Kate Thomas
OGJ Online
Southern Energy Inc., Atlanta, said Thursday it will acquire power plants with electric generating capacity totaling 5,154 Mw and other assets from Potomac Electric Power Co. for $2.65 billion, bringing Southern Energy's total generating capacity to some15,000 Mw and giving the company entre into the energy-hungry US Northeast.
Southern Energy, a unit of Southern Co., was selected after a bid process initiated by PEPCO Washington, DC, in January. The sale will largely complete PEPCO's planned exit from the electric generation business to concentrate on electricity distribution in deregulated energy markets, telecommunications, and other products. The acquisition is expected to close later this year, pending regulatory approvals.
"This sale is beneficial to both our customers and shareholders," said John M. Derrick, Jr., PEPCO chairman and chief executive officer. "This transaction will provide what the parties to the settlements hoped it would. Customers' share of the proceeds will lower their electricity bills, and they will not have to pay any stranded costs," he added.
The transaction comes at a time Southern Co. is preparing to sell 19% of Southern Energy Co. to the public in an initial public offering, with the balance of the shares to be spun off to Southern Co. holders within 12 months of the IPO.
Southern Co. chairman and CEO Bill Dahlberg has said the proposed transaction will give the investment community the opportunity to assign a more appropriate value to the regulated utility and Southern Energy, its global unregulated energy and marketing subsidiary, with operations in 13 countries on five continents.
Southern Co. Energy Marketing, the marketing arm of Southern Energy, sold 219.4 million Mw-hr in 1999 and 5.4 bcf/day, making it one of the nation's top gas and power marketers. Southern Co. Energy Marketing is jointly owned by Southern Energy and BP Amoco PLC unit Vastar Resources Inc.
Market observers expect an independent Southern Energy to generate better returns and puts the company on a similar standing with firms such Enron Corp. and Dynegy Inc. in a deregulating energy market.
What's involved
The PEPCO transaction involves four power plants: the 837-Mw Dickerson Station, fueled by coal, oil, and natural gas, in Montgomery County, Md.; the 2,423-Mw Chalk Point Station, fueled by coal, oil, and natural gas, in Prince George's County, Md.; the 1,412-Mw Morgantown Station, fueled by coal and oil, in Charles County, Md.; and the 482-MwPotomac River Station, fueled by coal, in Alexandria, Va.
Southern Energy also will acquire the Piney Point Oil Pipeline, a 51.5-mile pipeline serving the Maryland power plants, PEPCO's rights and obligations to the 84-Mw Southern Maryland Electric Cooperative combustion turbine, and an engineering and maintenance service facility. Southern Energy also will assume some of PEPCO's power purchase and delivery agreements and will operate and maintain two other PEPCO power plants, the 256-Mw Buzzard Point generation station and the 550-Mw Benning generation station. Located in Washington, DC, both are oil-fueled peaking units.
Southern Energy has agreed to sell power from the power plants back to PEPCO for up to 4 years to serve customers who do not select another electricity supplier, when customer choice becomes effective in the district Jan.1, 2000. The sale also eliminates customers' exposure to payment of "stranded costs" arising from the transition to a competitive market, PEPCO said. Under an agreement approved by the Maryland and District of Columbia public service commissions, profits from the sale will be shared with customers.
The assets commanded about $93 million more than book value. When added to the $152.5 million PEPCO will receive for the previously announced sale of its interest in the Conemaugh generating station to PPL Corp. unit PPL Global Inc. and Allegheny Energy Inc. unit Allegheny Energy Supply Co. LLC, the transaction will bring to PEPCO's sale of generation to a total of $2.8 billion, PEPCO said.
About 1,000 PEPCO employees will become Southern Energy employees, said Southern. Credit Suisse First Boston advised Southern Energy on the transaction and, in addition, has agreed to provide funds to cover the cost of the acquisition, the company said.
