Entergy Gulf States seeks approval to buy two Union Power Station blocks

Entergy Gulf States Louisiana LLC (EGSL) applied Jan. 13 at the Louisiana Public Service Commission for approval for it to buy two of the four power blocks at the gas-fired Union Power Station (UPS) in Arkansas, with other Entergy Corp. (NYSE: ETR) subsidiaries in Arkansas and Texas to get the other two blocks as part of a larger transaction.

The buy would be from Union Power Partners LP (UPP). The two power blocks that EGSL seeks to acquire would provide about 990 MW (summer rating) of modern, combined-cycle gas turbine (CCGT) capacity and energy. Once acquired, EGSL will sell to Entergy New Orleans (ENO) 20% of the output of the two power blocks on a life-of-unit basis pursuant to Service Schedule MSS-4 of the Entergy System Agreement.

UPS is located in southern Arkansas on approximately 330+ acres in Union County. It began commercial operation in July 2003 and is composed of four CCGT blocks in 2×1 configuration for a total of eight natural gas-fired combustion turbines and four steam turbines. Each power block consists of two combustion turbine generators, two heat recovery steam generators, a condensing steam turbine, and other items. Each power block has the same design and capacity rating, which is 495 MW (summer) and 538 MW (nominal).

The UPS acquisition arises out of an unsolicited offer that Entergy Corp. received in June 2014 from UPP. UPP proposed to sell up to all four power blocks and related assets as well as the real property upon which the generating facilities are sited. Due to the limited time to respond to the sale offer, the UPS acquisition was not evaluated in the context of an EGSL Request for Proposals (RFP).

Phillip R. May, President and Chief Executive Officer of Entergy Louisiana LLC (ELL) and Entergy Gulf States Louisiana, said in the Jan. 13 filing: “To sum up, the acquisition of Power Blocks 3 and 4 represents an excellent opportunity to obtain cost-effective, modern CCGT capacity that will economically and reliably serve EGSL’s current and future customers. EGSL is committed to providing its customers with reliable service at the lowest reasonable cost, and the acquisition of Power Blocks 3 and 4 advances EGSL’s continuing pursuit of this goal in multiple ways. One, the addition of these power blocks to EGSL’s generation portfolio will help the Company meet its growing need for long-term capacity at a reasonable cost. Two, the price for the UPS Acquisition is well below the cost of comparable new generation and is consistent with the price paid by other EOCs for recent acquisitions. Three, Power Block 3 and Power Block 4 feature already-installed modern equipment and technology that enable them to generate power efficiently and cost-effectively, and those resources are expected to obtain significant net energy margins in the Midcontinent Independent System Operator, Inc. (‘MISO’) market.”

UPP is a wholly-owned subsidiary of Entegra TC LLC. Entegra is the functional successor to Entegra Power Group LLC, which was dissolved as part of a bankruptcy reorganization approved by the U.S. Bankruptcy Court for the District of Delaware in September 2014.

Entergy companies need this plant to fill looming capacity needs

Anthony P. Walz, employed by Entergy Services Inc. (ESI), as Director, Planning Analysis, said in the Jan. 13 filing that: “The acquisition price of UPS, $479/kW, is less than half the cost of constructing a new CCGT, which I estimate to cost between $1000 and $1200/kW. The cost range for constructing a new CCGT is based on information from Electric Power Research Institute’s Technology Assessment Guide, conceptual engineering studies, and actual costs for construction of the Ninemile 6 CCGT.”

Walz wrote about the needs of the Entergy Operating Companies (EOCs): “Relative to their combined planning reserve requirements, the total projected long-term capacity deficit for all of the EOCS exceeds 4,000 MW by 2018 and 7,000 MW by 2025. That long-term capacity need exceeds the capacity associated with the UPS. It therefore makes sense to consider acquisition of UPS to satisfy a Acquisition portion of that long-term capacity need.”

In reference to the needs of Entergy New Orleans (ENO), Walz wrote: “ENO’s resource need as determined by its projected peak load plus a planning reserve margin exceeds 1,100 MW. Its resource portfolio includes two owned units, Michoud 2 (239 MW) and Michoud 3 (542 MW). In addition, ENO has approximately 537 MW under long-term contract. However, due to the deactivation of Michoud 2 in 2016, ENO will only have about 1,100 MW of owned and contracted long-term resources. ENO must fill its remaining resource need, about 140 MW by 2023, from the short-term market or through additional long-term resources. Furthermore, Michoud 3, which is roughly half of ENO’s portfolio, is among the oldest active gas-fired units on the Entergy System and is nearing the end of its economic life. The deactivation of Michoud 3 will require ENO to add capacity to meet its resource needs.”

Walz said about EGSL power needs, particularly in the West of the Atchafalaya Basin (WOTAB) area, even with the buy of the two UPS units: “The Company anticipates that an additional CCGT facility will be required in WOTAB, specifically within the Lake Charles area, by 2021. Additionally, to support near-term needs prior to deployment of the CCGT, the Company anticipates the addition of a CT resource (about 380 MW) in the Lake Charles area by 2020. Also, the Company must be prepared to add resources even sooner in the event that industrial load grows more quickly than anticipated. In that regard, the Company is taking initial steps to prepare a second CT option (above 380 MW) that could be deployed in WOTAB if and when such option might be needed. No commitment has been made to deploy this resource; the objective is to have an alternative that can be deployed subject to Louisiana Public Service Commission (‘LPSC’ or ‘Commission’) approval on an expedited basis if needed to supply power to additional load.”

WOTAB is the area generally west of the Baton Rouge, Louisiana, metropolitan area, to the southwestern-most portion of Louisiana extending to the western edge of the Entergy Texas service territory. Walz noted that even if the city of New Orleans doesn’t approve the Entergy New Orleans purchase of 20% of the power from the two blocks at UPS that EGSL will buy, EGSL will still be able to use that freed-up capacity to meet its future power supply gap.

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.