The members of the Federal Energy Regulatory Commission on July 2 approved a Florida Power & Light buy of the 250-MW Cedar Bay coal plant, which FPL then intends to retire.
On March 23, FPL requested commission authorization for a transaction in which FPL will acquire from CBAS Power Holdings LLC all of the outstanding ownership interests in CBAS Power Inc., which is the upstream owner of a 250-MW facility located in Jacksonville, Florida. FPL states that it currently buys all the capacity and electric power from the facility pursuant to a long-term power purchase agreement.
FPL states that CBAS Power Holdings is a subsidiary of The Carlyle Group, a global alternative investment management firm. FPL adds that CBAS Power Holdings owns 100% of CBAS, which in turn owns 100% of Gray Hawk Power Corp. FPL explains that Gray Hawk has two subsidiaries, Cedar Bay Cogeneration LLC (CB Cogen) and Cedar Power LLC.
The facility is interconnected with the transmission system of the Jacksonville Electric Authority pursuant to an Interconnection and Transmission Service Agreement executed in January 1990, and since amended.
FPL states that Cedar Bay and FPL are parties to a Power Purchase Agreement under which FPL purchases all of the firm capacity and electric energy from the Facility, while the steam from the facility is sold to a nearby paper mill.h e Power Purchase Agreement was originally executed in 1988 by FPL and a previous owner of the facility, but has since been amended.
FPL asserts that the capacity pricing of the Power Purchase Agreement is “far above” market prices and FPL’s avoided costs. For example, FPL states that in 2014, FPL paid $10.8 million in capacity payments and operations and maintenance (O&M) fees to Cedar Bay each month. FPL explains that, under the Power Purchase Agreement, these capacity prices increase yearly, such that by the end of the term of the Power Purchase Agreement, which is currently scheduled to terminate in 2024, monthly payments will surpass $14 million. FPL estimates that, if the Power Purchase Agreement were to run its full term, FPL’s payments for capacity, capacity bonus, and O&M would total approximately $1.5 billion on a nominal basis.
FPL adds that, although the energy pricing under the Power Purchase Agreement is not above market, due to the high capacity price, the “all in” price of the energy from the Cedar Bay Facility in 2014 was over $178/megawatt hour (MWh), compared to an average FPL avoided cost of $27/MWh. FPL explains that consummation of the proposed transaction will enable FPL to terminate the Power Purchase Agreement and save its retail and wholesale ratepayers approximately $70 million in capacity and energy payments over the remaining term of the Power Purchase Agreement, calculated on a net present value basis.
FPL will pay CBAS Power Holdings $520.5 million for the Cedar Bay Interests, which are defined as 100 of the equity interest in CBAS. FPL asserts that the estimated fair value of the Facility and other net assets and liabilities exclusive of the Power Purchase Agreement is approximately $0. FPL asserts that the $520.5 million purchase price reflects the fair value related to terminating the Power Purchase Agreement, thereby avoiding continued monthly capacity payments at above-market prices both immediately and in the long-term.
FPL states that it intends to contract with Cedar Bay Operating Services LLC to continue operating the facility and to preserve the corporate legal structure for ownership of the facility, as a protection from any unforeseen contingent losses that could arise from the prior operation of the facility. FPL states that it anticipates dispatching the facility until at least 2016, but at an approximately 5% capacity factor instead of at the current approximately 50% capacity factor. Due to the expected availability of a new interstate natural gas pipeline system to fuel its natural gas-fired units, FPL projects that it will retire the Cedar Bay facility in early 2017.
FPL states that it filed a petition with the Florida Public Service Commission on March 6 requesting approval of the proposed transaction, including the accounting treatment. That case is still pending.