Calpine Corp. (NYSE: CPN) on Feb. 13 said that it made a lot of moves in 2014 to re-position its generating fleet and that more such moves are coming up.
“2014 was a remarkable year for Calpine, with accomplishments on many fronts,” said Thad Hill, Calpine’s President and Chief Executive Officer in a Feb. 13 earnings statement. “We successfully delivered on our financial commitments, driving Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted Free Cash Flow Per Share to record levels. Among our more notable operational accomplishments, we provided critical, reliable power during the Polar Vortex; we effectively managed volatile commodity markets; and we originated more than 2,000 MW of new contracts with our customers, further adding to the value of our fleet.
“Equally important, we enhanced shareholder value through the deployment of more than $3 billion of capital, representing approximately one-third of our market capitalization. We realigned our portfolio with our strategic objectives by monetizing the Southeast, acquiring plants in Texas and New England, and completing plant expansions along the Houston Ship Channel. Meanwhile, we further optimized our capital structure with the introduction of unsecured debt and returned $1.1 billion of capital to our shareholders through share repurchases. Since commencing our share repurchase program in 2011, we have now repurchased approximately $2.4 billion, or 25% of our shares outstanding.
“In 2015, we are continuing to build on this progress, having today announced the future sale of our Osprey Energy Center, which will effectively capture approximately $225 million of value (including the PPA) from an otherwise underperforming merchant asset in a non-core market. Additionally, we have made significant regulatory progress toward the expansion of our Mankato Power Plant, where our customer has been authorized by the Minnesota PUC to execute a 20-year contract with us. Meanwhile, we continue to demonstrate our commitment to returning capital to shareholders through opportunistic share repurchases.”
Among the 2014 highlights:
- On July 3, 2014, Calpine completed the sale of six of power plants in the East segment for a purchase price of approximately $1.57bn in cash, excluding working capital and other adjustments. The divestiture of these power plants has better aligned its asset base with astrategic focus on competitive wholesale markets.
- During the third quarter of 2014, Calpine executed a power purchase agreement (PPA) with Duke Energy Florida related to Calpine’s Osprey Energy Center with a term of 27 months which commenced in October 2014. Subsequently, Calpine executed an asset sale agreement during the fourth quarter of 2014 for the sale of the Osprey Energy Center to Duke Energy Florida upon the conclusion of the PPA for approximately $166m, excluding working capital and other adjustments. The asset sale agreement is subject to federal and state regulatory approval and represents a strategic disposition of a power plant in a wholesale power market dominated by regulated utilities.
- On Nov. 7, 2014, Calpine completed the purchase of Fore River Energy Center, a power plant with a nameplate capacity of 809 MW, for approximately $530m, excluding working capital adjustments. The addition of this modern, efficient, natural gas-fired, combined-cycle plant located in North Weymouth, Massachusetts, increased capacity in the company’s East segment, specifically the constrained New England market.
- Guadalupe Energy Center – On Feb. 26, 2014, Calpine completed the purchase of a modern, natural gas-fired, combined-cycle plant with a nameplate capacity of 1,050 MW located in Guadalupe County, Texas, for about $625m, excluding working capital adjustments. It also paid $15m to acquire rights to an advanced development opportunity for an approximately 400 MW quick-start, natural gas-fired peaker plant. Development efforts are ongoing and Calpine said it is continuing to advance entitlements (such as permits, zoning and transmission).
- Channel and Deer Park Expansions – In June 2014, Calpine completed construction to expand the baseload capacity of the Deer Park and Channel energy centers by approximately 260 MW each. Each power plant featured an oversized steam turbine that, along with existing plant infrastructure, allowed Calpine to add capacity and improve the power plant’s overall efficiency at a meaningful discount to the market cost of building new capacity.
- Garrison Energy Center – Garrison Energy Center is a 309 MW combined-cycle project located in Delaware on a site secured by a long-term lease with the City of Dover. Once complete, the power plant will feature one combustion turbine, one heat recovery steam generator and one steam turbine. Construction began in April 2013, and commercial operations are expected during the second quarter of 2015. The project’s capacity has cleared each of PJM Interconnection’s three most recent base residual auctions. Calpine said it is in the early stages of development of a second phase (309 MW) of this project. PJM has completed the feasibility, system impact and facilities studies for this phase. The facilities study results are being internally evaluated.
- York 2 Energy Center – York 2 Energy Center is a 760 MW dual fuel combined-cycle project that will be co-located with Calpine’s York Energy Center in Peach Bottom Township, Pennsylvania. Once complete, the power plant will feature two combustion turbines, two heat recovery steam generators and one steam turbine. The project’s capacity cleared PJM’s 2017/2018 base residual auction and Calpine expects commercial operations to commence during the second quarter of 2017. Calpine executed a preliminary notice to proceed for the engineering, procurement and construction agreement during the fourth quarter of 2014 and is currently pursuing key permits and approvals for the project. PJM is completing a feasibility study for increasing York 2 Energy Center’s capacity by 120 MW.
- Mankato Power Plant Expansion – By order dated Feb. 5, the Minnesota Public Utilities Commission concluded a competitive resource acquisition proceeding and selected a 345 MW expansion of Calpine’s Mankato Power Plant, authorizing execution of a 20-year PPA between Calpine and Northern States Power d/b/a Xcel Energy. Commercial operation of the expanded capacity may commence as early as June 2018, subject to applicable regulatory approvals and other contract conditions.
- PJM Development Opportunities – Calpine is currently evaluating opportunities to develop additional projects in the PJM market area that feature cost advantages such as existing infrastructure and favorable transmission queue positions. These unnamed projects are continuing to advance entitlements (such as permits, zoning and transmission) for their potential future development.
- Turbine Modernization – Calpine said it continues to move forward with a turbine modernization program. Through the end of 2014, it had completed the upgrade of thirteen Siemens and eight General Electric turbines totaling approximately 210 MW and has committed to upgrade three additional turbines. In addition, it has begun a program to update its dual-fueled turbines at certain power plants in the East region.
New PPAs signed with various parties
During 2014, Calpine entered into the following new contracts:
- A ten-year PPA, subject to approval by the California Public Utilities Commission (CPUC), with Southern California Edison (SCE) to provide 225 MW of capacity and renewable energy from the Geysers assets commencing in June 2017.
- A ten-year PPA with the Sonoma Clean Power Authority to provide 15 MW of renewable power from the Geysers assets commencing in January 2017. The capacity under contract will vary by year, increasing up to a maximum of 50 MW for years 2024 through 2026.
- A three-year resource adequacy contract with SCE for Calpine’s Pastoria Energy Facility commencing in January 2016. The capacity under contract will initially be 238 MW and will increase to 476 MW during the final year of the contract.
- A two-year resource adequacy contract with SCE for the Delta Energy Center for 500 MW of capacity commencing in January 2017.
- A six-year PPA with the City of San Marcos to provide power from Calpine’s Texas power plant fleet commencing in July 2015.
- A two-year PPA with Pedernales Electric Cooperative to provide approximately 70 MW of power from Calpine’s Texas power plant fleet commencing in August 2016.
- A one-year PPA with Guadalupe Valley Electric Cooperative to provide approximately 270 MW of power from the Texas power plant fleet commencing in June 2016.
- A five-year PPA with Dairyland Power Cooperative to provide capacity and energy from Calpine’s RockGen Energy Center commencing in June 2018. The capacity under contract will initially be 135 MW, and then will increase to 235 MW for the final four years of the contract.
- A PPA with a term of 27 months with Duke Energy Florida to provide 515 MW of power and capacity from the Osprey Energy Center, which commenced in October 2014. The capacity under contract increased to 580 MW beginning in January 2015.
Calpine is America’s largest generator of electricity from natural gas and geothermal resources. Its fleet of 88 power plants in operation or under construction represents nearly 27,000 MW of capacity. Serving customers in 18 states and Canada, it specializes in developing, constructing, owning and operating natural gas-fired and renewable geothermal power plants that use advanced technologies to generate power in a low-carbon and environmentally responsible manner.