Energy Investors Funds Group (EIF), a private equity fund manager that makes investments in utility, energy, and environmental projects, acquired Black River Energy LP and its assets, which include two U.S.-based power generation plants. Specific details were not disclosed, but the all-equity deal did fit within the firm’s typical investment range of $15 million to $50 million, said Terence Darby, a managing partner with Energy Investors Funds.
Capital for the deal came from the firm’s U.S. Power Fund LP, which closed in December 2003 with $250 million of limited partner commitments. The fund has already invested $168 million of its capital in the acquisition of eight power generation and transmission assets-including Black River Generation and Hamakua Energy Partners-the two power generation plants acquired in this deal. Energy Investors secured Black River at auction from a bankruptcy proceeding in April. The firm won a bidding battle against four other potential buyers.
“The independent power business has been through some troubled times, and to get back on their feet, a lot of them are selling assets to get their debt levels down and ratings up,” Darby said. He added that the risks some generation companies take to boost earnings have gotten them into financial trouble. The companies then find themselves in a situation that makes being bought out an attractive option.
In its oversimplified form, Darby said that independent power generation companies can be classified into two separate groups: plants with contracted assets and plants with merchant assets. Plants with contracted assets have contracts with power distribution companies and therefore operate with a lower risk profile. Merchant asset generation companies operate without term contracts have a higher risk profile.
“A lot of the big [energy] producers got involved in the merchant market, without contracts, and that proved to be a higher risk than they anticipated. Their revenue became highly volatile and they still had to service their debt. Therein lays the problem,” Darby said.
Black River Power, based in Watertown, N.Y., is a 50-megawatt coal fluidized plant that sells power to Select Energy, Inc. under a power sales contract and purchase agreement.
Hamakua Energy Partners, located in Honakaa on the Big Island of Hawaii, is a 60-megawatt naphtha-powered plant. The plant has been in commercial operation since 2000 and sells power to the Hawaiian Electric Light Co. under a power sales contract and purchase agreement.
Other investments made from EIF’s U.S. Power Fund LP include Blackhawk Power Station, Crockett Cogeneration, Linden Generating Station and SCS Energy Astoria.
Limited partners with commitments in the fund include endowments and foundations, pension plans, fund-of-funds, wealthy individuals, banks, insurance companies and utilities.
Energy Investors Funds Group was founded in 1987 and currently manages six funds.