Calpine Corp. (NYSE: CPN) said May 1 in a quarterly earnings report that it has made progress on several fronts lately, including joint development of an expansion of its Guadalupe gas-fired power plant in Texas.
“This year’s first quarter financial results are in line with our expectations and represent the benefits of a geographically diverse fleet,” said Thad Hill, Calpine President and Chief Executive Officer. “Our financial performance improved year-over-year in Texas and the West and, as expected, declined in the East given lower capacity revenue in PJM, the divestiture of six assets in the region last summer and our unusually strong first quarter results last year due to elevated power and natural gas prices during polar vortex events.
“Looking at the full year, we are reaffirming our 2015 financial guidance. In short, we expect the balance of the year to outperform, particularly the second half, as a result of portfolio additions, higher regulatory capacity payments and the nature of our hedges. In addition it is worth noting that we achieved record high generation volume in the first quarter, due in large part to lower natural gas prices.
“On the commercial front, I am very encouraged by our successful origination efforts during the quarter. We sourced more than 700 MW of new [power purchase agreements] with Texas public power customers, including one for 270 MW with Guadalupe Valley Electric Cooperative that will not only allow us to serve them from our existing fleet but will also facilitate the construction of a 418 MW natural gas-fired peaking power plant. We expect this jointly owned project to allow us to capture significant value from our development efforts and existing site, while providing us the flexibility to begin operations at our election over a three-summer period from 2017-2019, to better coincide with market pricing signals. In addition, we executed a 20-year PPA with Xcel Energy for a 345 MW expansion of our Mankato Power Plant in Minnesota. Our persistent focus on customer relationships continues to enhance the value of our portfolio.
“Meanwhile, we remain committed to enhancing shareholder value through capital allocation, having this year already completed a successful financing transaction, returned $236 million of capital to our shareholders through share repurchases, and invested in growth, including advancing our Garrison Energy Center to its final stages of construction. Our continued focus on operational excellence, balanced capital allocation and active portfolio management form the pillars of Calpine’s success, and our flexible natural gas and geothermal fleet remains well positioned to meet the needs of America’s power generation future.”
Growth and Portfolio Management
- Guadalupe Peaking Energy Center: In April 2015, Calpine executed an agreement with Guadalupe Valley Electric Cooperative (GVEC) that will facilitate the construction of a 418 MW natural gas-fired peaking plant to be co-located with Calpine’s Guadalupe Energy Center. Construction of the Guadalupe Peaking Energy Center (GPEC) may commence at Calpine’s discretion, so long as the power plant reaches commercial operation between June 1, 2017, and June 1, 2019. When the power plant begins commercial operation, GVEC will purchase a 50% ownership interest in GPEC. Once built, GPEC will feature two fast-ramping combustion turbines. This project represents a mutually beneficial response to a customer desire to have direct access to peaking generation resources, as it leverages the benefits of the existing site and development rights and Calpine’s construction and operating expertise, as well as the customer’s ability to fund its investment at attractive rates, all while affording Calpine the flexibility of timing the plant’s construction in response to market pricing signals.
- Garrison Energy Center: Garrison Energy Center is a 309-MW dual-fuel combined-cycle project located in Delaware on a site secured by a long-term lease with the City of Dover. Once complete, it will feature one combustion turbine, one heat recovery steam generator and one steam turbine. Construction began in April 2013, and commercial operations are to commence during the second quarter of 2015. The project’s capacity has cleared each of PJM Interconnection’s three most recent base residual auctions. Calpine noted that is in the early stages of development of a second phase of the Garrison Energy Center.
- York 2 Energy Center: This 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. It 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 has completed the feasibility study for increasing York 2 Energy Center’s planned capacity by 120 MW, and the queue position has entered the system impact study stage.
- Mankato Power Plant Expansion: By order dated Feb. 5, 2015, 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 Xcel Energy. The PPA was executed in April 2015 and remains subject to approval by the North Dakota Public Service Commission. Commercial operation of the expanded capacity may commence as early as June 2018, subject to requisite regulatory approvals and applicable contract conditions.
- PJM and ISO-New England Development Opportunities: Calpine is currently evaluating opportunities to develop additional projects in the PJM and ISO-NE market areas that feature cost advantages such as existing infrastructure and favorable transmission queue positions. These projects are continuing to advance entitlements (such as permits, zoning and transmission) for their potential future development when economical.
- Osprey Energy Center: Calpine executed an asset sale agreement during the fourth quarter of 2014 for the sale of its Osprey Energy Center to Duke Energy Florida for approximately $166 million, excluding working capital and other adjustments. The sale is to be consummated in January 2017 upon the conclusion of a 27-month interim PPA. 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. During the first quarter of 2015, Calpine made the appropriate filings with FERC requesting approval of the asset sale.
- Turbine Modernization: Calpine said it continues to move forward with a turbine modernization program. Through March 31, it had completed the upgrade of thirteen Siemens and eight General Electric turbines totaling approximately 210 MW and have 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.
First Quarter 2015 Power Operations Achievements
- Power Generation: Morgan Energy Center: 90% capacity factor — Four Texas plants with capacity factors above 70%: Bosque, Brazos Valley, Channel and Deer Park Energy Centers — Hermiston, Otay Mesa, Pastoria and Russell City Energy Centers: 100% starting reliability.
First Quarter 2015 Commercial Operations Achievements:
During the first quarter of 2015, Calpine entered into the following new contracts:
- A three-year PPA with Marin Clean Energy to provide up to 65 MW of power from Calpine’s Delta Energy Center and other northern California power plants commencing in April 2015 and extending through December 2017; and
- A ten-year PPA with Southern California Edison for 225 MW of capacity and renewable energy from Calpine’s Geysers assets commencing in June 2017 was approved by the California Public Utilities Commission.
- A new three-year PPA with Brazos Electric Power Cooperative to provide 300 MW of power from Calpine’s Texas power plant fleet commencing in January 2016;
- A new three-year PPA with Pedernales Electric Cooperative to provide approximately 140 MW of power from the Texas power plant fleet commencing in January 2017; and
- A new two-year PPA with Guadalupe Valley Electric Cooperative to provide approximately 270 MW of power from the Texas power plant fleet commencing in June 2017. The execution of this PPA will facilitate the construction of the 418-MW natural gas-fired peaking power plant to be co-located with the Guadalupe Energy Center.
- A new 20-year PPA with Xcel Energy to provide up to 345 MW of capacity and energy from the Mankato Power Plant expansion when commercial operations commence and transmission-related upgrades have been completed.
Calpine is America’s largest generator of electricity from natural gas and geothermal resources. Its fleet of 87 power plants in operation or under construction represents nearly 27,000 MW of generation capacity. Serving customers in 18 states and Canada, Calpine 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.