Calpine Sheds Six Power Plants in $1.6B Deal

HOUSTON ( The Deal) -- Privately held power and energy infrastructure owner LS Power Equity Advisors said Monday it agreed to pick up six natural gas-fired, combined-cycle power plants in the southeastern U.S. from Calpine ( CPN) of Houston for $1.57 billion in cash.

The plants are in Gabriel, La.; Calhoun County, S.C.; Decatur, Ala.; Mobile, Ala.; Coweta, Okla.; and Pace, Fla., and generate 3,500 megawatts. They feed power to investor-owned utilities, municipal utilities, cooperatives and other market players.

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. wrote in a note that the region is oversupplied and utility dominated, leading to subpar returns for independent power plant generators in the area. They think LS Power wants the plants because their value could increase after 2015 when coal retirements begin to be driven by the Environmental Protection Agency's Mercury and Air Toxics Standards. The analysts wrote that Calpine would rather use the proceeds to invest in competitive wholesale power markets such as California, Texas and the mid-Atlantic U.S.

"We see above market asset sales to utilities and co-ops as a distinct possibility over time (2020), but prefer that CPN [Calpine] realizes the value of these assets now and use the cash to invest in core markets versus waiting for possible opportunities to sell at higher multiples to regulated counterparties," they wrote.

LS Power CEO Paul Segal said in a statement that the quality of the assets, the record of the facilities and the plant personnel were all important factors in its purchase decision. "These projects have been reliably serving wholesale power customers in the Southeast for a number of years and we look forward to continuing to provide value for our growing base of customers," he said.

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