Entergy seeks approval to buy Arkansas power plant

OREANDA-NEWS. March 23, 2015. Three Entergy utilities are seeking federal approval to purchase a major gas-fired power plant in Arkansas as they work to replace a fleet of 50-year-old power plants ill-suited to serve states that are experiencing a boom in industrial power demand fueled by low-cost natural gas production from US shale formations.

Entergy units in Arkansas, Louisiana and Texas want to buy the 1,980MW Union Power Station, one of the last remaining merchant generating plants in the region, for \\$948mn from Entegra TC.

Entergy told the Federal Energy Regulatory Commission (FERC) that the purchase will help modernize the utilities' fleet and reduce reliance on purchased power that is subject to wholesale market volatility.

Entergy said by the 2016-17 planning year, its utilities will be 2GW short of meeting load and reserve requirements in the Midcontinent Independent System Operator (MISO). The shortfall grows to 3.3GW in 2017-18.

Confirmed capacity in Entergy territory for MISO's upcoming planning reserve auction is 2GW below the reserve margin requirement, but a significant amount of unconfirmed capacity could enter the auction to yield a surplus.

Entergy said MISO expects supply and demand to balance around 2016, noting that "capacity prices therefore can be expected to increase" and eventually approach the cost of new construction.

The company said it received an unsolicited offer to buy Union Power Station from Entegra in June 2014, a month after Entergy Arkansas issued a solicitation for long-term supply.

Entegra Power filed a prepackaged reorganization plan in August 2014 and exited bankruptcy in early October. Two weeks later, Entergy Services and Entegra TC, a successor to Entegra Power, entered into a letter of intent for Union Power Station, the largest US independent power plant when it began operating in 2003.

Entergy Arkansas and Entergy Texas each will own one 495MW unit at Union Power Station while Entergy Gulf States Louisiana will own two units. Entergy Arkansas currently purchases energy from one unit through a tolling agreement.

The purchase agreement obligates Entergy Gulf States to replace its Texas and Arkansas affiliates as a buyer of two Union Power units should those utilities be unable to obtain state regulatory approval.

The purchase price amounts to \\$479/kW — double what Entergy paid for other distressed power plant assets in recent years, but far below its \\$1,300/kW cost to build the Ninemile 6 gas plant completed in Louisiana last year.

Entergy's Louisiana utilities said they will need as much as 8GW of new generating capacity in the next two decades to replace 6.1GW of inefficient gas-fired power plants and to meet growing Gulf coast demand.

Entergy has bought seven power plants over the past decade. The last two plants, in Arkansas and Mississippi, were bought from KGen Power in late 2012 for an average of \\$489/kW.

Some of Entergy's previous purchases were part of a US Justice Department civil investigation disclosed in 2010. The Justice Department delayed the KGen transaction, but cleared it after several months, saying it was unlikely to lessen competition in the region.