The Federal Energy Regulatory Commission on Sept. 22 approved a July 14 application from Blue Cube Operations LLC for authorization of a proposed transaction in which The Dow Chemical Co. will transfer its ownership and control of Blue Cube to Olin Corp.
Blue Cube owns approximately 563 MW of generation capacity located in Freeport, Texas, within the Electric Reliability Council of Texas (ERCOT) market, as well as an undivided 19.86% interest in approximately 1,382 MW of generation capacity located in Plaquemine, Louisiana, within the Midcontinent Independent System Operator (MISO) market.
All of the generation capacity at both the Freeport and Plaquemine sites has been certified as Qualifying Cogeneration Facilities. This generation is used primarily to support chemical manufacturing and industrial operations at the Freeport and Plaquemine sites. However, excess energy and capacity is periodically sold to third parties when not required for plant operations.
Wholesale sales made from the Freeport facilities are made into ERCOT and are not subject to the commission’s jurisdiction. Wholesale sales made from the Plaquemine facilities are subject to the commission’s jurisdiction and have historically been made pursuant to market-based rate authorizations granted to Dow and its wholly owned subsidiary, Dow Pipeline Co.
Blue Cube has been granted market-based rate authority by the commission. Blue Cube intends to rely on such authority to the extent that it elects to make wholesale sales of capacity, energy, or ancillary services from the generation facilities it leases at the Plaquemine site.
Olin is a Virginia corporation with its principal executive offices located in Missouri. Olin is not a public utility and is not currently affiliated with any public utility. Likewise, Olin does not currently own any electric generation or transmission facilities in the United States, nor is it affiliated with any entity that owns, operates, or controls such facilities.
The details of the now-approved transaction are set forth in the merger agreement dated March 26, 2015. The transaction was the result of arm’s length negotiations among the parties. As part of this deal, a wholly owned subsidiary of Dow, Blue Cube Spinco Inc. (Spinco) was formed. Spinco will indirectly hold all of Blue Cube’s ownership interests, and then Spinco will be merged with a new, wholly owned subsidiary of Olin. Spinco will emerge as the surviving entity and will continue to exist as a wholly owned subsidiary of Olin. Likewise, Blue Cube will continue to exist as a wholly owned indirect subsidiary of both Spinco and Olin.
Olin is a manufacturer concentrated in three business segments: Chlor Alkali Products; Chemical Distribution; and Winchester. It does not currently control power generation assets, but is related to power generation at its McIntosh, Alabama, site and the Henderson, Nevada, site owned by a subsidiary of Olin. At both of these sites, Olin supplies hydrogen to third party cogeneration facilities that supply steam to the Olin sites. That hydrogen is used as a supplemental fuel to natural gas. At McIntosh, the cogeneration facility is owned and operated by Alabama Power. This facility generates electricity that is sold by Alabama Power under its utility franchise. At Henderson, the cogeneration facility is owned by Saguaro Power Co. which sells electricity into the wholesale markets.
Said the July 14 application: “The proposed Transaction is designed to facilitate the recently-announced sale of Dow’s U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin.”