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PECO Picks Up Sithe, Improves Northeast Presence
Following through on its intention to sell the company, independent power producer Sithe Energies last week sold 49.9% of its North American businesses to Philadelphia-based PECO Energy Co. for $682 million, with an option by PECO to purchase the rest of the company within five years.
The deal, which boosts PECO's presence in the U.S. power market in the Northeast, is expected to close by the end of the year. The closing will coincide with the expected completion of PECO's pending merger with Unicom Corp., which will form Exelon Corp. (see NGI, April 17).
Most of the generation assets are in Massachusetts and New York, but they also include facilities in Pennsylvania, California, Colorado, Idaho, Canada and Mexico. Overall, the Sithe purchase involves 3,800 MW of existing merchant generation, 2,500 MW under construction and another 3,700 MW of generation in various stages of advanced development. It also involves Sithe's domestic marketing and development businesses.
When PECO completes buying the entire company, Exelon will increase its hold on the North American market to 46,000 MW, and become one of the top generation companies in the United States.
A joint statement by PECO CEO Corbin A. McNeill Jr. Unicom CEO John W. Rose --- the new co-CEOs of Exelon --- called the purchase a "a significant step forward for Exelon's generation strategy and our objective of becoming the nation's premier power generator and marketer. The transaction expands our core competencies in natural gas-fired generation, greenfield development and trading and marketing." The two also said the buy reflects Exelon's strategy to improve its portfolio with a "balanced generation mix and geographic presence."
Sithe CEO William Kriegel said his company had assembled "one of the largest portfolios of environmentally-friendly, non-nuclear power generating facilities," and said Sithe was proud to have delivered value to its shareholders.
McNeill said the purchase would be earnings neutral to positive through 2002, and that he expects it to contribute to the bottom line beginning in 2003. "This transaction clearly helps accelerate our generation strategy and asset-based trading capabilities, and it puts us in a very strong position to achieve our goals that will sustain our growth beyond 2003."
Merrill Lynch's Steven Fleishman said the Sithe purchase fits in well with Exelon's long-term plans, and he said the "gas-fired plant portfolio" would enhance PECO's generation position "by diversifying fuels, geography and dispatch."
The new Exelon remains "our favorite utility pick," he said. "We believe the new Exelon will be viewed as one of the top utilities --- by size and market cap, by generation/marketing capability, by earnings growth, by 'new economy' initiatives, and by management strength."
The PECO-Unicom merger will create a utility with more than $12 billion in annual revenues. The Federal Energy Regulatory Commission approved the merger in April, and it now awaits approval from the Nuclear Regulatory Commission and the Securities and Exchange Commission, both which are expected by the end of September. With the merger, about 1,200 PECO jobs are expected to be lost, with 5% of the workforce for the combined companies. Headquartered in New York, the rest of Sithe's ownership will remain in the hands of France's utilities and media group company, Vivendi.
Carolyn Davis, Houston
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