UPDATE: Constellation To Pay $365 Million For Two Texas Power Plants

Constellation Energy Group Inc. (CEG) will buy two natural gas-fired power plants in Texas as the U.S. power sector continues to see an uptick in asset deals.

The Baltimore power producer and utility company said it will pay $365 million for the Colorado Bend and Quail Run plants--both 550-megawatt facilities in Texas--from Navasota Energy Partners L.P., a Houston energy-development and asset-management firm. The deal for plants, which can power an estimated 550,000 typical homes, is expected to close this quarter.

Asset deals have picked up in the power sector amid a prolonged downturn in wholesale electricity prices and back-to-back years of declining demand. Recent sales include private equity firm Energy Capital Partners buying three New England power plants from BG Group PLC (BG.LN) and Calpine Corp. (CPN) selling two Denver-area power plants to Xcel Energy Inc. (XEL). Companies including Calpine, PPL Corp. (PPL) and the North American unit of the U.K.'s Centrica PLC (CNA.LN) have expressed interest in acquiring plants.

The purchase of the Texas plants is part of Constellation's plan to spend $1 billion in the next two years to buy assets in regions where Constellation's infrastructure is stretched thin. The money comes from the sale of 49.99% of the company's nuclear-generation business to Electricite de France SA (EDF.FR) last year after the financial crisis nearly drove the company into bankruptcy protection.

Constellation shares fell 3% to $37.33 in recent trading.

Analysts viewed the price Constellation paid--$332 per kilowatt of capacity--as favorable, with Macquarie Capital analysts in a note to clients Friday referring to the deal as "bottom picking."

The BG Group asset sale last month came at more than a 50% loss for the U.K.-based oil and gas company, which acquired the 1,244 megawatts of plants between October 2006 and April 2007 for $925 million, but is selling them for $450 million. As for the Calpine deal, Xcel is buying the two plants for $739 million, adding 931 megawatts of generation to meet customer demand. The two plants already provide power to Xcel under power-purchase agreements.

Although advantageous for Constellation, J.P. Morgan analysts warned Friday in a note to clients that the company's deal in Texas signals a challenging market for any company currently looking to sell assets.

Constellation is working to match generation with its retail business that sells power to end-use customers in states where they can shop for their electricity supplier. Company executives during an investor conference last month said their focus in Texas is on owning generation needed at times of peak demand, while continuing to contract for base-load plants that supply power 24 hours a day. The approach is in part driven by the large among of wind generation in the state.

-By Mark Peters, Dow Jones Newswires; 212-416-2457; mark.peters@dowjones.com;

(Nathan Becker contributed to this report.)

Calpine (NYSE:CPN)
Historical Stock Chart
From May 2024 to Jun 2024