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Capital Power to purchase 580-MW gas plant in Arizona for $300M

Capital Power Corp. on Sept. 6 struck a deal to acquire 100% ownership interests in the 580-MW Arlington Valley combined-cycle, natural gas-fired facility in Arizona from funds managed by Oaktree Capital Management LP and co-investors for $300 million, subject to working capital and other closing adjustments.

The company plans to finance the deal with credit facilities, followed by permanent debt financing, according to a news release. "Arlington represents a lower risk, long term cash generating investment which establishes an important platform for potential further growth in the [Desert Southwest] market," Capital Power President and CEO Brian Vaasjo said.

The Arlington Valley facility, located in Maricopa County, entered operation in June 2002. The plant sells its output to Arizona Public Service Co. under tolling agreements through 2025. The plant had a net generation of 2,039,808 MWh in 2017 with a capacity factor of 40.15%, according to S&P Global Market Intelligence data.

Arlington Valley's location adjacent to the Palo Verde hub allows for additional capacity and energy to be sold into the Desert Southwest or the California ISO wholesale markets outside the summer tolling months. The company intends to pursue additional contracts that would expire in 2025 for the output generated in non-summer months.

Capital Power said the existing tolling arrangements and expected non-summer off-take arrangements are expected to generate approximately 60% of the value of the purchase price with the balance of the value to be captured through re-contracting opportunities post-2025.

Based on expected financing, Capital Power anticipates the five-year accretion for adjusted funds from operations to be 22 cents per share, reflecting a 6% increase. The average accretion to earnings is expected to be 3 cents per share in the first five years, representing a 2% increase.

The deal is expected to close in the fourth quarter, subject to regulatory approvals and other customary closing conditions.