Highstar in first deal from fourth fund

The New York-based infrastructure private equity firm has agreed to acquire two gas power plants in Arizona from LS Power for an undisclosed sum.

Highstar Capital has agreed to acquire two natural gas power plants in Arizona from electricity generation and transmission company LS Power, the New York-based infrastructure private equity firm said in a statement. 

No financial details for the transaction were disclosed. However, the investment comes from Highstar’s Fund IV, according to a market source, marking the first investment from that fund. The fund is targeting $3.5 billion and held a first close on $750 million last fall, Infrastructure Investor previously reported.

The two plants, called Griffith and Arlington Valley, together generate about 1150 megawatts of power, Highstar said in its statement. Griffith is located in Western Arizona near the California border, while Arlington Valley is in the center of the state, near Phoenix, the state capital. LS Power bought them from Dynegy, another power company, in December 2009.

The two plants' existing contracts run for periods of up to nine years, according to John Van Benschoten, principal at Highstar, who declined to discuss any aspect of the firm's fundraising.

“We feel like the desert southwest and the adjacent power market in California are kind of at a low point,” Van Benschoten said, adding that the plants' “medium-term” energy contracts allow “some flexibility to wait for the fundamentals come back”.

The plants also have transmission rights to two major southwest electricity hubs, according to Van Benschoten.

“Those hubs are actually pricing points to the southern California energy market, so we feel like the transmission connectivity of the plants to those locations provides a fair bit of flexibility to where we sell power to,” he said.

Highstar has made previous investments in power producers InterGen and Northern Star Generation, as well as investments in the US ports sector.  The firm has invested $5.5 billion in infrastructure assets to date, according to its website.