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NRG to buy out leases for Midwest plants, sell Calif. solar asset

NRG Energy Inc. is optimizing its power generation and real estate portfolio, purchasing projects it has leases for in the Midwest and preparing for the sale of a solar project in California.

The company announced the updates on a July 24 investor call, the same day it unveiled a $3.63 billion deal to acquire Direct Energy LP from Centrica PLC.

Midwest Generation LLC, a subsidiary of NRG, also filed an application that day with the U.S. Federal Energy Regulatory Commission to acquire the equity in the 1,538-MW Powerton gas-fired plant in Tazewell, Ill., and Units 7 and 8 at the 1,317-MW Joliet 29 gas-fired plant in Will County, Ill.

Trusts affiliated with Public Service Enterprise Group Inc. own a 63.6% shareholding in each Powerton and the Joliet unit, and trusts affiliated with Citigroup Inc. own the remaining 36.4%. But Midwest Generation already controls the facilities, which it leases under sale-leaseback agreements.

NRG will purchase the projects for approximately $260 million, $148 million of which will be funded by debt "on a credit neutral basis" according to the July 24 investor presentation. The remaining $112 million will be paid for by capital allocations.

"As a lessor, we have kept those assets in compliance with environmental regulations through back-end control investments and, in the case of Joliet, by converting units from coal to natural gas," Executive Vice President and CFO Kirkland Andrews said on the July 24 call. "By purchasing these assets, we're able to eliminate the lease obligations, which are treated as debt for ratings purposes, thereby streamlining our balance sheet. Moreover, as owners rather than lessors, we have a greater operational and strategic flexibility, thus providing us a greater range of alternatives to optimize their benefits to NRG going forward."

Joliet and Powerton came online in the 1960s and 1970s, respectively.

NRG is also planning to monetize its 35% stake in the 347.7-MW Agua Caliente Solar project in Yuma County, Ariz., with expected net proceeds of $120 million. The company hinted at a potential sale on its first-quarter 2020 earnings call in May. The project has a power purchase agreement with Pacific Gas and Electric Co.

Clearway Energy Inc. agreed to purchase the stake and bring its interest in the facility up to 51%, before backtracking after the project's PG&E Corp.-owned counterparty became entangled in bankruptcy proceedings.

NRG's sale of Agua Caliente is expected to close by early 2021, Andrews said on the July 24 investor call.

Princeton, N.J.-based NRG also expects to pour $25 million into improving the site of its shuttered 858-MW Encina and Encina CT gas-fired facilities in San Diego County, Calif., in 2021.