In a move that surprised power traders last week, Peabody Groupsold its marketing subsidiary Citizens Power to merchant powergenerator Edison Mission Energy for an undisclosed amount. CitizensPower is ranked as the eighth largest power marketer in the UnitedStates, and had trades totaling 92.3 million MWh last year. EdisonMission, based in Irvine, CA, currently only trades power in theNortheast, 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 tobe completed this summer. Citizens is expected to remain in Boston,but it will have its name changed, according to Edison Missionofficials.

Power traders were surprised by the sale, noting that there wereno rumors that Peabody wanted to sell its marketing subsidiary. Butcompany officials on both sides said the sale was beneficial toboth parties.

“This acquisition gives us the capabilities required to maximizeour merchant power investment,” said Alan Fohrer, chief executiveofficer of Edison Mission. The acquisition will help Edison Missiondevelop a 13,278 MW portfolio of U.S. generating facilities, hesaid.

Fohrer also noted that Edison Mission had developed a “stronggeneration presence” in several of what he called the “mostattractive U.S. regional markets,” and said these facilities nowwill have the market knowledge, commercial skills and logisticalexpertise to provide “exceptional competitive position.”

Of the sale, Peabody Group Chairman and Chief Executive OfficerIrl F. Engelhardt said that it had “become clear” to his companythat as the markets evolved, “Citizens Power could more fullyutilize its excellent power marketing and risk managementexpertise” by affiliating with a merchant electricity generator.

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

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

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

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

Carolyn Davis, Houston

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