Canada-based energy infrastructure company AltaGas Ltd. (ALA.TO, ALA-PA.TO, ALA-PU.TO) said Monday that it has agreed to buy Blythe Energy LLC, the owner of a natural gas-fired plant in California, from LS Power Equity Advisors, LLC for $515 million. The company expects the acquisition, which will expand its U.S. power business, to close in the second quarter of 2013.
Under the deal, AltaGas' indirect wholly owned subsidiary AltaGas Power Holdings (U.S.) Inc. will acquire Blythe Energy, which owns a 507 MW natural gas-fired combined cycle plant, associated major spare parts, and a related 230 kV 67-mile electric transmission line in Southern California.
The facility is directly connected to Southern California Gas, and interconnects with Southern California Edison or SCE and the California Independent System Operator or CAISO via the 67-mile transmission line. AltaGas noted that the transmission line is capable of transmitting 1,100 MW and has excess capacity to meet future load growth.
David Cornhill, Chairman and CEO of AltaGas said, "The power purchase agreement provides stable earnings and cash flow and with the infrastructure in place today, the facility is well positioned to access two premium power markets in California and Arizona in the future. The addition of natural gas-fired power generation to our energy infrastructure portfolio in the U.S. provides another platform for growth to meet the increasing demand for clean sources of energy."
AltaGas expects the acquisition to be accretive to earnings and cash flow per share in 2014, the first full year of ownership, and to add about $50 million in incremental contracted EBITDA per year.
The Blythe Energy Center is contracted under a Power Purchase Agreement or PPA through to July 2020 with SCE. AltaGas noted that upon expiry of the PPA in 2020, the unit is well positioned to contract with other market participants due to its location and ability to serve both the CAISO and Desert Southwest markets.
The facility is also interconnected with the El Paso Natural Gas system and is situated to re-connect to the Western Area Power Administration or WAPA, providing option for market access upon expiry of the PPA in 2020.
The Blythe Energy Center is operated pursuant to an operating and maintenance agreement with NextEra Energy Operating Services Inc. The initial term of this agreement expires in November 2016. NextEra Energy Resources constructed and placed into service the Blythe Energy Center in 2003.
In connection with the acquisition, AltaGas entered into an agreement with a syndicate of underwriters, co-led by TD Securities Inc. and RBC Capital Markets as joint bookrunners.
Under the deal, the underwriters will purchase 10.10 million common shares from AltaGas and sell it to the public at $34.90 per share. The sale of the common shares is expected to result in gross proceeds of about $352 million, or about $405 million if the over-allotment option is exercised in full.
AltaGas expects cash for the acquisition to be provided from a combination of equity and debt. This includes a portion of the proceeds of the offering, the company's existing credit facilities, future debt and preferred share financings, and a commitment for a new $300 million senior unsecured revolving credit facility from the Toronto-Dominion Bank and the Royal Bank of Canada.
ALA.TO closed Friday's trading at $36.04, down $0.51 or 1.40 percent on a volume of 214,700 shares.
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