Xcel selling Mankato gas plant for $30M more than it paid 3 months ago

Xcel Energy will sell a large gas-fired power plant in Mankato for $680 million, less than three months after the company bought it for $650 million.

Xcel announced Monday that it would sell Mankato Energy Center to Denver-based Southwest Generation. Xcel had purchased the plant in January from Southern Power after a contentious proceeding before Minnesota public-utility regulators.

Proceeds from the sale will be used primarily to reduce Xcel Energy's overall financing needs and improve the company's "credit metrics," Xcel said in a statement.

As for the $30 million gain on the sale, Xcel said it would spend more than two-thirds of it on corporate giving and COVID-19 relief efforts in the eight states in which it operates.

Southwest Generation made an offer on the Mankato plant later in the first quarter, after the deal had closed with Southern, according to Xcel.

The 760-megawatt power plant in Mankato, the largest natural gas facility in Xcel's fleet, will continue providing electricity to Xcel through long-term contracts.

Minneapolis-based Xcel, the state's largest electricity provider, announced in late 2018 that it would buy the Mankato Energy Center from Atlanta-based Southern Power. Xcel planned to incorporate the plant into its rate base.

But the Minnesota Public Utilities Commission (PUC) rejected the transaction in September, saying it wasn't in the interest of Xcel's ratepayers.

Xcel decided to buy the plant anyway through an unregulated subsidiary, meaning shareholders would shoulder risks and get any benefits — not ratepayers. The PUC approved that deal on Jan. 16.

The Mankato Energy Center consists of two gas-fired generators. The first was built in 2006 by independent power operator Calpine, which sold out to Southern Power in October 2016. Southern fired up the second generator last year.

Xcel had power-purchase agreements with Southern for the two generators through 2026 and 2039. Those agreements carried over to Xcel's unregulated subsidiary and now will be taken up by Southwestern Generation, a privately held company

Current employees are expected to continue working at the Mankato plant, Xcel said. The sale isn't expected to have a material impact on Xcel's short- or long-term earnings, the company said.

Xcel said it's still working out details on how it will use sale proceeds to fund COVID-19 relief efforts.

"This is an unprecedented time, and we want to do our part to support our communities as we face the challenges brought on by the COVID-19 pandemic," Ben Fowke, Xcel's CEO, said in a statement.

Travis Miller, a utilities analyst for Morningstar, said the Mankato Energy Center sale "fortifies" Xcel's balance sheet. "We didn't see any stress on Xcel's balance sheet to require a move like this," he said. And Xcel and most utilities across the country are in a "very solid financial position."

Still, utilities are currently trying to take advantage of low interest rates and good credit market access to give themselves more of a liquidity cushion, Miller said.

Xcel within the past two weeks notified federal-securities regulators of an upcoming and previously planned $600 million bond issue, as well as a new $700 million 364-day term loan with U.S. Bank to increase its liquidity because of the coronavirus outbreak.

The company also told regulators that as of March 27, the COVID-19 crisis had "no material impact" on its business.

Utilities across the country are expected to see revenue declines due to the coronavirus economic contraction. "I expect the commercial and industrial [electricity sales] numbers will not be pretty," Miller said.

He noted that Xcel's Southwestern Public Service Co. subsidiary, which serves Texas and New Mexico, is exposed to the oil and gas industry, which has been clobbered.

On the bright side, utility residential power sales have risen as more people are working from home, Miller said. Residential sales have a higher profit margin, he added.

Mike Hughlett • 612-673-7003