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A Big Deal in the Big Apple

Issue 5 and Volume 112.

By David Wagman, Managing Editor

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In February 2007, this column looked at some of the major power plant sales dating from 2006. It’s worth revisiting the topic, particularly in light of TransCanada Corp.’s recent bid to take a big stake in the Big Apple’s power generation mix.

The Calgary-based company–perhaps better known as a pipeline owner and operator–has been diversifying in recent years into the United States’ electric power generating sector.

TransCanada’s energy portfolio and activities in the U.S. Northeast already includes 567 MW of hydroelectric assets on the Connecticut and Deerfield Rivers in New England; the 560 MW Ocean State Power gas-fired combined-cycle power plant in Rhode Island; and the proposed 132 MW Kibby Wind Power project in western Maine.

In late March, the company launched a US$2.8 billion bid for the 2,480 MW Ravenswood Generating Facility in New York City, effectively tripling its generating capacity in the U.S. Northeast.

Ravenswood is a gas- and oil-fired generating facility consisting of multiple units using steam turbine, combined cycle and combustion turbine technology. Ravenswood has the capacity to serve around 21 percent of New York City’s peak load.

News reports quoted analysts as saying the bid price (roughly $1,130/kW) was higher than the $2.3 billion (or $930/kW) they thought the plant would fetch. New construction could cost roughly $900 to $1,100/kW.

National Grid, the UK-based company, must divest its 100 percent interest in Ravenswood as part of a New York Public Service Commission order approving its acquisition of KeySpan Corp. That merger is expected to win final state and federal government approvals in the next few months.

A news report in the Toronto Globe and Mail newspaper said that while TransCanada has long been Canada’s dominant domestic gas pipeline company, the rate of return on its regulated lines has been declining in recent years. The paper said TransCanada has seen diminishing earnings per share from its Canadian gas pipeline network since 2002. At the same time, long-term gas production declines in Western Canada and regulatory delays over new pipeline projects have reduced the company’s core business growth prospects. All that has spurred the company to attempt to diversify.

TransCanada also partnered with Royal Dutch Shell Plc to propose building the Broadwater terminal in Long Island Sound near New York City. Broadwater would have delivered 1 billion cubic feet of natural gas a day to markets on Long Island, in metropolitan New York and western Connecticut. It also would have provided about 25 percent of the area’s heating and power- plant fuel, according to project plans. Last month, however, New York officials rejected the plan, citing environmental concerns. An appeal of that decision is possible.

Renewable Assets

Three other recent asset sales, unrelated to TransCanada, are also worth noting.

In early April, U.S. Geothermal Inc. contracted with Michael B. Stewart and Empire Geothermal Power LLC to acquire a 3.6 MW geothermal plant and roughly 30,000 acres of geothermal energy leases and ground water rights in Nevada. The geothermal plant is north of Reno and includes four binary cycle units, a wet cooling tower and nine geothermal wells.

Purchase price is $16.62 million, which includes around 18,000 acres of undeveloped geothermal leases as well as the already producing leases.

The geothermal project sells electricity to Sierra Pacific Power Corp. under a power purchase agreement that extends through 2017. U.S. Geothermal prepared a proposal for an additional 27 MW to be developed on the resource area. The $75 to $85 million plan calls for construction of twin binary cycle plants. The company said the current well field could provide around 75 percent of the geothermal fluid for one replacement plant. An expanded production and injection well field could provide geothermal fluid for a second plant, making a total development potential of 27 MW.

Drilling is scheduled to begin in 2008, with commercial operations of the twin plants expected in late 2010 or early 2011 depending on the availability of financing and permitting timetables. An estimated $10 million transmission upgrade may be required to allow the project’s full electrical output to be delivered to customers.

Also on the renewable energy front, in April Renegy Holdings Inc. said it planned to buy an idle biomass power plant in California for $5.35 million, or around $300/kW.

The plant would add 18 MW of capacity to the company’s biomass power facility portfolio. Its other facilities include a 24 MW plant in Arizona scheduled to begin operating during the second quarter and an idle 13 MW plant in California that could be restarted by the end of the year.

And, finally, a unit of Cogentrix sold the three-unit, 810 MW, natural gas-fired Southhaven power plant to Tennessee Valley Authority for $461.3 million, or $570/kW. The plant opened in 2003 and in 2001 was valued then at $605/kW. Southaven Power is currently in Chapter 11 bankruptcy proceedings. The sale was approved by the Bankruptcy Court in Charlotte, N.C., where the corporate reorganization is being handled.