NRG Energy sees the (green) light, buys Bluewater Wind

nrg-energy-sees-the-green-light-buys-bluewater-windNRG Energy (NRG) a $3 billion company with 24,000 megawatts of coal, natural gas, nuclear and solar power plants in its portfolio, has acquired Bluewater Wind, based in Hoboken, N.J., for cash on hand. The deal, announced in a press conference last Monday with Drew Murphy, NRG's Northeast regional president and Bluewater Wind President and CEO Peter Mandelstam, marks the end of a long, strange saga. The two companies, once rivals, engaged in a bitter competition to provide energy to Delaware. Now they will operate in conjunction under NRG's large, well-financed roof.

The background to the acquisition provides a study in the power that some investor-owned utilities have had to block the entrance of renewable energy into electricity markets -- and in how that is rapidly changing.

In 2006, electricity prices in Delaware skyrocketed by 90% when artificial price caps expired. Rate-payers were outraged and pressured the state assembly to address the problem. A new bill gave the state's Public Service Commission the authority to solicit proposals from companies to build new electrical power plants in Delaware. Three companies submitted bids.

One of them was NRG Energy, which sought to build a new coal-fired power plant. NRG also owned the Indian River power plant in Delaware, which was extremely unpopular because it was old, dirty and had been implicated in a cluster of cancer outbreaks within the state.

Another company, Conectiv Energy, submitted a bid to build a natural gas power plant. Conectiv, an energy-generating company, was owned by Pepco Holdings (POM), which also happens to own Delmarva Power, the utility in Delaware that would be purchasing electricity from the winning bidder.

That's right: The utility, Delmarva Power, which would be awarding the contracts, had its sister company, Conectiv, competing in the bidding process.

Win for Wind Led to Power Struggle

Many observers, such as Tom Noyes, a financial adviser and local activist who had been covering the emerging story, pointed out the conflict of interest, barely veiled by a Chinese wall. Truth is, the two sister companies had long enjoyed a cozy relationship.

In 2006, for instance, Delmarva Power awarded its sister company contracts to supply 56% of Delmarva Power's load -- contracts worth hundreds of millions of dollars, according to testimony by Jeremy Firestone, associate professor of marine policy at the University of Delaware.

And so, when Delaware's Public Service Commission surprised everyone and chose Bluewater Wind's proposal to build an offshore wind farm over NRG's coal-fired plant and Conectiv's natural gas plant, all hell broke loose.

A pitched battle ensued, with Delmarva Power digging in its heals and fighting the PSC's choice, spending millions of dollars to battle Bluewater -- even though almost everyone in the state loved the idea of an offshore wind farm. Eventually, Bluewater Wind prevailed, and Delmarva became the first utility in North America to sign a power purchase agreement with an offshore wind farm company. It agreed to buy electricity from Bluewater at 10 cents a kilowatt hour for the next 25 years.

From Adversaries to Allies

Now, it seems the Great Delaware Energy Battle, which I reported on for The New York Times Magazine, seems to have turned some heads at NRG, casting Bluewater in a favorable light.

"Being adversaries, being on opposite sides of the table, you sometimes form great partnerships," NRG's Drew Murphy told radio host Allan Loudell on Delaware's WDEL/1150 AM last week. NRG has been moving to diversify its portfolio by investing in green or energy efficient power sources, acquiring Padoma Windpower in 2006 and moving towards solar thermal power in Southern California and New Mexico.

Its Repowering NRG program, launched in 2007, seeks to transform 10,000 megawatts from its current portfolio into new, efficient and/or green energy. The company has also pledged to close two of its oldest coal-fired plants in Delaware, which have been rated among the 50 dirtiest plants in the country, and to invest $500 million in pollution controls on its newer coal-fired units in Delaware.

NRG was, moreover, among a handful of energy companies, including Exelon (EXC), FPL Group (FPL) and PG&E (PCG), to sign a letter in support of the Lieberman-Warner climate and energy bill, which died in the Senate in 2008.

"We were already familiar with their business," Murphy said of the acquisition of Bluewater, "and they were interested in getting together with us."

A Win-Win for Everyone

Indeed, as Aaron Nathans reported this month in The News Journal, Delaware's largest daily newspaper, Bluewater Wind was in dire financial shape after its parent company, Babcock & Brown, began crumbling under its debt and the effects of the global financial crisis. In July, Bluewater missed a deadline to supply Delmarva power with a letter of credit for the construction of the wind farm, but Delmarva Power agreed to extend the deadline in order to save the offshore project. Then along came NRG, which brought the deep pockets that will enable the construction of nearly 80 turbines 14 miles off the Delaware coast, a project that is expected to cost more than $1 billion dollars.

"What Bluewater has seen," said company President Peter Mandelstam last week, "is a company in NRG that is committed to mitigating climate change and is de-carbonizing its fleet. NRG has committed not just as an expression but in actual dollars, and those commitments were made today."

It's a win-win situation for everyone, it seems. Bluewater has its eye on the coast of New Jersey as well, having installed a meteorological tower to get accurate readings of the wind resources there. A recent study from the University of Delaware suggests that the wind resources off the entire mid-Atlantic coast are more than 330,000 megawatts, so NRG's acquisition of Bluewater can be seen as a first-mover strategy to take advantage of a resource that does not have the kind of transmission problems that land-based wind farms have had, according to Murphy. And then, of course, there is that signed power purchase agreement, probably Bluewater's most valuable asset.

"NRG [is] buying a power purchase agreement that provides 25 years of revenue, which is hard to do in any business," as Tom Noyes explains. "And Delmarva Power is buying 25 years of power at a set price, which is almost impossible to do in the energy business."

Mark Svenvold, author of Big Weather: Chasing Tornadoes in the Heart of America, teaches at Seton Hall University in South Orange, N.J.

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