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Calpine to sell Ariz. power plant to NV Energy

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Calpine to sell Ariz. power plant to NV Energy

has reached a dealto sell its natural gas-fired SouthPoint Energy Center in Mohave Valley, Ariz., to NV Energy Inc.

Announcingthe news April 29 during the company's first-quarter 2016 earnings conference call, Calpine President and CEO ThadHill did not provide a purchase price, citing contractual terms of the sale andsensitivity to the current commercial and regulatory environment, but said the transactionis accretive for Calpine shareholders.

"Weare effectively moving a merchant power plant in a non-core geographic locationto a utility that can put it to good use," Hill said.

NV Energyis a subsidiary of Berkshire HathawayEnergy.

Accordingto S&P Global Market Intelligence data, the natural gas-fired, combined cycleplant located on the Fort Mojave Indian Reservation has an operating capacity of586 MW. It began operating in 2001, and had a 2015 capacity factor of about 34%.The sale is subject to certain conditions precedent, as well as federal and stateregulatory approvals, Hill said. Calpine expects the sale to close no later thanthe first quarter of 2017, the company said in a Form 10-Q.

Analystson the call pressed for more detail about the transaction, but little more was disclosed.Hill said Calpine will provide more information once the company is able to do so.

Hillalso said since the company's last earnings call, Calpine has signed a new five-yearcustomer contract at its Rockgenplant in Wisconsin and that the 20-year powerpurchase agreement that underscores expansion of its power plant in Minnesota hassatisfied its last regulatory hurdle, with a firm PPA beginning in the summer of2019.

Calpineofficials also spent time on the call discussing challenges in the market.

Hillsaid it has become "increasingly clear" that the current market situationis unsustainable, and that Calpine estimates that up to 30% of the capacity in themarket is losing money.

"Thisfact, combined with tight reserve margins and growing load, means something hasto give," Hill said.

Regulatoryreform will create a smoother and more reliable path for the market, he said.

Calpine'sexecutive vice president and chief commercial officer, Trey Griggs, said the company'sfleet in the Lone Star state would be able to respond to any market corrections.

Griggssaid the first quarter of 2016 was much windier than in 2015. The increase in windgeneration year over year came at the expense of baseload coal generation, whichcontributed a "mere" 12% of ERCOT's total generation in March, he said.

Challengesin ERCOT to baseload coal economics are "increasingly apparent" and havesignificant long-term implications. Griggs said when applying 2016 monthly around-the-clockprices against coal operating costs, there is only one month during which operationsare economic. The economics are not enough to make up for losses over the balanceof the year.

Absentsome regulatory reform, Griggs said it would not come as a shock to see mothballingof units or retirements, particularly when considering environmental compliancedeadlines and related investment decisions.

"Powergeneration supply in Texas should experience rationalization and our fleet is well-positionedto benefit," Griggs said.