Approval sought for sale of Cayuga/Somerset coal plants to Blackstone affiliate

Upstate New York Power Producers Inc. (USNYPP), Cayuga Operating Co., LLC, Somerset Operating Co. LLC and Riesling Power LLC jointly applied Sept. 28 at the New York State Public Service Commission for expedited approval of the transfer of 100% of USNYPP’s ownership interests in the Cayuga and Somerset power plants to Riesling.

Cayuga is a 312-MW, coal-fired facility located in Lansing, New York, and Somerset is a 668-MW coal-fired facility located in Somerset, New York. The petitioners requested that the commission expedite its review and issue an order approving the transfer on or before the commission’s Dec. 17, 2015 session. Expedited approval is appropriate here because the proposed transfer does not raise any issues regarding retail energy sales to captive ratepayers or market power concerns in the competitive wholesale markets in New York and is consistent with commission precedent, the applicants said.

USNYPP was originally formed for the purposes of acquiring the Cayuga and Somerset facilities from bankrupt AES Eastern Energy LP in 2012. USNYPP’s outstanding common stock is 100% owned by entities that own or owned certain pass-through certificates issued by a series of owner trusts that were formed to provide financing under a leveraged lease structure for a transaction in 1999 involving AES Eastern and certain of AES Eastern’s affiliates, whereby the AES Entities purchased Somerset and Cayuga from New York State Electric & Gas.

USNYPP wholly-owns Somerset and Cayuga. USNYPP is also the sole shareholder of Somerset Railroad Corp., which owns railroad assets used to deliver coal to the Somerset Facility.

Cayuga

Cayuga is an exempt wholesale generator (EWG) and has been authorized by the Federal Energy Regulatory Commission (FERC) to sell energy, capacity, and ancillary services at wholesale at market-based rates. Cayuga owns and operates the Cayuga Facility, which is a coal-fired station consisting of two units with a combined summer rating of 312 MW that is interconnected to NYSEG’s transmission system.

In 2012, Cayuga filed a notice of intent with the New York commission to mothball the facility by Jan. 16, 2013. A preliminary study directed by the commission and prepared by NYSEG and the New York Independent System Operator (NYISO) identified a need to retain both units at Cayuga to maintain near-term grid reliability. Following this study, Cayuga and NYSEG filed with the commission a Term Sheet under which Cayuga would continue to operate for a period of one year in return for, among other things, monthly payments from NYSEG. The commission approved the Term Sheet, and NYSEG and Cayuga subsequently executed a Reliability Support Services Agreement (called “RSSA1”) based on the Term Sheet.

During the initial one-year term of RSSA1, NYSEG conducted a solicitation for alternatives to maintain system reliability. Of the numerous proposals received, NYSEG identified the continued operation of Cayuga as the best option to maintain system reliability. As a result, the commission accepted a second RSSA (“RSSA2”) between the parties on Jan. 16, 2013. RSSA2’s term expires on June 30, 2017. Under the terms of RSSA2, all of the output of the Cayuga Facility is sold into the markets administered by the NYISO. Pursuant to the terms of RSSA2, Cayuga is seeking NYSEG’s prior written consent to assign its rights and obligations under RSSA2 to Riesling.

Somerset

Somerset is also an EWG and has been authorized by FERC to sell energy, capacity, and ancillary services at wholesale at market-based rates. Somerset owns and operates the Somerset Facility, which is a coal-fired unit with a combined summer rating of 668 MW located on approximately 1,800 acres in Somerset, New York. The Somerset Facility is interconnected to NYSEG’s electric transmission system. All of the output of the Somerset Facility is sold into the markets administered by the NYISO.

Riesling is part of Bicent Power, which is controlled by Blackstone

The proposed buyer, Riesling, is a wholly-owned subsidiary of Bicent Power LLC. Bicent Power is affiliated with entities that currently own and operate approximately 487 MW of generating facilities throughout the United States.  Neither Riesling nor Bicent Power currently own or operate generating facilities in New York. In markets adjacent to New York, Bicent Power currently owns and operates an 85-MW dual-fuel combined-cycle facility located in Lowell, Massachusetts, in the market administered by ISO New England (ISO-NE).

Bicent Power was established in 2007 and is an independent power producer with a diverse portfolio of contracted and merchant power generation assets across the United States. Bicent Power’s wholly-owned subsidiaries own natural gas-fired power generation facilities in California, Colorado, and Massachusetts, as well as a coal-fired power generation station in Montana. Bicent Power’s wholly-owned subsidiary, Colorado Energy Management LLC (CEM), specializes in operations and maintenance (O&M) services for all of Bicent Power’s generating facilities as well as for independent third parties.

Following approval of the Cayuga/Somerset transfer, all plant-level personnel at the Somerset and Cayuga facilities will remain in place, and CEM will operate and manage both plants in coordination with the respective plant managers.

Investment funds managed or advised by GSO Capital Partners LP (GSO) currently hold an approximately 96.5% equity ownership interest in Bicent Power. The remaining minority owners of Bicent Power each hold less than a 10% equity ownership interest in Bicent Power and do not otherwise control Bicent Power. GSO represents the credit-oriented business of The Blackstone Group LP and is a major participant in the leveraged finance markets. Blackstone is a leading global alternative asset manager and provider of financial advisory services.

In addition to the generation owned and operated by Bicent Power’s subsidiaries discussed above, GSO is affiliated with approximately 1,283 MW of generation facilities located in the market administered by the Electric Reliability Council of Texas. GSO is not currently affiliated with any generation capacity in New York.

“Following approval of the Proposed Transfer, the Cayuga and Somerset Facilities will be safely and adequately operated,” said the Sept. 28 application. “As discussed above, all plant-level personnel at the Somerset and Cayuga Facilities will remain in place, and Riesling is affiliated with experienced generation facility operators through Bicent Power and is sufficiently capitalized. As a result, specifically with respect to the Cayuga Facility, Riesling has the necessary experience and capitalization to operate the Facility under the terms of RSSA2 and provide reliability support services through the remainder of the term of RSSA2.”

The filing doesn’t say what the new owner plans for these facilities in the future. Cayuga Operating has argued at the PSC in the last couple of years for a coal-to-gas conversion of its plant, since the state of New York on a policy basis wants to move away from coal-fired generation.

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.