The Federal Energy Regulatory Commission on Nov. 9 granted – with attached conditions to ease market power concerns – a June 7 application from Nevada Power, Sierra Pacific Power and South Point Energy Center LLC for authorization for Nevada Power and Sierra Pacific (together known as NV Energy) to acquire a 550-MW natural gas-fired combined cycle plant from South Point.
Said FERC: “We have reviewed the Proposed Transaction under the Commission’s Merger Policy Statement. As discussed below, we will conditionally authorize the Proposed Transaction as consistent with the public interest.”
South Point is an indirect, wholly-owned subsidiary of Calpine Corp. (NYSE: CPN). South Point owns and operates the South Point Facility, a 550 MW natural gas-fired, combined-cycle facility located on the Fort Mojave Reservation near Bullhead City, Arizona. The South Point Facility is interconnected with the transmission system of the Western Area Power Administration.
Under an Asset Purchase Agreement, Nevada Power will acquire all of South Point’s ownership interests in the South Point Facility, as well as the associated interconnection facilities and other assets, rights, interests, books and records associated with the facility. Following the closing of this transaction, Nevada Power and Sierra Pacific will likely enter into an inter-company agreement to allocate a portion of the capacity to Sierra Pacific, which would be utilized as a form of joint ownership. Applicants stated that the exact form of the arrangement is not yet known, and will be subject to approval by the Nevada Public Utilities Commission.
Applicants noted that Nevada Power has already committed to retirements of several facilities, including the retirement of the coal-fired Reid Gardner 4 (257 MW), disposal of Nevada Power’s ownership interest in the coal-fired Navajo Generating Station (255 MW), and the termination of a summer-only tolling agreement with the Griffith Energy Center (570 MW). Applicants argued that the proposed acquisition of the 550 MW South Point Facility would replace slightly more than half of the 1,082 MW of summer peaking that will be retired. NV Energy is forecasting significant capacity shortfalls for the summer of 2018, and that this transaction is a part of its efforts to close that gap.
This proposed deal caused several “screen failures” during an analysis of competitive impacts. Applicants offered a mitigation proposal to eliminate or significantly reduce the indicated screen failures. NV Energy said it will offer to the market up to 504 MW of available “system” economic capacity (Mitigation Energy) for each period for which the delivered price test shows screen failures (Mitigation Periods). During the Mitigation Periods, NV Energy commits to make up to 504 MW of Mitigation Energy available on a day-ahead basis.
Applicants explained that this is not unit contingent South Point Facility capacity, but the amount of system energy equivalent to the addition of the South Point Facility to the NV Energy fleet. Mitigation Energy will be a firm product under WSPP Schedule C for bilateral sales and will be subject to the terms of the California Independent System Operator (CAISO) tariff for sales into the CAISO Day-Ahead Market and CAISO Energy Imbalance Market (EIM). NV Energy will offer Mitigation Energy under its FERC-approved cost-based rate tariff or, for offers into the CAISO EIM, at the cost-based Default Energy Bid calculated in accordance with the CAISO’s requirements. Applicants stated that the mitigation proposal will apply to the following seasons, which are associated with the delivered price test screen failures: June-September 2017; November 2017-January 2018; November 2018 through January 2019; and December 2019.
The FERC members said in the Nov. 9 approval that their finding that this transaction has no adverse effect on competition is contingent upon applicants submitting within 30 days from Nov. 9 a compliance filing with an acceptable mitigation proposal. That compliance filing may revise the mitigation proposal such that the Mitigation Energy offered is unit-specific and non-revocable, and extends to the shoulder seasons. Alternatively, applicants may submit alternative mitigation to be evaluated by the commission.