Frederickson 1 is a 265 MW natural gas-fired combined-cycle generating facility in Pierce County, Washington


Capital Power announces agreement to acquire 50.15% interest in Frederickson 1 Generating Station. (Credit: cwizner from Pixabay)

Capital Power Corporation (“Capital Power” or “the Company”) (TSX: CPX) announced that it has executed an agreement to acquire a 50.15% ownership interest in the Frederickson 1 Generating Station (“Frederickson 1” or “the Facility”) from Atlantic Power & Utilities (“AP&U”) for US$100 million (CAD$137 million). The other 49.85% is owned by Puget Sound Energy (“PSE”). Capital Power will finance the transaction using cash on hand and its credit facilities. The transaction is expected to close in the fourth quarter of 2023, subject to customary regulatory approvals and other closing adjustments and conditions.

Frederickson 1 is a 265 MW natural gas-fired combined-cycle generating facility in Pierce County, Washington. The facility is well-positioned as a flexible and dispatchable resource that provides reliable power in support of the continuing energy transition to renewables in the region. Capital Power will operate and maintain the facility and bring to bear its deep knowledge and experience in plant operations and optimization and will receive an annual management fee under the operating arrangement with PSE.

“We are pleased to acquire this high-quality facility in the Pacific Northwest,” said Avik Dey, President and CEO of Capital Power. “Consistent with our mid-life natural gas strategy, this acquisition expands our portfolio of dispatchable assets in key markets that support the energy transition by providing reliable, affordable and flexible power while renewables grow and decarbonization solutions develop.”

“Frederickson 1 is a strategically located mid-life natural gas asset in the growing load centre of the Puget Sound Region and will provide accretive near-term cash flows,” said Bryan DeNeve, SVP, Chief Commercial Officer of Capital Power. “The facility is supported by long-term contracts out to October 2030 with credit-worthy counterparties and is well-positioned for re-contracting as a key dispatchable, baseload asset in the region. Additionally, the Facility and adjacent lands provide ample room and infrastructure for future non-emitting, flexible generation developments co-located with the Facility.”

Acquisition highlights:

  • Financial projections (Capital Power’s portion): expected average contracted EBITDA of US$15 million (CAD$21 million) per year during the 5-year period of 2024-2029.
  • Accretive transaction: expected to deliver accretive near-term cash flows.
  • Long-term contracts with credit-worthy counterparties:
    • Morgan Stanley Capital Group Inc. guaranteed by Morgan Stanley (rated P-1/A-2/F1) – tolling agreement for 100% capacity to September 2025.
    • Puget Sound Energy (rated BBB/Negative/A-2) – tolling agreement for 100% capacity from October 2025 to October 2030.
  • Development opportunities: Located southeast of Tacoma in the Puget Sound Region load centre, the Facility sits on approximately 7 acres of land and is adjacent to additional lands owned by Capital Power. Current layout and additional space allow for future development such as battery installation or a hybrid opportunity.

Overview of Frederickson 1:

  • Nameplate capacity: 265 MW
  • Location: Pierce County, Washington
  • Commercial operation date: 2002
  • Equipment: Utilizes a 1X1 combined-cycle configuration with a GE 7FA combustion turbine, a Nooter Eriksen three-pressure heat recovery steam generator and a GE A-11 condensing steam turbine and steam turbine generator
  • Availability: 98% PPA availability over the last five years, excluding scheduled planned outages
  • Natural gas source: Northwest Pipeline via Scott Lateral (part owned by AP&U, PSE and Capital Power)
  • InterconnectionInterconnected through the Bonneville Power Administration in the Western Electricity Coordinating Council (WECC) region, which is expected to see significant legacy coal retirements and accelerating renewable deployment

Non-GAAP Financial Measures and Ratios
The Company uses (i) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA) and (ii) AFFO as financial performance measures.

The Company also uses AFFO per share as a performance measure. This measure is a non-GAAP ratio determined by applying AFFO to the weighted average number of common shares used in the calculation of basic and diluted earnings per share.

These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective.

See Non-GAAP measures and ratios in the Company’s second quarter 2023, and Company’s 2022 Integrated Annual Report for further discussion of these metrics and reconciliations of adjusted EBITDA and AFFO to net income and net cash flows from operating activities, respectively.

Source: Company Press Release