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Citizens Power Sale Surprises Traders

Citizens Power Sale Surprises Traders

In a move that surprised power traders last week, Peabody Group sold its marketing subsidiary Citizens Power to merchant power generator Edison Mission Energy for an undisclosed amount. Citizens Power is ranked as the eighth largest power marketer in the United States, and had trades totaling 92.3 million MWh last year. Edison Mission, based in Irvine, CA, currently only trades power in the Northeast, where it operates a 650 MW power plant in Homer City, PA. That plant serves the PJM Interconnection and New York markets.

The transaction, which still needs FERC approval, is expected to be completed this summer. Citizens is expected to remain in Boston, but it will have its name changed, according to Edison Mission officials.

Power traders were surprised by the sale, noting that there were no rumors that Peabody wanted to sell its marketing subsidiary. But company officials on both sides said the sale was beneficial to both parties.

"This acquisition gives us the capabilities required to maximize our merchant power investment," said Alan Fohrer, chief executive officer of Edison Mission. The acquisition will help Edison Mission develop a 13,278 MW portfolio of U.S. generating facilities, he said.

Fohrer also noted that Edison Mission had developed a "strong generation presence" in several of what he called the "most attractive U.S. regional markets," and said these facilities now will have the market knowledge, commercial skills and logistical expertise to provide "exceptional competitive position."

Of the sale, Peabody Group Chairman and Chief Executive Officer Irl F. Engelhardt said that it had "become clear" to his company that as the markets evolved, "Citizens Power could more fully utilize its excellent power marketing and risk management expertise" by affiliating with a merchant electricity generator.

Citizens, which as the country's original power marketer had its first sale in 1995, had been beneficial for Peabody to a point, said Engelhardt, and had assisted Peabody in establishing a coal and emissions trading group, along with improving its risk management systems and customers' needs in the deregulated market.

Although terms of the sale were not revealed, Peabody's Vic Svec said his company reflected the sale with an after-tax loss of $90 million in its fourth quarter, which ended March 31. In the report, Citizens Power was left with a loss of $79.6 million in the quarter, which cut Peabody's net income to $59 million, but still put it ahead of its fiscal report of $25.1 million in 1999.

Svec noted that the Citizens Power loss included expected losses on third-party power contract restructuring transactions, where Citizens Power purchased long-term electricity supply contracts through various utilities with independent power producers. Under federal regulations, Citizens was committed to paying more for the electricity produced under these contracts than it can get for the power on the open market.

Edison Mission, an Edison International company, specializes in development, acquisition, construction management and operation of global power production facilities, and it owns nearly 23,000 MW of generating capacity. Its interests include facilities in Australia, Indonesia, Italy, New Zealand, Spain, Thailand, Turkey, the United Kingdom and the United States.

Carolyn Davis, Houston

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