Calpine Corp. (NYSE: CPN) thinks an Entergy request for proposals for new power capacity in Louisiana was improperly skewed to favor Entergy’s own self-build option and that the outright sale of Calpine’s 576-MW Washington Parish Energy Center project to Entergy is a more cost-effective option.
Those contentions were outlined in testimony that Calpine filed on Jan. 26 with the Louisiana Public Service Commission that was written by John Dalton, President of consulting firm Power Advisory LLC. In August 2015, subsidiaries of Entergy (NYSE: ETR) applied with the commission for approval of the 980-MW St. Charles Energy Center.
“In my testimony presented herein, I recommend that the Commission find that Entergy failed to demonstrate that the St. Charles Power Station is in the public interest,” Dalton wrote. “Further, I recommend that the Commission direct Entergy to address the deciencies in its competitive procurement process that I identify and reissue a request for proposals for long-term resources in Amite South that is focused on meeting customer requirements.”
Dalton noted that Calpine has more than 15 years of experience in Louisiana developing generation facilities as well as owning/operating almost 1,700 MW of electric generation in the state. In 2002, a joint venture between Calpine and Cleco Midstream Resources LLC began commercial operation of the Acadia Energy Center, a 1,160-MW natural gas-fired combined cycle facility near Eunice, Louisiana. Acadia is now owned and operated by Entergy. In 2002, Calpine began commercial operation of the Carville Energy Center, a 501-MW natural gas-red combined cycle facility located in St. Gabriel, Louisiana. In 2014, LS Power acquired Carville and, at the time of the transaction, Entergy had a contract for 100% of Carville’s capacity and energy.
Dalton said that Calpine submitted several proposals in response to Entergy’s 2014 Request For Proposals (RFP) for long-term, supply-side developmental resources in Amite South issued by Entergy Services Inc. (ESI) on behalf of Entergy Gulf States Louisiana LLC, Entergy Louisiana LLC (ELL), and Entergy New Orleans Inc.
Dalton was engaged by Calpine to review the 2014 Amite South RFP, the reasonableness of Entergy’s decision to exclude Calpine’s various Washington Parish Energy Center proposals from consideration in the 2014 Amite South RFP and to review ESI’s evaluation of the St. Charles Power Station self-build option and other proposals in the RFP and the economic analyses performed by ESI that were used to support its assertion that St. Charles is the most cost-effective option.
“The 2014 Amite South RFP, as developed and administered by ESI, is highly prescriptive, discriminatory, and anti-competitive,” Dalton contended. “The RFP prescribes the generation technology to be employed and minimum project sizes that preclude the participation of commonly used combined cycle gas turbine generation technologies, requires that the capacity be from a single, integrated resource, and specifies a maximum heat rate. The net effect is that it prevented potentially attractive Proposals from participating in the RFP, undermining the effectiveness of the market test for ESI’s Self Build.
“An example of this is the requirement that the capacity and energy be provided by a single integrated resource. The 2014 Amite South RFP could have been structured to accommodate multiple proposals to address the capacity requirements rather than requiring a single resource and this could have enhanced the competitiveness of the process. In addition, the RFP should have been structured to procure the identied capacity need of 550 to 800 MW in Amite South, outlined in Entergy’s notice of intent filed with the Commission, rather than based on the capacity offered by advanced combustion turbine technology.
“The economic evaluation framework employed by ESI in the 2014 Amite South RFP is not an appropriate basis to assess the comparative economics of Bidder Proposals relative to ESI’s Self Build. It is unduly preferential to the Self Build and other large acquisition Proposals and unfairly penalizes smaller Proposals.”
Calpine offers to sell, later or on or “as is” now, its Washington Parish project
Dalton said that Calpine’s proposal to Entergy for the acquisition of the Washington Parish Energy Center should not have been excluded from the RFP’s evaluation process. The RFP’s minimum project capacity size inappropriately excluded commonly used combined cycle gas turbine technologies, he wrote. Given the low capital costs that it can offer Entergy customers, stemming from the fact the project is partially constructed, WPEC is competitively priced with the St. Charles project and offers lower risks to Entergy’s customers. The economic analysis that Entergy performed of Calpine’s unsolicited 2014 offers for the acquisition of the Washington Parish project (the only Entergy economic analyses of Washington Parish made available to Dalton) indicates that Washington Parish is more cost effective than Entergy’s estimate of the costs of its self build presented in that analysis on a $/kW basis, he noted.
Dalton recommends that the commission find that Entergy failed to demonstrate that the St. Charles project is in the public interest and direct ESI to address the deficiencies in its competitive procurement process that he identified and reissue an RFP for long-term resources in Amite South that is focused on meeting customer requirements.
The Washington Parish Energy Center (WPEC) is a partially-constructed facility designed as a nominal 576 MW (winter rating for General Electric 7FA.03 turbines), 2x2x1 natural gas-red combined cycle plant located near Bogalusa, Louisiana, in Amite South. The project has a valid Generation Interconnection Agreement (GIA) from 2001 that was grandfathered by the Midcontinent ISO. The facility is physically interconnected to two separate, mainline, interstate pipelines owned by Florida Gas Transmission (FGT) — one 30-inch pipeline and one 36-inch pipeline, which can be utilized individually or combined to provide all the natural gas needed to operate the facility at full capacity.
Calpine submitted three combined cycle gas turbine (CCGT) proposals in response to the 2014 Amite South RFP, Dalton said:
- Ownership acquisition of the Washington Parish project with a commercial operation date (COD) of June 1, 2020;
- Purchase of the Washington Parish development site as-is right now; and
- Short-term tolling agreement and eventual ownership acquisition.
By letter dated Jan. 19, 2015, Entergy stated it reviewed the three proposals, but eliminated the “As-Is” Proposal because it did not meet the RFP minimum requirements and the other two proposals, including the acquisition proposal, from further consideration because the capacity offered in both proposals was below the RFP’s minimum size requirement of 650 MW, Dalton said.
Entergy appears to have determined that a G class CCGT similar to the St. Charles project would offer customers lower costs than the smaller GE F class CCGT that Calpine offered, Dalton said. A G class will offer lower heat rates and, as a result, reduced fuel costs. However, the Washington Parish project is partially built and Calpine was and is able to offer capital cost savings that significantly enhanced its economic attractiveness, potentially offsetting this heat rate difference, he added.
The Washington Parish project has virtually all of its long lead time permits other than its PSD/Title V permit. This includes various permits from: the U.S. Army Corps of Engineers for Request for Jurisdictional Determination, Section 404 compliance and Wetland Delineation; Louisiana Department of Environmental Quality for Groundwater Certification; Louisiana Department of Natural Resources for Coastal Zone Determination; Federal Aviation Administration for Determination of No Hazard to Air Navigation; and Louisiana Department of Transportation for Well Water Registrations.
Dalton said Calpine would spend hundreds of millions of dollars on completing the Washington Parish project and a considerable portion of these funds will be spent in state. Calpine estimates that the project will result in approximately 300 direct construction jobs, with additional employment impacts and economic benefits from these direct construction jobs. For the project’s 30-year useful life, it is expected to provide a minimum of 20 high-paying jobs for plant operators and supervisors. There is no reason to expect that it would provide fewer jobs than the St. Charles project, Dalton wrote.