Dive Brief:

• The Louisiana Public Service Commission on Wednesday approved the acquisition of NRG Energy’s South Central Business by regulated utility Cleco Corp., the final regulatory approval needed to close the transaction.

• The transaction will see Cleco acquire more than 3.5 GW of fossil fuel generation in a new unregulated subsidiary. The Sierra Club supported the deal, saying the utility agreed to reduce operations at 1,200 MW of coal-fired generation, including a commitment to stop burning coal at one plant by 2025.

• Consumer advocates opposed the acquisition and worry Cleco will move the aging plants into its regulated utility, where their costs would be covered by ratepayers. "Cleco … has been open about its plans to shift the costs of these plants from a merchant company over to Cleco Power’s retail customers," the Alliance for Affordable Energy (AAE) said in a statement.

Dive Insight:

The split between the Sierra Club and AAE in the Cleco plant acquisition proceeding illustrates the occasional tension between environmental groups and consumer advocates when renewable energy commitments from monopoly utilities are on the table.

Announced in February, the plant acquisition will see Cleco acquire 3,555 MW of coal and gas generation, including the:

• 430 MW Big Cajun-I and 1,461 MW Big Cajun-II coal plants
• 1,263 MW Cottonwood gas plant
• 176 MW Sterlington gas plant
• 225 MW Bayou Cove gas plant

As part of negotiations with stakeholders, Cleco agreed to stop burning coal at the 580 MW Unit 1 of the Big Cajun II plant by 2025 and immediately ramp down the 721 MW Dolet Hills plant, which it already owns, to run only in the summer months.

The utility will also add 200 MW of renewable energy in Louisiana, with a goal of 30% renewables fleet-wide.

AAE welcomed the coal and renewable energy commitments but remained opposed to the deal because of Cleco's stated intention to sell the plants to its regulated utility. That, they said, could shoulder ratepayers with the costs of the plants, particularly coal ash liabilities at the Big Cajun II plant.

"Cleco has said this is phase one of a two-phase plant acquisition," said Michael Soules, an attorney for Earthjustice that represented AAE in the proceeding. "They want to integrate the merchant fleet with their [regulated] generating fleet."

AAE's post-hearing briefs on the deal detail some of Cleco's plans, but critical details on the timing of the Phase II proposal are redacted. The plants currently provide power to Louisiana power cooperatives and municipal utilities.

"Under Phase II, which Cleco has told [redacted] would occur in [redacted], the Applicants would seek to transfer the co-op contracts and NRG generating plants to Cleco Power," the regulated utility, AAE wrote in a Jan. 2 filing.

Though Cleco has downplayed a Phase II proceeding in recent filings, Soules said the acquisition of the generation — much of which Cleco expects to be uneconomic — will put pressure on the company to move the plants to cost recovery.

"Once you get the stuff on the balance sheet in the overall corporate family, just to keep Cleco Power viable, the commission could be under pressure to approve a rate-basing scheme," he said.

Cleco did not respond to requests for comment on the deal or Phase II application. The Sierra Club said it signed on to support the deal because any proposal to sell the plants into cost recovery would need to pass through the Louisiana Public Service Commission again.

"There are all kinds of further opportunities to intervene and to keep the conversation going," Cherelle Blazer, a senior organizer with Sierra Club's Beyond Coal Campaign, told Utility Dive. "It was our choice not to leave environmental wins on the table when we could get them."

Cleco currently owns 3.1 GW of regulated power plants in Louisiana, meaning the transaction more than doubled the capacity its holding company operates. Blazer said that has already opened opportunities to reduce coal usage at the least efficient plants.

"That's the only reason why we're talking about Dolet Hills or Big Cajun right now," she said.

Any attempt to sell the merchant generation into cost recovery would likely face scrutiny for potential affiliate abuse on the state and federal level, said Josh Smith, a senior staff attorney at Sierra Club. FERC last year rejected a similar attempt from FirstEnergy to sell an uneconomic Ohio coal plant to it subsidiary in West Virginia.

"If and when Phase II comes about there will be a full opportunity for stakeholders to dig into if there are affiliate abuse issues, if the utility even needs the generation, and if not is there an opportunity to optimize?" Smith said.

Smith said Cleco is "playing it close to the vest" with details on Phase II, but predicted it could come when the utility needs to renegotiate its new plants' contracts with co-ops and municipal utilities.

"Many of the wholesale contracts they bought from NRG expire at various dates," he said. "They are going to want to renew those contracts, so once they have at least a majority of those contracts reviewed … at that point, they’ll probably put an application together for Phase II. It might be next year, it could be another five years, it could be never."