In an effort to smooth the way for FERC approval of its mergerwith MidAmerican, CalEnergy sold a 50% stake in power generationsubsidiary CE Generation LLC to El Paso Energy last week for $259.6million, including $236.1 million in cash and $23.5 million in debtand other payments. CE Generation is the holding company for 14U.S. power plants with capacity to produce 896 MW of electricity.

The transaction nearly triple’s El Paso’s power generationcapacity, which currently stands at about 300 MW (El Paso hasanother 1,700 MW of gas-fired power plants planned for constructionin New England after 2000). The CE purchase also is expected tocontribute 10 cents/share in earnings for El Paso in 1999, aspokeswoman said. El Paso earnings were $1.85/share in 1998 up from$1.59 in 1997. The current Wall Street forecast on El Paso is for12% earnings-per-share growth in 1999 and 2000 to $2.07/share and$2.32, respectively.

The CE Generation power plants include 10 geothermal plants (twounder construction) near the Imperial Valley in Southern Californiaand four natural gas-fired cogeneration projects in New York,Pennsylvania, Texas and Arizona.

The transaction is designed to enable CalEnergy to comply withFERC’s Dec. 17, 1998 ruling to ensure that power plants that arePURPA qualifying facilities (QFs) maintain their status as QFsfollowing a merger.

Prior to closing, CalEnergy also expects to receive $395 millionin net proceeds from a $400 million debt issuance by CE Generation.

Rocco Canonica

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