TransCanada Bought a Plant Only to Sell It Six Weeks Later

  • Ironwood unit back on sale to fund $10.2 billion pipeline deal
  • TransCanada plans to mostly exit U.S. merchant power business

Six weeks ago, TransCanada Corp. closed a deal to buy a power plant in Pennsylvania.

On Thursday, the company put it back up for sale.

The 704-megawatt Ironwood natural gas-fired power complex that TransCanada bought for $657 million from Talen Energy Corp. is back on the block as the company looks for ways to finance another acquisition worth 15 times more, the company said Thursday. In fact, the company’s putting a whole set of U.S. Northeast power assets up for sale to help pay for its $10.2 billion purchase of Columbia Pipeline Group Inc., announced the same day. It’ll also divest a stake in its Mexico gas business.

Ravenswood Power Plant
Ravenswood Power Plant
Photographer: Jim Polson/Bloomberg

TransCanada’s turnaround highlights the winners and losers of America’s shale gas boom. A U.S.-wide glut of the fuel is hurting merchant power generators by dragging down wholesale electricity prices while giving so-called midstream operators a reason to build more pipelines.

Removing Power

“This will remove the majority of merchant power from our portfolio,” Don Marchand, TransCanada’s chief financial officer, said Thursday on a conference call to discuss the Columbia acquisition, referring to plants that rely on wholesale electricity markets for their profits. “Advisers have been engaged and this process is under way.”

In addition to Ironwood, TransCanada plans to sell its Ravenswood gas- and oil-fired generation plant in New York, hydroelectric power assets in New England, the Kibby wind power operation in Maine and Ocean State Power gas generation facilities in Rhode Island, Marchand said. Big Allis, as Ravenswood is known to New Yorkers who can best see its stacks along the East River from the Queensboro Bridge, was purchased by TransCanada in 2008 for $2.9 billion.

The assets are coming available as the market for power deals is heating up, said Jeff Bodington, president of boutique investment banking firm Bodington & Co., which focuses exclusively on the North American power market. Private equity buyers may be more willing to see an upside in the depressed merchant market than publicly traded power companies whose investors are afraid of taking on generators selling into wholesale markets, he said.

“The number of people willing to take the risk on merchant plants is a lot smaller and the risks involved today are very high because natural gas is so cheap and power prices are very low,” Bodington said in a phone interview on Friday. “This is an asset class with a very steep learning curve and those who climb that curve can earn extraordinary returns and that’s why private equity is here.”

In a statement Thursday, TransCanada president and chief executive officer Russ Girling praised the deal to take over Columbia Pipeline as “a rare opportunity.” He was the same executive who, just months earlier, called the Ironwood buy “a unique opportunity.”

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