New Jersey utility holding company GPU Inc. has sold itsnon-nuclear generating assets for $2.62 billion – 2.5 times bookvalue or $510 per kilowatt. The majority of generating assets werebought by French- and Japanese-owned Sithe Energies Inc. of NewYork City, which bought assets in New Jersey, Pennsylvania andMaryland. The deal will make Sithe the largest U.S. independentpower producer.

Sithe will pay $1.68 billion for 4,117 MW of capacity at 23plants that generate 6,972 gross MW of electricity. With the GPUassets, Sithe will have generating capacity in North America of7,777 MW, including the generating assets of Boston Edison, whichit bought in May for about $536 million. The GPU transaction isexpected to close in the second half of 1999, subject to regulatoryapproval from New Jersey, Pennsylvania and Maryland.

Noting Sithe will now become the largest independent powerproducer in the United States, William Kriegel, Sithe CEO, said,”This is a defining transaction for Sithe. It more than doubles ourNorth American generating capacity. When taken together with ouralready significant presence on the East Coast, this acquisitionmakes Sithe a principal supplier of electricity to the three majorinterconnected power pools, stretching from the Mid-Atlantic statesto Maine. We are excited to be a leading power producer in thisregion where electric restructuring is already well advanced andwhere the demand for electric power is among the highest in thenation.”

Sithe plans to develop additional capacity at selected GPUsites, potentially adding another 3,000 MW of gas-fired generationover the next several years. Of the 23 plants Sithe is acquiring,17 are in Pennsylvania, five are in New Jersey and one is inMaryland. The plants use coal (50%), oil/gas (46%) and hydro (4%).Sithe will manage and operate all 6,972 gross MW generated.

Sithe currently operates 28 power plants in the United Statesand Canada, including 16 in its target U.S. market-theNortheast-six in California, three in Idaho and one each in NorthCarolina, Colorado and Ontario. The company’s flagship station isthe 1,040 MW gas-fired Independence plant in Scriba, NY, whichopened in 1994. Sithe also has an extensive global portfolio ofprojects under operation, construction or active development.Countries involved include China, Australia, Pakistan, thePhilippines and Thailand. In total, Sithe, including its domesticprojects and the GPU acquisition, will generate more than 20,000gross MW of power when its development and expansion projects arecompleted. All new generation is to be gas-fired, a spokeswomansaid. Projects include 2,800 MW of new capacity on the BostonEdison sites Sithe recently acquired. The new generation there isto cost more than $1 billion.

In a separate deal, FirstEnergy Corp. of Akron, OH, agreed tobuy from GPU 87 MW of capacity at the Seneca Pumped-StorageHydroelectric Generating Station, near Warren, PA. FirstEnergyalready owns the remaining capacity at the 438 MW plant.FirstEnergy was the successful bidder for this capacity in anauction of GPU’s generating plants. The $43 million transaction isexpected to be completed by June 1999.

GPU is exiting the generation business to focus on expansion ofits infrastructure business. Plant sales alleviate stranded costs,allowing the company to be more competitive. Founded in 1984, Sitheis 60% owned by Vivendi, France’s largest services company, 29%owned by Marubeni Corp., a Japanese trading company, and 11% ownedby management.

Joe Fisher, Houston

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