Calpine details gas plant expansions; hails CEO succession

During its quarterly earnings call Calpine (NYSE:CPN) said President and COO Thad Hill will become the company’s new chief executive when longtime CEO Jack Fusco becomes Executive Chairman in May 2014.

The Houston-based independent power producer had previously announced that Fusco, who has been CEO and Calpine board member since 2008, would assume the title of executive chairman following the annual shareholders meeting in May 2014.

“At Calpine, we have been preparing for the next generation of leadership since we hired Thad in 2008. …Thad has helped Calpine achieve operational and commercial excellence,” the company said in a statement.

“I’m also excited about the opportunity to spend more time focusing on the Company’s long-term strategic plan and engaging with policymakers as I continue to advocate for fair and competitive power markets and responsible environmental regulation,” Fusco said in the statement.

Calpine reported third quarter 2013 Adjusted EBITDA of $802m, compared to $706m in the prior year period, and Adjusted Free Cash Flow of $556m, or $1.27 per diluted share, compared to $463m, or 99 cents per diluted share, in the prior year period.

Calpine touts growing natural gas fleet; talks market issues

During the call, Fusco expressed satisfaction with a pair of federal district court rulings that struck down “subsidized” generation contracts outside the PJM auction process in Maryland and New Jersey.

The U.S. District Court rulings help “preserve the integrity of the competitive market,” Fusco said.

Hill noted the Public Utility Commission of Texas (PUCT) adoption of a mandatory reserve margin. Hill also said that an upcoming Brattle Group report would not be the last word on the matter.

Both Fusco and Hill said the company will look to make selective acquisitions where it makes sense. “We don’t intend to sit on excess cash,” Fusco said. “We plan to put it to work.”

Calpine officials ran through an update on various natural gas generation projects. Not all assets are created equal, Fusco said. Calpine’s recently commissioned Russell City project in Hayward, Calif., benefits from “location, location, location,” Fusco said.

Russell City could be one of the last new combined-cycle projects to be brought online in that area for a long-time, Fusco said.

During the quarter Calpine completed construction of more than 900 MW of combined-cycle capacity in California and began servicing related contracts with Pacific Gas and Electric.

Calpine continues to investigate development opportunity in the PJM market.

“Our 158 MW Deepwater power plant [in New Jersey], which is currently scheduled to be decommissioned, presents an opportunity to leverage the existing infrastructure to add approximately 370 MW of new combined-cycle capacity to our fleet,” Calpine said in its presentation. “In addition, we are evaluating adding up to 760 MW of additional capacity on the site where our York power plant is located” in Pennsylvania.

Calpine is also moving ahead with its turbine modification program.

Through Sept. 30, Calpine completed the upgrade of 12 Siemens and eight General Electric (NYSE:GE) turbines totaling about 200 MW and has committed to upgrade four more. “Similarly, we have the opportunity at several of our power plants in Texas to implement further modernizations to add as much as 300 MW of incremental capacity across the region at attractive prices,” Calpine said.

Calpine generated over 30 million MWh of electricity in the third quarter of 2013. The company also a record low year-to-date fleet wide forced outage factor of 1.5%. It also delivered record-high year-to-date fleet wide starting reliability: 98.5%.

The company also entered into a new five-year purchased power agreement (PPA) with Celanese Ltd for approximately 50 MW commencing in 2014 and extended existing steam agreement for ten years beyond 2016 from the Clear Lake power plant in Texas.

Calpine continues aggressive fleet expansion

Calpine continues to aggressively pursue new generation growth at plants in various parts of the country.

** Russell City went commercial in California during August and brought on-line 429 MW of net interest baseload capacity (464 MW with peaking capacity) representing Calpine’s 75% share. Russell City Energy Center is contracted to deliver its full output to PG&E under a ten-year contract.

** Los Esteros Modernization Project started commercial operation in August. The facility in California was converted from a 188 MW simple-cycle generation power plant to a 309 MW combined-cycle generation power plant.

** Channel and Deer Park Expansions in Texas have both received air permit approvals from the Texas Commission on Environmental Quality (TCEQ) in fall 2012. Construction on both expansion projects commenced in late 2012. Commercial operation is expected in 2Q14.

** Garrison is a 309-MW combined-cycle gas project in Delaware that started construction in April. The project has a long-term contract with the City of Dover. Calpine expects commercial operation by 2Q15.

“We are in the early stages of development of a second phase (309 MW) of this project,” Calpine said.

Mankato expansion project involves a 345-MW expansion of the power plant in Minnesota response to a competitive process set up by the Minnesota Public Utilities Commission (MPUC). The process, which will be managed via a contested case hearing, is intended to address an anticipated capacity shortfall in Xcel Energy ‘s (NYSE:XEL) Northern States Power service territory of up to 500 MW over the 2017 to 2019 time frame. “We expect that winning bidders will be identified in the first quarter of 2014,” Calpine said.

 

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.