Entergy Corp. said Tuesday that it has signed an agreement to buy the 2,200-megawatt Union Power Station natural gas plant near El Dorado.
Three of Entergy's subsidiaries will pay a total of $948 million for the plant.
Entergy Arkansas is buying a fourth of the plant for about $237 million. Entergy Texas also is paying the same price for a fourth of the plant and Entergy Gulf States Louisiana is paying $474 million for half the plant.
The seller is Entegra TC LLC of Tampa, Fla. Entegra filed for bankruptcy in August.
Entergy Arkansas was in the process of seeking additional electric power, Hugh McDonald, chief executive officer of Entergy Arkansas, said in an interview Tuesday. During that time, Entegra made an unsolicited offer to Entergy Corp. to sell the El Dorado plant.
"It made sense for us to own the plant," McDonald said. "If we were to build a plant that size, it would cost twice that amount."
The cost of the plant should have a small impact on Entergy Arkansas' 700,000 customers in the state, McDonald said. A customer with a $100 monthly bill would see an increase of less than $2 a month, McDonald said.
The three Entergy subsidiaries will have to get regulatory approval from their states to purchase the plant.
The Arkansas Public Service Commission will look at the proposed acquisition and determine whether it is in the public interest, said John Bethel, executive director of the general staff of the commission.
The El Dorado plant is gigantic.
At 2,200 megawatts, it was the most powerful natural-gas-fired facility of its type in North America when it opened in 2003.
When the plant operates at 85 percent capacity, its output surpasses both reactors at Arkansas Nuclear One running full-bore. On a day of average electricity demand, the Union Power Station could, in theory, light all of Arkansas' 2.4 million homes, a former plant manager said in 2009.
When work began on the facility in 2001, nearly 2,000 workers converged on Union County for a $1.25 billion project that took 40 banks to finance. Adjusted for inflation, the cost of building the plant would be about $1.7 billion today.
The federal Environmental Protection Agency set standards this year for reduction of carbon dioxide emissions nationally and in each state. The agency sought to lower overall emissions nationally by 30 percent by 2030.
Arkansas needs to reduce its carbon dioxide emissions by 44 percent by 2030, the agency has proposed.
It was likely when the agency set its carbon dioxide reduction target for Arkansas that it considered the capacity of the Union Power Station as an available option for moving from coal-fired power to natural gas, Teresa Marks, former director of the Arkansas Department of Environmental Quality, said in August.
The federal carbon dioxide emission standards, however, were not taken into consideration when Entergy decided to buy the El Dorado plant, McDonald said.
"We need additional [electricity] generation and this is just part of our normal resource planning to acquire, build or add new generation to our portfolio to meet either new demands that we expect are going to be there or to replace old retiring units," McDonald said.
McDonald acknowledged that it was possible that the Environmental Protection Agency did set such high reduction levels for Arkansas because it was aware of the existence of the Union Power Station.
The agency's rule assumes that existing natural gas plants can ramp up to 70 percent of capacity to offset existing coal plants or other plants, McDonald said, although he added that Entergy disagrees with that assumption.
The purchase of the Union Power Station doesn't mean that Entergy Arkansas will close its two older, large, coal plants in the state -- White Bluff near Redfield and the plant in Independence County, McDonald said.
But Entergy Arkansas and the other co-owners of those plants already are evaluating whether it is economical to add scrubbers to the plants to reduce carbon dioxide emissions, McDonald said.
Union Power Station is part of the Midcontinent Independent System Operator, a regional transmission organization that oversees the electricity grid in all or parts of 15 states. Entergy also is a member of Carmel, Ind.-based Midcontinent.
The Union Power Station is operated well, said Todd Hillman, vice president of Midcontinent's south region, which is based in Little Rock.
"Anytime [a Midcontinent member] can buy a plant it is better than building," Hillman said. "Building takes a long time."
Entergy expects the deal to close by the end of next year, including receiving approval from state regulators.
Business on 12/10/2014