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Blackstone unplugs plant from ERCOT grid to sell output into Mexico

BlackstoneGroup LP has ceased supplying power to the from its 540-MW Fronterafacility in south Texas while it prepares to increase its sales to the Mexicomarket.

The natural gas-fired facility two miles north of the RioGrande River in Mission, Texas, which was the largest facility to clear Mexico'slong-term capacity auction last month, filed a notice of suspension ofoperations with ERCOT that indicated its intent to be "decommissioned andretired from the ERCOT grid as of September 30, 2016."

Also on Sept. 30, Blackstone affiliate asked FERC towaive its 60-day notice requirement and permit the cancellation of Frontera'sinterconnection agreement with local transmission company to becomeeffective Oct. 1. Frontera requested that AEP be allowed to remove theinterconnection facilities that are subject to the agreement. (ER16-2735)

Long-standing exportplan

The Frontera facility, perched on the border with Mexico,has been seen for years as a potential exporting power plant. It was thecompletion earlier this summer of two new transmission lines serving SouthTexas that has allowed Frontera to go off the ERCOT grid.

Built in 1999 by TECO Power Services and commissioned in May2000, the combined-cycle facility is connected to the Cumbres substation inReynosa, Mexico, by a 138-kV single circuit transmission line that intersectswith the transmission system operated in northern Mexico by thegovernment-owned Comisión Federal de Electricidad, or CFE.

The line received its first Presidential Permit from theDepartment of Energy's Office of Electric Delivery and Energy Reliability in1999 that allowed it to export power across an international border.

In 2004 TECOEnergy Inc. sold the facility and the line to for $134 million. Thetransmission line's Presidential Permit was reauthorized in 2005.

In December 2013 it was announced that Centrica subsidiaryDirect Energy Power Holding had soldFrontera, as well as its 540-MW Bastrop gas facility near Austin and its 260-MWParis gas facility near the Oklahoma border, to Lonestar Generation, which is100% wholly owned by funds managed by Blackstone, for $685 million.

At the time of its acquisition of Frontera, Blackstone saidits plan was to utilize 170 MW of Frontera's 540 MW of capacity for export toMexico.

As Blackstone applied for reauthorization of the 138-kV line'sPresidential Permit with the DOE, it was required to meet certain sufficiencyof supply and coordination of local grid criteria, so that exports to Mexicowould not compromise the energy needs of South Texas and ERCOT.

In July 2014, Blackstone's Lonestar affiliate to make availabletwo-thirds, or 360 MW, of Frontera's output to ERCOT through 2015 and in to2016, or until two new 345-kV lines were energized that would relievecongestion in the state's Rio Grande Valley region.

Roughly four months ago, in June, according to a spokesmanfor Electric Transmission TexasLLC, a joint venture between subsidiaries of andBerkshire Hathaway Energy,those two South Texas lines were energized, triggering Frontera's decision todisconnect from ERCOT.

Plant to export alloutput

In March 2015, the DOE reauthorized Frontera's Presidential Permit for its138-kV line, but it also acknowledged the company's interest in replacing thatline with a double-circuit 230-kV line that would connect with the CFE systemin Mexico.

While Blackstone officials offered no official comment,people close to the company on Oct. 6 said that Frontera's transmissionupgrades are now nearing completion and the full export of Frontera powershould occur within the next month or so.

Over the past two years Frontera has been selling its 170 MWin Mexico to mainly industrial customers through wholly owned subsidiaryEnergia Buenavista.

The power purchase agreements with its industrial customersin Mexico have been partially oil-indexed, according to Moody's InvestorsService, and suffered some decline from the drop in oil prices. A late November2015 Moody's note on Lonestar Generation said, however, that even with thedecline in oil prices, Frontera's contractual prices in Mexico were "approximatelytwice as high as current around-the-clock power prices in ERCOT, and as such, apositive for Lonestar."

Now, however, Frontera is looking to become even more activein the Mexico market.

In the Sept. 22 auction, the CFE awarded contracts for 1,187MW of firm capacity. The biggest seller of capacity — 475 MW — was FronteraMexico Generacion representing the capacity of Frontera. It was also the onlyplant awarded capacity not located in Mexico.

Jeffrey Ryser is areporter for S&P Global Platts which, like S&P Global MarketIntelligence, is a division of S&P Global Inc.