacity and provide NorthWestern with greater certainty about our energy supply. We’ll be able to provide continued reliability and price stability to our customers. We’ll also be better able to protect current and future NorthWestern customers from the impact of market price volatility, allowing us to offer clean, cost-effective and reliable energy for years to come,” said Rowe.
Once the transaction is completed, it is expected that NorthWestern will be able to provide nearly all of Montana’s required power supply during light load periods, while using market purchases or other resources to meet demand during heavier load periods. These assets will be added to the rate base in Montana.
NorthWestern said it expects to fund the acquisition using a combination of debt securities, equity and available cash and to maintain its targeted debt to capital ratio of 50%–55%, supporting a solid investment grade credit profile. Financing is supported by a fully committed bridge loan facility with Credit Suisse and Bank of America Merrill Lynch.
In connection with the transaction, Credit Suisse acted as lead financial advisor and Bank of America Merrill Lynch acted as financial advisor to NorthWestern Energy. Skadden, Arps, Slate, Meagher & Flom LLP served as lead legal counsel to NorthWestern Energy and Dorsey & Whitney served as environmental counsel. Blackstone Advisory Partners rendered a fairness opinion to NorthWestern’s Board of Directors.
UBS Investment Bank and RBC Capital Markets LLC served as PPL’s financial advisors. Simpson Thatcher & Bartlett LLP served as PPL’s legal advisor.
NorthWestern Energy provides electricity and natural gas in the Upper Midwest and Northwest, serving about 673,200 customers in Montana, South Dakota and Nebraska.
The PPL family of companies delivers electricity and natural gas to about 10 million customers in the United States and the United Kingdom, owns more than 18,000 MW of generating capacity in the U.S. and sells energy in key U.S. markets.