Calpine Corp. (NYSE: CPN) in its Oct. 28 earnings report said it made progress in the third quarter on several fronts, including construction on its 828-MW York 2 Energy Center in Pennsylvania and imminent retirement of its 400-MW Clear Lake plant in Texas.
The ongoing projects/ developments are:
- York 2 Energy Center – This is an 828-MW dual-fuel, combined-cycle project that will be co-located with Calpine’s York Energy Center in Peach Bottom Township, Pennsylvania. Once complete, the power plant will feature two combustion turbines, two heat recovery steam generators and one steam turbine. The project is now under construction and the initial 760 MW of capacity cleared PJM Interconnection’s last three base residual auctions with 68 MW of incremental capacity clearing the last two base residual auctions. Due to construction delays, Calpine is now targeting a commercial operation date (COD) in late 2017.
- Mankato Power Plant – On Oct. 26, Calpine completed the sale of the Mankato Power Plant, a 375 MW natural gas-fired, combined-cycle plant and unbuilt, 345-MW expansion project in Minnesota to Southern Power, a subsidiary of Southern Co. (NYSE: SO), for $396 million, excluding working capital and other adjustments. This transaction supports Calpine’s effort to divest non-core assets outside its strategic concentration. It expects to use the proceeds from the sale to fund pending acquisitions and for other corporate purposes. Calpine expects to record a gain on sale of assets, net of approximately $160 million, during the fourth quarter of 2016, and its federal and state NOLs will almost entirely offset the projected taxable gain from the sale.
- Osprey Energy Center – Calpine executed an asset sale agreement in the fourth quarter of 2014 for its Osprey Energy Center to Duke Energy Florida for approximately $166 million, excluding working capital and other adjustments, which will be consummated in January 2017 upon the conclusion of a power purchase agreement (PPA) with a term of 27 months. The sale has received FERC and state regulatory approvals and represents a strategic disposition of a power plant in a wholesale power market dominated by regulated utilities.
PJM and ISO-NE Development Opportunities:
- Calpine said it continues to evaluate development projects in the PJM and ISO New England market areas that feature cost-advantages, such as existing infrastructure and favorable transmission queue positions. These projects continue to advance entitlements (such as permits, zoning and transmission) for potential future development when/if economic as compared to purchasing existing power plants in the region.
- Clear Lake Power Plant – During the third quarter of 2016, Calpine filed with ERCOT to retire its 400-MW Clear Lake Power Plant. Built in 1985, Clear Lake is an older technology. Due to growing maintenance costs and lack of adequate compensation in Texas, Calpine will retire the plant. ERCOT has approved the plan to cease operations. Calpine is working together with the facility’s bilateral counterparty to mutually agree on a date to cease commercial operations, which is expected no later than February 2017. The book value associated with the Clear Lake Power Plant is immaterial.
- Guadalupe Peaking Energy Center – In April 2015, Calpine executed an agreement with Guadalupe Valley Electric Cooperative (GVEC) that will facilitate the construction of a 418-MW natural gas-fired peaking plant to be co-located with Calpine’s Guadalupe Energy Center. Under the agreement, construction of the Guadalupe Peaking Energy Center (GPEC) may commence at Calpine’s discretion, so long as the power plant reaches commercial operation by June 1, 2019. When the plant begins commercial operation, GVEC will purchase a 50% ownership interest in it. GPEC will feature two fast-ramping combustion turbines capable of responding to peaks in power demand. This project represents a mutually beneficial response to the customer’s desire to have direct access to peaking generation resources, as it leverages the benefits of the existing site and development rights and Calpine’s construction and operating expertise, as well as the customer’s ability to fund its investment at attractive rates, all while affording Calpine the flexibility of timing the plant’s construction in response to market pricing signals.
- South Point Energy Center – On April 1, Calpine entered into an asset sale agreement for the sale of substantially all of the assets of its South Point Energy Center to Nevada Power d/b/a NV Energy for approximately $76 million plus the assumption by the purchaser of existing transmission capacity contracts with a future net present value payment obligation of approximately $112 million, approximately $9 million in remaining tribal lease costs and approximately $21 million in near-term repairs, maintenance and capital improvements to restore the power plant to full capacity. The sale is subject to certain conditions, as well as federal and state regulatory approvals, and is expected to close no later than the first quarter of 2017. The natural gas-fired, combined-cycle plant is located on the Fort Mojave Indian Reservation in Mohave Valley, Arizona, and features a summer peak capacity of 504 MW. This transaction supports the Calpine effort to divest non-core assets outside our strategic concentration.
Geysers geothermal operations have been repaired
In September 2015, a wildfire spread to Calpine’s Geysers assets in Lake and Sonoma counties, California. The wildfire affected several geothermal power plants in the region, which sustained damage to ancillary structures such as cooling towers and communication/electric deliverability infrastructure. Repairs have been completed and the Geysers assets are currently generating renewable power for customers at pre-fire levels.
Calpine said it believe the repair and replacement costs, as well as its net revenue losses relating to the wildfire, will be limited to its insurance deductibles of approximately $36 million, all of which was recognized in 2015. Any losses incurred in 2016 related to the wildfire will be primarily offset by insurance proceeds, when such proceeds are realizable. It records insurance proceeds in the same financial statement line as the related loss is incurred and recorded approximately $9 million and $17 million in business interruption proceeds in operating revenues during the three and nine months ended Sept. 30, 2016, respectively. It does not anticipate the wildfire or timing of insurance proceeds recovery to have a material impact on its financial condition, results of operations or cash flows.