Calpine (NYSE:CPN) announced plans for a new combined-cycle plant in Pennsylvania and also said Aug. 1 that its geysers have agreed to a major power purchase agreement (PPA) with an Edison International (NYSE:EIX) utility in California.
Calpine CEO Thad Hill and other top executives discussed these issues, low gas prices and Calpine’s exit from the Southeast during the power generator’s quarterly earnings call with financial analysts.
“On the commercial front, since the first quarter, we have entered into four new contracts, most notably a ten-year PPA with Southern California Edison for 225 MW of capacity and renewable energy from our Geysers geothermal fleet beginning in 2017, subject to regulatory approval,” Hill said.
Calpine officials said the geothermal geyser operations comprise the “crown jewel” among Calpine’s renewable resources. The geysers provide zero “renewable integration” costs, Calpine said in its quarterly briefing materials.
“In addition, we have advanced our growth pipeline and are today announcing plans for our York 2 Energy Center, a new 760 MW combined-cycle power plant, scheduled to achieve commercial operations in PJM in 2017,” Hill said.
“York 2 cleared the auction and will benefit from Marcellus Shale natural gas prices. It is expected to come online in the summer of 2017,” Hill said.
Construction price for the York 2 project should be in the range of $500m to $600m, Hill said in response to a question from an analyst.
York 2’s key permits and approvals are being actively pursued, and the air permit has been filed with the Pennsylvania Department of Environmental Protection (DEP).
The 760-MW combined-cycle gas plant will be co-located at the existing York energy center. It will be “dual-fuel” capable. The new plant will be able to take advantage of existing infrastructure.
Calpine sees gas prices being cheap in near term
“We have our views on natural gas … and think there is room for gas prices to dip even further in 2015,” Hill said during the conference call. Low gas prices in the near-term should make the company’s natural gas power fleet more competitive, the CEO said.
Calpine is resilient in a low-gas price setting, he said. “More [market] fragility means more volatility, which our business is fully set up to capture,” Hill said.
As gas prices drop below $4/mmBtu Calpine will actually generate more power at a low price. Low gas prices might benefit Calpine in near term. Low gas prices and environmental rules could spell more coal retirements, Hill said.
Calpine expects the fundamentals for gas plants in PJM to improve over the next three years. That’s because between now and mid-2017, natural gas from shale will continue to put pressure on solid fuel and nuclear power in PJM, said Calpine Executive Vice President and COO Steve Pruett.
With Southeast sale, Calpine to concentrate on three regions
Calpine’s recently-completed sale of the “Southeast six-pack” effectively means the company has exited that region. Sale of six plants in the Southeast to LS Power closed on July 3 for more than $1.5bn.
The divestiture leaves Calpine is well-positioned in three key markets; PJM, Texas and California, Pruett said.
In Texas, Calpine completed construction of Deer Park and Channel Energy Center expansion projects. Both plants were expanded by roughly 260 MW each.
In the Northeast, Calpine expects commercial operation of the 310-MW Garrison combined-cycle plant in Delaware in the second quarter of 2015. Calpine is also in early stages of development of a second phase of the Garrison project.
Calpine is also proposing a 345-MW expansion of the Mankato power plant in response to a competitive process by the Minnesota Public Utilities Commission (MPUC) to acquire up to 500 MW of new capacity. The initial stage of the proceeding was managed via a contested case hearing.
On March 27, the MPUC agreed in part with the recommendation of the Administrative Law Judge and directed Xcel Energy (NYSE:XEL) (Northern States Power) to negotiate in parallel PPAs with Calpine and certain other parties, subject to final approval by the MPUC. A decision is expected in late 2014 or early 2015.
Calpine reported second quarter 2014 adjusted EBITDA of $413m, compared to $343m in the prior year period, and adjusted Free Cash Flow of $99m, or 23 cents per diluted share, compared to $38m, or 8 cents per diluted share, in 2Q13.
Net Income for the second quarter of 2014 was $139m, or 33 cents per diluted share, compared to a Net Loss of $70m, or 16 cents per diluted share, in 2Q13. Net Loss, as adjusted, for the second quarter of 2014 was $3m compared to $33m in the prior year period.