Calpine Corporation (CPN) has entered into an agreement to acquire Fore River, an 809-megawatt (MW) combined-cycle power plant, and allied assets from Exelon Corporation (EXC). Subject to working capital adjustments, the deal was valued at $0.53 billion or around $655 per kilowatt. Upon customary approvals, the acquisition is expected to be completed in fourth-quarter 2014.
Exelon had constructed the Fore River Generating Station in 2003. The North Weymouth, MA-based power generating plant has two Mitsubishi 501G combustion turbines, one Mitsubishi steam turbine and two heat recovery steam generators. The plant has dual-fuel capacity – natural gas and fuel oil. Depending on market conditions, the plant can run on any one of the two fuels.
Calpine Corp. intends to utilize its cash on hand to finance the transaction. As of Jun 30, 2014, the company had total liquidity of $1.47 billion, including cash and cash equivalents of around $0.44 billion. On Jul 30, 2014, Calpine Corp. increased its liquidity by $0.5 billion to $1.5 billion under the corporate revolving facility. The company continues to maintain a stable liquidity position, enabling it to meet fund requirements for strategic acquisitions.
If approved, Fore River Generating Station will be the first power plant in the state of Massachusetts to be owned by Calpine Corp. The proposed acquisition will enable the company to expand its operations in the New England region and strengthen its presence in the competitive wholesale power market.
Apart from Calpine Corp., many utility firms are currently expanding their presence in the region. On Aug 22, 2014, its peer Dynegy Inc. (DYN) completed two separate contracts with Duke Energy Corp. (DUK) and private-equity firm Energy Capital Partners to acquire several coal and gas power generation plants. The transactions will enable Dynegy to strengthen its operations in the New England and PJM (Pennsylvania, New Jersey, Maryland) markets.
Calpine Corp. follows a blend of acquisition-focused and organic growth plans to expand its scale of operations. In Feb 2014, the company acquired a 1,050-MW natural gas-fired, combined-cycle power plant from MinnTex Power Holdings, LLC.
As far as organic projects are concerned Calpine Corp. completed the expansion of the Deer Park and Channel Energy Centers during the second quarter of 2014.
In addition to a stable availability of fund under borrowing facilities, the accumulation of around $1.6 billion from the sale of six power plants in the Southeast will allow Calpine Corp. to meet the fund requirements for its capacity expansion program. These initiatives will enable the company to improve cash inflows.
Calpine Corp. currently holds a Zacks Rank #3 (Hold).
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