Return to search

First Reserve deal sees CalPERS take second direct stake

The US energy fund manager has acquired a portfolio of four natural gas power plants from rival ArcLight Capital. The deal saw First Reserve partner with Californian pension giant CalPERS, whose investment in a power transmission business becomes its second direct infrastructure stake.

First Reserve Corporation (First Reserve) agreed at the end of last week to acquire a portfolio of four natural gas-fired power generation plants totalling 1,068 megawatts (MW) from fellow US energy investment firm ArcLight Capital.

As part of the same deal, the California Public Employees Retirement System (CalPERS), the $225 billion pension, will acquire 75 percent of the Class C shares of Neptune Regional Transmission System, a 660-megawatt High Voltage Direct Current (HVDC) transmission line connecting Sayreville in New Jersey and Hicksville in New York’s Long Island.

For CalPERS, the deal represents its second direct investment in infrastructure following its purchase of a 12.7 percent stake in London’s Gatwick Airport, which is owned by Global Infrastructure Partners, for $156 million in June 2010. The pension has announced plans to invest up to $5 billion in infrastructure over the next three years, including up to $4 billion in the US and up to $800 million in California.

In a statement, CalPERS chief investment officer Joseph Dear said: “This agreement is a good fit for our growing infrastructure program. It’s an income-generating investment with stable revenues located in the United States, very much in line with the type of investment we said we would be looking to make when we described our vision for infrastructure in September.”

First Reserve managing director Mark Florian told Infrastructure Investor that his firm had teamed with CalPERS to make a joint proposal to the seller with the idea that each of them would take the assets that they wanted. In the end, First Reserve decided to acquire four of the assets and CalPERS just a single asset. The consideration paid for the purchases was not disclosed.

The portfolio to be acquired by First Reserve comprises: Crockett Cogen Project, a 240-MW natural gas cogeneration plant in Crockett, California; Hobbs Generating Station, a 604-MW natural gas CCGT power plant in Hobbs, New Mexico; the Borger Plant, a 230-MW natural and refinery gas cogeneration plant in Borger, Texas; and Waterside Power Holdings, a 72-MW oil-fired peaker plant in Stamford, Connecticut. The portfolio will from now on be known as FREIF North American Power I. 

Florian said First Reserve would control all the assets – either 100 percent or majority control – and that they were all contracted assets with contract lives of 14 to 15 years. He added that a “very attractive” aspect of the deal was that the assets benefit from capacity payments, which means that the generator is paid for the capacity made available rather than how much of the power generated is actually used. He said this meant the assets were “not subject to wide revenue fluctuations”.

The First Reserve/CalPERS investments are expected to close in the first quarter of 2012 subject to regulatory approvals.  

First Reserve closed its debut energy infrastructure fund on $1.2 billion in May this year, and has so far made disclosed equity investments of around $400 million from the fund. The size of a couple of the firm’s investments, including this latest one, have not been disclosed.

ArcLight Capital closed its fifth fund last month on $3.3 billion, beating a $2 billion target after more than two years in the market.