Houston energy merchant Dynegy Inc., continuing its drive to acquire 10-15% of the nation�s electric generating capacity, said it will buy two power plants in the Northeast for $903 million.
The two plants consist of 1,700 Mw of multi-fueled capacity located about 50 mi north of New York City. The seller, Central Hudson Gas & Electric Corp., was required by the New York Public Service Commission to auction off its fossil fuel plants by July 2001. The other owners of the plants, Consolidated Edison Co. of New York Inc. with a 40% share and Niagara Mohawk Power Corp. a 25% share, agreed to the process.
The purchase will be positive to earnings once the purchase is completed in the first quarter of 2001, says Dynegy Chairman Chuck Watson in a statement.
Dynegy expects to benefit from the fuel diversity of the plants through its commodities trading operations. The Danskammer Power plant uses natural gas, fuel oil, or coal and the Roseton Power Plant can switch between natural gas and fuel oil or use both fuels simultaneously. The plants have access to four interstate gas transmission systems, rail and barge delivery for coal, and terminal delivery for fuel oil.
The purchase will be Dynegy's initial entry into the Northeast market, says John Sousa, spokesman. Because the plants are located on the eastern side of the New York Central transmission system, power can be delivered directly to wholesale customers in the Pennsylvania-New Jersey-Maryland (PJM) and New England Power Pool (NEPOOL) markets.
In the first year after the sale, Dynegy has agreed to sell back to Hudson 25% of the generated power. While the firm contract lasts 3 years, the percentage of power required to be sold back to Hudson declines, Sousa says. The rest of the power can be sold on the wholesale market.
The purchase price works out to be about $530,000 kwh which is below what it would cost to build new base load power plants in that market, says Jeff Dietert, analyst with Simmons & Co. in Houston. Dietert estimates that it would cost about $650,000 kwh to build a new equivalent power plant in that area if could new site plans could get approved by all the local and state government bodies.
The transaction will be financed with project and corporate debt.