Juice: Sun Breaks through Market Clouds for Generators

Much attention has focused on the state’s biggest investor-owned utility's struggles with potentially overwhelming liability from wildfire damage, with the other two utilities impacted. Meanwhile, merchant generators operating in California have struggled for years, generating far fewer headlines.

All of the merchant companies, which are not regulated by the California Public Utilities Commission, have been impacted by the lack of long-term contracts with the utilities. Some have survived and others have been sunk by the state’s big hybrid energy market, some more than once.

One of the floundering generators merged with another company. Another financially shaky generator launched a huge assets sale, including putting on the auction block most of its wind and solar projects in and outside of California. A former California generator pulled out of the public investment market. And, a number of the larger companies initiated stock repurchase programs to bolster the value of their stock.

Help from state lawmakers and regulators largely is out of the question given their bias for protecting California born and bred regulated utilities.

After considerable upheaval the last few quarters, however, the prospects of the majority of merchant generators have brightened, even as clouds loom over the state’s private utilities, particularly Pacific Gas & Electric.

Most of the generators’ earnings during the second quarter of 2018 improved, with one seeing only a small drop in income.

Below is the latest on the finances of the generators operating in California:

AES: This international power company had second quarter earnings of $290 million, or 15 cents a share, in 2018 compared to earnings of $53 million, or 7 cents a share, in the second quarter of 2017.

AES attributed the improvement in part to a gain on the sale of Electrica Santiago in Chile compared to a second quarter of 2017 loss on the sale of coal-fired generating plants in Kazakhstan.

“We continued to make progress on our strategic objectives of improving our credit profile, enhancing efficiency and greening our portfolio," said Andrés Gluski, AES president.

AES noted both Fitch and Moody's upgraded the company’s credit rating to just below “investment grade.” Fitch now rates the company as BB+, up from from BB, while Moody’s gives it a rating of Ba1, up from Ba2.

In California, AES operates the gas-fired 474 MW Huntington Beach and 1,392 MW Redondo Beach plants, both of which are under contract with Southern California Edison. The contract with Edison expires at the end of this year for Redondo Beach and in 2020 for Huntington Beach.

AES also operates wind power plants under contract to Edison and is pursuing repowering projects at its gas plants.

AltaGas: This Canadian energy company had second quarter 2018 earnings of $1 million, or a penny a share, compared to a loss of $8 million, or minus 5 cents a share during the same period in 2017.

David Cornhill, interim co-chief executive officer of AltaGas, noted the company is selling off assets after completing its acquisition of WGL, a utility and energy company in Washington, D.C.

In California, the company acknowledged that a power purchase agreement for its 50 MW natural gas-fired Ripon plant ended this May. However, the plant is operating under a one-year resource adequacy contract it expects will be renewed annually.

AltaGas operates six other facilities, including the 330 MW Tracy and 507 MW Blythe plants, which are under power purchase agreements through 2022 and 2020, respectively. The company also operates additional peaker plants and a 20 MW energy storage facility, which is located in Pomona and is under contract with Edison.

Calpine: This major generator with substantial assets in California became a privately held company during the first quarter of this year and has ceased publicly reporting its income. The company, which started in San Jose, today is based in Houston.

Calpine operates numerous gas-fired plants up and down California, as well as major geothermal facilities at the Geysers north of San Francisco.

Next Era: The Florida-based company’s renewable energy arm, NextEra Energy Resources, reaped $274 million in net income, or 55 cents a share, according to its latest earnings report. That was below the previous year’s second quarter earnings of $301 million, or 64 cents a share.

Income for the whole company in the latest second quarter was $794 million, or $1.64 a share.

Energy Resources continues to grow its renewable assets. It expects 300 MW of wind projects to come online in 2020, which get a boost from the federal investment tax credit. The renewable section of the company also is adding 692 MW of solar and 90 MW of battery projects.

“As battery cost declines and efficiency gains are realized during the four-year start of construction period, we continue to expect that in the next decade new nearly firm wind and solar, without incentives, will be cheaper than the operating costs of traditional inefficient generation resources, creating significant opportunities for new renewables growth going forward,” John Ketchum, NextEra Energy chief financial officer, said during a call with financial analysts.

NRG: which plans to sell off $3.2 billion in assets, including many of its renewable assets in and outside California, reported an upswing in income. It reaped $72 million, or 23 cents per share, this latest quarter. That compares to a troubling $626 million loss, a per share loss of $1.96, in the second quarter of 2017.

NRG also initiated a $1 billion share repurchase program, having paid $500 million for 15.7 million shares as of the end of June.

Mauricio Gutierrez, NRG chief executive officer, said the company’s asset sales as of the end of June reduced another $145 million in costs, “bringing our savings through the end of June to $225 million and placing us well on the path to achieving our 2018 target.”

NRG continues to hold a majority interest in the 392 MW Ivanpah solar project in the Southern California desert. It also still owns five natural gas plants in California, including Encina, Long Beach, Midway Sunset, Watson and the San Diego Turbines.

Vistra: This company merged with the troubled Dynegy earlier this year and turned around previous losses. Vistra reported a $108 million profit in its second quarter earnings report, or 21 cents a share.

Vistra also reported an $860 million revenue loss with the California Independent System Operator.

Dynegy’s earnings for the same period last year were reported at a loss of $26 million, or minus 6 cents a share.

Dynegy has had unsuccessful previous mergers, including with LS Power. A series of losses led to the latest merger with Vistra, which was finalized in April.

The merged company awaits California Public Utilities Commission approval of a 20-year resource adequacy contract with PG&E for a 300 MW battery energy storage project at its 2,529 MW Moss Landing plant. If approved by early October, the company expects the battery project to come online at the end of 2020.

In addition to the Moss Landing plant, also included in Vistra’s California portfolio is the 165 MW oil-fueled Oakland Energy Facility in California, which is slated for closure.

The company also launched a $500 million share buyback program. As of the end of June it had repurchased $75 million shares. —Elizabeth McCarthy & William J. Kelly

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Juice: Sun Breaks through Market Clouds for Generators

William J. Kelly

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