Blackstone buys three US power plants from Direct Energy

Global private equity firm Blackstone Group LP will buy three Texas power stations from Direct Energy Power Holdings Inc, the North American subsidiary of British utility giant Centrica Plc for $685 million (£420 million) in an all-cash deal.

The three gas-fired power plants being sold have a combined capacity of almost 1,300 megawatts (MW), representing about 2 per cent of the state's capacity. They are the 540 MW Bastrop, 495 MW Frontera (Mission) and 260 MW Paris power stations.

London-based Centrica's principal activity is the supply of electricity and gas to businesses and consumers in the UK and North America. With power prices near their historic lows, the utility major is getting out of the power generation business in the state.

As part of the deal, Direct Energy has also entered into a three-year call option arrangement for an equivalent amount of capacity with Blackstone.

Direct Energy's president and CEO Badar Khan says, ''This transaction allows us to realise value from our gas-fired fleet, while ensuring stability of price and supply in the Texas power market through the call option arrangement.''

''Residential retail supply is key to our North American business, and with sufficient generation capacity in Texas, we can support our downstream business through contractual arrangements, rather than asset ownership,'' he added.

Centrica said it will return the proceeds from this sale to shareholders through a £420 million extension of its share repurchase programme, which will be conducted over the course of 2014.

Just a day before, Centrica said that it purchased 1.1 million Centrica ordinary shares at an average price of 323.59 pence per share and said that the purchased shares will be held as treasury shares.

As of date, the company holds 114.9 million shares in treasury and has about 5.085 billion ordinary shares in issue.

The transaction is expected to close in the first quarter of 2014 subject to customary regulatory approvals.

Blackstone has been interested in the power industry ever since it raised $2.5 billion last year for its first fund dedicated to investments in the energy sector.

Recently, the group made an attempt to acquire an Irish gas supplier Bord Gais Energy, but lost to Centrica which came out as the preferred bidder with its $1.53 billion offer.

Centrica had bought the Bastrop power plant for $143 million from El Paso Corp and FPL Energy LLC, and Frontera power station for $134 million from TECO Energy in 2004. Two years later, it further added the Paris power plant to its energy portfolio from Tenaska III Texas Partners for $195 million, anticipating the boom in the power market.

With power prices now at less than half what they where five years ago, state regulators are considering various steps to help the industry  including restructuring the power market to pay plants not just for the electricity they sell but their total capacity.