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Calpine Closes Nat Gas Asset Sale

CPN LNT

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Wholesale utility play, Calpine Corporation (CPN - Snapshot Report) closed its Broad River Energy Center divestiture for an amount of $427 million plus adjustments (roughly $504 per kilowatt) to Broad River Power LLC, an associate of Energy Capital Partners LLC. Calpine received the go-ahead for the sale from the Federal Energy Regulatory Commission (“FERC”) on December 18, 2012.

The news of the divestment was earlier divulged during November 2012 at the time of the company’s third quarter earnings release. The Broad River Energy Center, situated in Gaffney, South Carolina is an 847 megawatt simple-cycle, natural gas-fired establishment.

Calpine has planned to realign its asset portfolio via a string of non-core asset sales. The Broad River Energy sell off was made to complement Calpine’s $432 million acquisition of Bosque Power Plant, which happens to be a combined cycle gas turbine ("CCGT") facility in Central Texas. The CCGT acquisition will enable Calpine to achieve thermal efficiency of about 60% compared to a simple cycle plant.

Followed by the Broad Energy sale, Calpine expects to earn $392 million from the year-end divestment of its Riverside Energy Center in Wisconsin. The company intends to plough back the proceeds from these sales for the development of its high-return resources.

Other key initiatives include the company’s development of the proposed 309 megawatt Garrison Energy Center, an energy-efficient natural gas based facility in Dover, Delaware.

With natural gas becoming a hotshot energy source in the U.S. utility market, we believe Calpine’s purchase of high-quality gas units will certainly boost the near-term earnings stream and bring future growth opportunities.

However, weather-induced demand volatilities leading to price fluctuations and unplanned outages resulting from winter storms could act as negative catalysts to growth. The Zacks Consensus Estimates for the fourth quarter and full year 2012 presently stand at a loss of 4 cents and earnings of 43 cents per share, respectively. 

Another utility player, Alliant Energy Corporation (LNT - Snapshot Report) is also eyeing to enhance its natural gas prospects. The company recently sought regulatory approval for the planned building of a 650 megawatt Marshalltown Generating Station (“MGS”) with the Iowa Utilities Board.

With a market capitalization of $8.38 billion, Texas-based Calpine Corp. has 2,101 employees in total. It owns and operates natural gas-fired and geothermal power plants in North America and currently retains a short-term Zacks #3 Rank (Hold rating).

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