Dynegy (NYSE:DYN) and Energy Capital Partners have formed a joint venture to purchase ENGIE’s United States fossil portfolio consisting of 8,731 MW of generation capacity located in the Electric Reliability Council of Texas (ERCOT), PJM, and ISO-New England (ISO-NE) market regions.
Of the 8,731 MW being acquired, more than 90% consists of natural gas-fueled plants. The Engie portfolio being acquired is 66% combined-cycle; 26% peakers and 8% coal.
The joint venture will be known as Atlas Power.
The deal includes the 1,600-MW Midlothian, the 760-MW Wise combined-cycle plants and the 635-MW Coleto Creek coal plant in Texas. The 1,000-MW Hays combined-cycle plant in ERCOT is also being purchased.
New combined-cycle facilities being purchased from Engie in ISO New England include Bellingham and Blackstone, which each have a generating capacity of more than 500 MW. In PJM, the 400-MW Hopewell combined-cycle plant is being acquired.
A full list of the Engie plants being acquired can be found on page 22 of the slides that Dynegy and ECP released in announcing the joint venture.
The joint venture said in a Feb. 25 news release that it has secured financing for the $3.3bn acquisition, as well as related transaction fees and working capital, with $2.25bn in committed debt facilities and $1.185bn in equity commitments from its owners, which includes transaction fees and initial cash balance.
Dynegy discussed the deal during its quarterly earnings conference call with financial analysts on Feb. 25. The announced deal involves a $378 per kW acquisition price.
Dynegy will have a 65% share of the ownership and 35% for Energy Capital Partners. Dynegy will run the JV.
Dynegy will also have an option to eventually purchase the ECP share of the joint venture. Energy Capital will have the ability, four years after closing, to unwind the joint venture either through a sale of its interest to Dynegy or a sale of the entire entity.
Energy Capital will have one seat on the Dynegy board for as long as Energy Capital holds at least 10% of Dynegy’s equity.
Dynegy expects the transaction to close in the fourth quarter 2016 after meeting customary closing conditions including approval from the Federal Energy Regulatory Commission (FERC), Public Utility Commission of Texas, and expiration of Hart-Scott-Rodino waiting periods.
“Today’s acquisition continues Dynegy’s transformation that began in 2011, to build a long term sustainable portfolio in key competitive markets. This transaction is a compelling value for our shareholders as it is the right assets, in the right markets, at the right price and unlocks considerable synergy value by utilizing our proven integration model and corporate platform,” said Dynegy President and CEO Robert Flexon.
Neither party could have pulled off the deal on its own, Flexon said.
“Energy Capital is very excited about the opportunity to partner with Dynegy, a company for whom we have tremendous respect and with whom we have enjoyed a strong relationship over the years. We feel this transaction represents an extremely attractive valuation point for Energy Capital to reenter the PJM, New England and ERCOT markets, which we have a long history of successfully investing in,” said Tyler Reeder, a Partner at Energy Capital.
The ERCOT combined-cycle plants involved in the deal are less than 15 years old and have strong capacity factors, ranging from 55% to 70%, Dynegy said. The newly-acquired PJM peakers have quick ramp rates and are capacity performance (CP) compliant. Three of the peakers being acquired in PJM are dual-fuel units, Dynegy said.
Looking at ERCOT, Dynegy believes its new natural gas plants would be increasingly valuable given that regional haze rule and other factors could force more coal plant retirements in the region.
After the joint venture deal, Dynegy would be a 35,000 MW combined company with significant presence in PJM, ISO NE, ERCOT and the Midcontinent ISO (MISO).
The Engie Group is an international business concern listed on the Paris and Brussels stock exchanges. Engie said that the Dynegy/ECP deal and other transactions will help it reduce its commodity price exposure in the United States.