Constellation has entered into an agreement to acquire 100% of RISEC Holdings, LLC, the owner of the Rhode Island State Energy Center, from Shell Energy North America for $715 million, expanding Constellation’s power generation portfolio in the ISO New England market.
The Rhode Island State Energy Center, or RISEC, is a 609-megawatt combined-cycle natural gas-fired generating facility located in Johnston, Rhode Island.
Following completion of the transaction, the facility is expected to become part of Constellation’s merchant generation portfolio and complement the company’s existing electricity supply and customer businesses throughout New England.
The $715 million purchase price is equivalent to approximately $580 million after expected first-year tax benefits, implying approximately $135 million of anticipated tax benefits associated with the transaction.
At the headline purchase price, Constellation is paying approximately $1.17 million per megawatt of generating capacity. Based on the approximately $580 million net purchase price after expected first-year tax benefits, the implied cost falls to roughly $952,000 per megawatt.
Constellation expects the acquisition to be immediately accretive to operating earnings and generate returns above the company’s 10% unlevered return threshold.
The company also said the transaction will not affect its ability to complete $5 billion of authorized share repurchases by the end of 2027.
That combination is significant for Constellation’s capital allocation strategy. The company is adding a sizable generating asset while maintaining its existing plans to return capital to shareholders.
RISEC has operated since 2002 and sells electricity and capacity into the competitive ISO New England wholesale power market.
The plant includes two combustion turbines and one steam turbine and can generate up to 609 megawatts of electricity.
Its combined-cycle configuration improves efficiency by capturing heat generated by the gas turbines and using it to generate additional electricity through the steam turbine.
This process allows combined-cycle plants to produce more power from the same fuel input than traditional single-cycle natural gas facilities and generally results in lower emissions per unit of electricity generated.
For Constellation, the acquisition adds flexible and dispatchable generating capacity in a region where reliability and access to dependable power resources remain important considerations.
Unlike intermittent generation sources whose output depends on weather conditions, natural gas plants can generally respond to changes in electricity demand and system conditions when sufficient fuel is available.
That flexibility can be particularly useful during periods of peak demand, extreme weather or lower output from other generating resources.
The Rhode Island State Energy Center also benefits from its location within the New England power market and its positioning relative to both the electric grid and natural gas pipeline infrastructure.
Constellation identified those characteristics as important to the strategic rationale for the transaction.
The company has an existing customer business in New England, and adding local generation provides another physical asset that can support its broader market activities in the region.
RISEC’s participation in ISO New England means the facility can generate revenue through both energy sales and capacity payments.
Energy markets compensate generators for electricity delivered into the wholesale market, while capacity markets provide payments to resources that commit to being available to meet future system reliability requirements.
That combination can provide multiple sources of revenue for generation assets.
The acquisition also adds an established operating facility rather than requiring Constellation to develop a new power plant from the ground up.
RISEC has more than two decades of operating history, which gives Constellation an existing asset with established grid connections and operating infrastructure.
The facility’s existing position within the regional market may also reduce development and construction risks compared with building new generation.
For Shell, the transaction represents the sale of a U.S. power generation asset through its Shell Energy North America subsidiary.
RISEC will continue to operate under its current ownership until the transaction closes.
The acquisition remains subject to customary regulatory approvals and other closing conditions.
No specific closing date was disclosed.
The deal adds another significant generation asset to Constellation’s portfolio as the company continues balancing investment in power generation with shareholder returns.
The immediate earnings accretion expected from RISEC is particularly notable because the company expects the asset to exceed its 10% unlevered return threshold while leaving its share repurchase program intact.
The approximately $135 million difference between the $715 million headline purchase price and the $580 million net cost after expected first-year tax benefits further improves the effective economics of the acquisition.
The transaction could also give Constellation additional flexibility in managing its New England customer and generation positions.
Owning generating capacity within the same regional market where the company serves customers can provide a natural operational complement, although the facility itself will participate in the competitive wholesale market.
New England’s power system has historically faced unique challenges related to winter fuel availability, pipeline constraints and seasonal swings in electricity demand.
A generating facility with access to the region’s natural gas infrastructure can therefore play an important role in supporting grid reliability.
Constellation specifically described RISEC as well-positioned on both the electric grid and natural gas pipeline system.
The facility’s combined-cycle design also makes it more efficient than traditional simple-cycle gas-fired generation.
Combined-cycle plants use waste heat from gas turbines to produce steam and generate additional electricity, increasing total energy output without requiring a proportional increase in fuel consumption.
For Constellation, those operating characteristics make RISEC a complementary addition to a generation portfolio that spans a variety of power-producing assets.
The company’s strategy increasingly centers on supplying reliable electricity as demand rises from traditional customers as well as data centers, artificial intelligence infrastructure and other large electricity users.
Although the company did not connect the RISEC transaction to any specific customer contract or demand source, the acquisition provides additional dispatchable generation in one of the country’s major competitive power markets.
RISEC’s 609 megawatts could theoretically supply electricity equivalent to the needs of hundreds of thousands of homes, depending on usage levels and plant operations.
More importantly for Constellation, the facility provides an operating asset capable of responding when the regional grid requires additional generation.
The acquisition comes as power assets have become strategically more important due to rising electricity demand and increasing attention to grid reliability.
Existing generating facilities with established transmission connections can be especially valuable because developing new large-scale generation often requires lengthy permitting, construction and interconnection processes.
RISEC already has the infrastructure and operating history necessary to participate in the ISO New England market.
Following closing, Constellation will also gain the team responsible for operating the facility.
The company said it plans to work with RISEC employees to build on the plant’s existing operating record.
Day Pitney served as lead transaction counsel to Constellation.
Overall, the $715 million acquisition adds 609 megawatts of dispatchable combined-cycle natural gas generation to Constellation’s New England portfolio at an effective cost of approximately $580 million after anticipated first-year tax benefits.
The company expects the transaction to be immediately accretive to operating earnings, generate returns above its 10% unlevered hurdle rate and preserve its ability to execute $5 billion of authorized share repurchases through the end of 2027.
KEY QUOTES:
“The Rhode Island State Energy Center is a high-performing asset that perfectly complements Constellation’s extraordinarily successful customer business in New England. As Constellation’s business in New England grows, we need a reliable asset that is well-positioned on both the electric grid and the natural gas pipeline system. RISEC checks all of these boxes and will be immediately accretive to Constellation’s business plan. We look forward to closing the transaction and to begin working with the fantastic team at RISEC to build on the plant’s strong operating record as we power families and businesses across New England.”
Joe Dominguez, Chairman, President and Chief Executive Officer of Constellation
