Questions arise about private equity’s involvement in the purchase of the Gavin coal-fired power plant

Dennis Wamsted and Seth Feaster of the Institute for Energy Economics and Financial Analysis recently wrote a commentary on Energy Capital Partners’ (ECP) deal to acquire the General James M. Gavin coal-fired power plant in Ohio. The 2,709 MW Gavin Power Plant is considered the fifth largest carbon dioxide emitting power plant in the United States. ECP has said it is investing in the U.S. energy transition, raising questions about its interest in a coal-fired power plant. Wamsted and Feaster’s article is reprinted here with permission. Click here to read the original comment on the IEEFA website.

Key findings

• A new private equity firm is poised to take over the highly polluting Gavin coal-fired power plant in Ohio.
• The plant is being acquired by a private equity firm that says it is “a leading investor in the energy transition.”
• The purchase by Energy Capital Partners (ECP) is part of a package deal and three gas-fired power plants acquired by the private equity firm will be managed separately.
• However, Gavin’s takeover means that some ECP-affiliated public, union and corporate pension funds may own some of the largest privately held carbon dioxide (CO).₂) Issuer in the USA

Energy Capital Partners (ECP), a private equity firm with approximately $20 billion in assets under management, is expected to become the next owner of the 2,709 megawatt (MW) General JM Gavin coal-fired power plant.

The fifth largest carbon dioxide (CO₂) emitting power plant in the United States, the Ohio plant released more than 100 million tons of CO₂ in the seven years since American Electric Power sold it in 2017 to a partnership called Lightstone, founded by ArcLight Capital and Blackstone, two large private equity firms.

Gavin is one of only five power plants in the U.S. to have achieved this total diluted emissions output over this seven-year period, a level of unfortunate consistency that makes it one of the ten dirtiest coal-fired power plants in the U.S. each year, with an average CO2 -Emissions of 14.62 million tons₂ emissions per year. (A calculator developed by the Environmental Protection Agency shows that 3.1 million cars would have to be driven for an entire year to produce a similar amount of CO₂.)

Headquartered in Summit, New Jersey, ECP was founded in 2005 by former Goldman Sachs partner Doug Kimmelman and has five major infrastructure funds invested by 111 limited partners (LPs).

If the sale closes, the investment managers of these LPs, which include public, union and corporate pension funds worldwide, should take a close look at their holdings, as they could end up owning a portion of the largest privately held CO₂ Issuer in the United States.

Financial details of the transaction are not yet public, but the companies must file certain information with the Federal Energy Regulatory Commission (FERC) in order to sell electricity in U.S. power markets. The information in this note comes from this submission and previous IEEFA research.

According to ECP’s FERC filing, the Lightstone assets will be divided into two entities. One will control Lightstone’s three gas-fired power plants: Lawrenceburg, a 1,190-MW combined cycle plant in Indiana; Waterford, an 875 MW combined cycle power plant in Ohio; and Darby, a 480 MW facility consisting of six 80 MW gas turbines, also in Ohio. These three assets will be purchased entirely by ECP and its investment funds and placed under the control of a company called Airborne Gas Purchaser LLC. Moody’s has previously cited the strong operating performance of these gas units as a key reason for rating Lightstone’s debt at B2.

Gavin and his carbon emissions are managed separately, suggesting ECP knows they are a problem, and are placed under the control of General Coal Purchaser LLC. That company will initially be 100 percent controlled by ECP, but the company says it may sell up to 40 percent of the Gavin plant to another company, Javelin Global Commodities. While Moody’s praised the gas plants’ strong performance, it highlighted the “ongoing environmental risks facing the nearly 50-year-old Gavin plant” in its most recent analysis (released before ECP’s purchase).

Javelin was founded nine years ago by two former Goldman Sachs traders, Peter Bradley and Spencer Sloan. According to Bloomberg, Javelin is now the largest coal exporter in the United States. The Gavin purchase would be ECP’s first foray into the power generation sector, according to the FERC filing.

Given his business focus, Javelin likely wouldn’t have any issues with his potential investment in Gavin. Things might be different for ECP, as its website describes it as a “leading investor in the energy transition, specializing in electricity and sustainable infrastructure.”

The company, which owns Calpine, a large independent power producer that operates primarily gas-fired power plants and invests in solar and battery storage, notes elsewhere that it is “at the forefront of the energy transition.”

There is nothing sustainable or transitional about Gavin. If ECP wants to be a leader in the ongoing electricity transition, it should announce plans to close its new coal-fired power plant. Otherwise, it’s just another investor who wants to make a dollar while passing on the costs of his climate-damaging CO2 emissions to the public.

– This comment was reprinted with permission from Institute for Energy Economics and Financial Analysis. Click here to read the original comment on the IEEFA website.