Two Power-Plant Deals Unravel In West Texas Municipal Dispute

The sales of two West Texas power plants have been scrapped over the past week after a district court ruled that a corporation set up by four cities didn't have the authority to issue bonds to finance the deals.

High Plains Diversified Energy Corp., formed in 2008 to invest in generation to secure low-cost power, was in the process of seeking court backing to issue municipal bonds to finance the $520.3 million acquisitions of natural-gas-fired plants when a judge last month instead moved to shut down the company. The ruling unraveled the deals struck with Constellation Energy Group (CEG) and Public Service Enterprise Group Inc. (PEG) in December and January, respectively.

The result was a surprise for High Plains as it was pursuing its first acquisitions, especially when Lubbock intervened against its partners--the cities organized under the West Texas Municipal Power Agency and Republic Power Partners LP. The investment company's plan was to buy "firm" sources of power and also invest in renewable energy, said High Plains spokeswoman Julie Hillrichs. She said the cities' primary motivation was to secure wholesale power after the contract with Xcel Energy Inc. (XEL) ran out in 2019. The other cities include Brownfield, Floydada and Tulia.

The court's decision yielded mixed results for the owners of the two power plants: It delayed PSEG's push to leave Texas, but allowed Constellation to retain control over a plant it hadn't intended to sell.

"We weren't actively out there selling the plant, and it was a good opportunity for us and for them; it didn't work out," Constellation spokesman Kevin Thornton said. The company wasn't exactly feeling seller's remorse about getting rid of the 550-megawatt Quail Run Energy Center near Odessa, Texas, but now it makes more sense for Constellation to keep it as it expands its retail presence in Texas, he said.

Last week, Constellation bought StarTex Power, a Houston-based electricity provider, for $142.5 million. Matching power-generating capacity with retail customers was a strategy articulated by Constellation when it agreed to be acquired by Exelon Corp. (EXC) for about $8 billion in April.

PSEG is seeking another buyer for its 1,000-megawatt plant, also near Odessa. "There were other parties that have remained interested in it; we will be reaching out to them," said company spokesman Michael Jennings. The Newark, N.J.-based company had originally retained Goldman Sachs Group Inc. (GS), which will be involved in the latest attempt to sell the plant, he said.

Jennings declined to name interested parties. Constellation's Thornton declined to say whether the company is interested in a second Odessa plant but said "we are always looking for the right marketing opportunity."

-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com

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