Capital Power agrees to acquire 580 MW gas-fired power plant in Arizona

Capital Power Corp has announced that it has entered into an agreement to acquire 100% of the ownership interests in Arlington Valley, LLC, which owns the Arlington Valley facility, a 580 MW combined cycle natural gas generation facility, from funds managed by Oaktree Capital Management, L.P. and its co-investors for a total of US$300 million. 

The Arlington Valley facility is located 80.5km southwest of Phoenix, Arizona in the USA. The facility consists of two GE 7FA combustion turbines; two Aalborg (CMI) heat recovery steam generators (HRSG) with duct burners and a single GE D11 steam turbine. It has two large natural gas pipelines as sources (El Paso and Transwestern). In the first half of 2018, a new fuel gas interconnection to the Transwestern Gas Pipeline was completed allowing a dual fuel connection where each pipeline can provide 100% of the facility’s fuel requirements.

The facility is adjacent to the Palo Verde hub allowing for additional capacity and energy to be sold into the Desert Southwest (DSW) or the California Independent System Operator (CAISO) wholesale markets during the months outside the summer tolling months. Capital Power intends to pursue additional contracts that would expire in 2025 for the output generated in the non-Summer months.

The existing tolling arrangements and expected non-Summer offtake 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.

The transaction is expected to close in the fourth quarter of 2018, subject to regulatory approvals and other customary closing conditions. 

Capital Power will finance the transaction using its credit facilities followed by permanent debt financing. Given the strength of its balance sheet, Capital Power will not need to access the equity markets to finance the transaction.

The facility is expected to generate approximately US$62 million of EBITDA and US$44 million of adjusted funds from operations (AFFO) in 2019 during the last year of its current toll. Subsequently, EBITDA averages US$35 million per year (ranging from US$32 million to US$38 million) and US$16 million of AFFO during the 6-year period from 2020 to 2025. Based on the expected financing, the 5-year average accretion for AFFO is expected to be $0.22 per share reflecting a 6% increase. The average accretion to earnings is expected to be US$0.03 per share in the first 5 years, representing a 2% increase.