NextEra Energy Unit to Buy Cedar Bay Plant and Phase Out - Analyst Blog

The primary subsidiary of Juno Beach, FL-based NextEra Energy Inc. NEE – Florida Power & Light Company (“FPL”) – has filed a petition with Florida Public Service Commission (“PSC”) requesting for the approval to acquire Cedar Bay Generating Plant in Jacksonville. In the filing, FPL proposes to take over CBAS Power Inc., the indirect owner of the power plant, from CBAS Power Holdings, LLC. The purchase price is pegged at $520.5 million.

FPL plans to obtain ownership of the 250 megawatt (“MW”) coal-fired facility only to phase the plant out of service. Since 1988, FPL had a long-term agreement to purchase power from Cedar Bay Generating Company, LP, the direct owner of the Cedar Bay plant.

After assessing the viability of running this coal-fired facility from economic and environmental perspectives, FPL has planned to reduce the plant's operations by 90% within three years from the date of ownership. The decision was taken based on the fact that this facility emits a high amount of harmful carbon gases and generates electricity at a much steeper cost than its other facilities.

This step will lead to cost containment of about $70 million and prevent an annual carbon emission of 1 million tons. It is equivalent to saving more than 100 million gallons of gasoline or converting more than 23 million radiant light bulbs to energy-efficient fluorescent lights per year.

FPL wants to fast track the process so as to gain ownership by Jul 31, 2015, and therefore uphold its commitment to its customers. The termination of the power purchase contract would eliminate fixed payments from customers that would otherwise be required for the rest of the contract life, spanning for another nine years.

For more than a decade, FPL has invested in high-efficiency natural gas projects that have allowed it to curb its foreign oil usage by 99% to 1 million barrels of oil annually from 40 million barrels in 2001.

The company is actively shifting its generation base from the less efficient fossil fuel plants to high-efficiency natural gas energy centers that roughly use one-third less fuel per megawatt-hour.

Moreover, NextEra has added roughly 2,285 MWs of renewable power to its portfolio in the last two years and has secured contracts for another 2,115 MW, which the company expects to bring online by 2016 end.

This positions the company well to achieve the state of Florida’s target for renewable energy and also meet the Environmental Protection Agency’s Clean Power Plan proposal for lowering carbon emissions.

Zacks Rank

NextEra Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the electric utility space include Abengoa Yield plc ABY, Avista Corp. AVA and Enersis S.A. ENI, all sporting a Zacks Rank #1 (Strong Buy).

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