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AltaGas to sell three California gas-fired plants to private equity for $300 million

Highlights

Sale price bolstered by quick-start peakers

Middle River Power III to buy the assets

Houston — Canada's AltaGas said Monday it is selling assets, including three natural gas-fired power plants in California with combined capacity of 523 MW, to help finance its acquisition of WGL Holdings.

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Calgary-based AltaGas said it is selling its Tracy, Hanford and Henrietta facilities, located in the San Joaquin Valley, for about $300 million to private equity firm Avenue Capital's subsidiary, Middle River Power III. The sale price values the assets at about $570/kW.

Describing the sale price as "right in the middle of the fairway," one long-time private equity executive said, "since California has so much renewables, quick-start peakers have great value in today's market."

AltaGas announced additional sales of what it called non-core midstream and power assets in Canada that pushed total proceeds of the combined transactions to $560 million.

"The proceeds from the sale of these assets will be used to repay a significant portion of the bridge facility related to the acquisition of WGL Holdings," the company said in a statement.

AltaGas said in April 2017 that it intended to buy the shares of the Washington, D.C.-based gas and power utility for about $4.6 billion in cash and would assume $1.87 billion of WGL's debt.

At the time of the announced deal, AltaGas said it was "committed" to a $4.95 billion acquisition bridge facility, which included a $1.8 billion, 18-month asset sale bridge.

In its announcement Monday, AltaGas said it has "announced or completed" about $1.5 billion in asset sales to date and "remains firmly on track to reach the expected total targeted asset sales of at least $2 billion by fourth-quarter 2018."

In June, the company announced the sale of a 35% stake in the Northwest British Columbia Hydro Electric Facilities to independent investment firm Axium Infrastructure for $922 million.

Prior to Monday's announcement, AltaGas had 1,708 MW of gross capacity from gas-fired, hydro, wind, and biomass facilities, and energy storage assets located across North America.

"We expect to have further announcements in the near future on our asset monetizations," said David Cornhill, chairman and interim co-CEO of AltaGas.

In a separate deal announced Monday, AltaGas said it sold "selected non-core smaller scale gas midstream and power assets in Canada," as well as its commercial and industrial customer portfolio in Canada, to Birch Hill Equity Partners Management for an aggregate purchase price of $165 million. MIDDLE RIVER OPERATES 1,650 MW

AltaGas said Monday it has entered into an agreement with Middle River Power III, a wholly owned subsidiary of Avenue Capital, for the sale of the three gas-fired power assets in California.

Currently, Chicago-based Middle River Power III is involved in a possible takeover of the 2,250 MW Navajo Generating Station.

The Chicago-based private equity firm owns four operating facilities with combined capacity of 1,650 MW, its largest being the 830-MW High Desert CCGT facility located in San Bernardino County, California.

In its deal with AltaGas, Middle River will be buying the two-unit, 330-MW Tracy Power Station, which was built as a simple-cycle facility in 2001 but converted in 2012 to an air-cooled, combined-cycle facility.

The facility, located in Tracy, California, is fully contracted with Pacific Gas and Electric through 2022, with the power purchase agreement structured as a tolling arrangement for 100% of energy, capacity and ancillary services.

The Hanford and the Henrietta facilities are gas-fired peakers with 97-MW and 96-MW of capacity, respectively, and both have PPAs with PG&E that run through 2022.

Based in Hanford and Lemoore, California, respectively, Altagas describes both Hanford and Henrietta as using gas-fired turbines for fast start and for providing backup to "numerous intermittent resources in a resource-constrained area."

-- Jeffrey Ryser, jeffrey.ryser@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com