CPS Energy to Acquire Talen’s 1.7-GW Gas Power Fleet in Texas for $785M
CPS Energy will acquire Talen Energy’s 1.7-GW portfolio—comprising three natural gas–fired power plants—in the Texas market for $785 million.
The nation’s largest municipally owned power entity on March 27 said it reached an agreement with competitive generator Talen Energy for the acquisition. The transaction is expected to close in the second quarter of 2024, “subject to customary net working capital adjustments at closing.”
The assets include Talen’s 897-MW Barney Davis and 635-MW Nueces Bay natural gas-fired generation facilities, both located in Corpus Christi, Texas, as well as its 178-MW natural gas-fired generation facility in Laredo, Texas. The three plants are located in the South Zone of the Electric Reliability Council of Texas (ERCOT).
A Substantial Generation Boost for CPS
The move is notable for CPS Energy, which has for many years offered competitive rates and strong reliability while avoiding rate increases through cost management and value realized through sales of surplus power into ERCOT. Last year, however, the utility shifted to a more “proactive” strategy to bolster its equity, operational efficiency, and energy security with its adoption of Vision 2027.
The plan responds to a combination of deferred expenditure and new investment needs to address reliability vulnerabilities revealed by Winter Storm Uri along with CPS’s decarbonization objectives, which seek carbon neutrality by 2050. While the utility’s portfolio is currently 48% powered by natural gas, 17% by coal, 13% by nuclear, and 22% by renewables, it seeks to phase out 1.3 GW of coal generation (from Spruce 1 and 2) by 2030. In addition, it plans to retire 1.7 GW of older natural gas steam units starting in 2025. The utility also points to soaring energy demand, citing hotter weather as a contributor.
The acquisition of Talen’s 1.7-GW Texas portfolio “supports CPS Energy’s generation plan, approved in 2023 by its Board of Trustees. It secures an additional 1,710 MW of power for the greater San Antonio community and will be available as soon as this summer,” the utility said on Wednesday. “The addition of these units aligns with the generation plan, which includes the retirement of older units and the addition of a blend of gas, solar, wind, and energy storage.”
The plants in Corpus Christi and Laredo are expected to be operational for the next 25 years. CPS also notes that it has added 730 MW of solar energy and 50 MW of energy storage to date as part of its generation plan. In September, it issued a request for proposals for an additional 500 MW of energy storage.
“With the addition of these facilities, environmental emissions will stay on track to meet the City of San Antonio’s Climate Action and Adaptation Plan emissions reduction commitment by 2030. In addition, it provides CPS Energy the flexibility to add more renewable energy and storage with this benefit of firming capacity (power that is available as needed) in place,” it said.
Talen to Exit ERCOT
Talen, which recently exited bankruptcy, has sought to execute strategic transactions contemplated by its Chapter 11 plan of reorganization to significantly reduce its debt and strengthen its balance sheet. In 2023, it reported it “achieved its strongest financial performance ever.”
Earlier in March, Talen sold its 960-MW Cumulus data center campus, which was developed next to its Susquehanna nuclear plant in Pennsylvania, to Amazon Web Services (AWS) for gross proceeds of $650 million (net proceeds are estimated to be approximately $361 million). “This transaction provides an attractive return on our investment and vision in building Cumulus and creates value through the sale of clean carbon-free power from our top-decile Susquehanna nuclear plant,” Talen President and CEO Mac McFarland noted earlier this month.
With the sale of its Texas assets, Talen will operate primarily in PJM and the Western Electricity Coordinating Council, with a fleet principally located in the Mid-Atlantic and Montana. In March, the company noted that its ERCOT fleet “ran well during elevated periods of peak demand [in 2023], especially in the summer, driving significant physical energy margin, though that was partly offset by outages and congestion costs.”
The transaction unveiled on Wednesday “demonstrates our continued commitment to unlocking significant value for Talen, while also taking care of our people,” McFarland said. “We are happy that these assets will assist CPS Energy in its long-term strategy to serve its growing community with reliable and cost-effective power generation.”
—Sonal Patel is a POWER senior editor (@sonalcpatel, @POWERmagazine).