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GPU Deal Makes Sithe Biggest U.S. IPP

November 16, 1998
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GPU Deal Makes Sithe Biggest U.S. IPP

New Jersey utility holding company GPU Inc. has sold its non-nuclear generating assets for $2.62 billion - 2.5 times book value or $510 per kilowatt. The majority of generating assets were bought by French- and Japanese-owned Sithe Energies Inc. of New York City, which bought assets in New Jersey, Pennsylvania and Maryland. The deal will make Sithe the largest U.S. independent power producer.

Sithe will pay $1.68 billion for 4,117 MW of capacity at 23 plants that generate 6,972 gross MW of electricity. With the GPU assets, Sithe will have generating capacity in North America of 7,777 MW, including the generating assets of Boston Edison, which it bought in May for about $536 million. The GPU transaction is expected to close in the second half of 1999, subject to regulatory approval from New Jersey, Pennsylvania and Maryland.

Noting Sithe will now become the largest independent power producer in the United States, William Kriegel, Sithe CEO, said, "This is a defining transaction for Sithe. It more than doubles our North American generating capacity. When taken together with our already significant presence on the East Coast, this acquisition makes Sithe a principal supplier of electricity to the three major interconnected power pools, stretching from the Mid-Atlantic states to Maine. We are excited to be a leading power producer in this region where electric restructuring is already well advanced and where the demand for electric power is among the highest in the nation."

Sithe plans to develop additional capacity at selected GPU sites, potentially adding another 3,000 MW of gas-fired generation over the next several years. Of the 23 plants Sithe is acquiring, 17 are in Pennsylvania, five are in New Jersey and one is in Maryland. 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 States and Canada, including 16 in its target U.S. market-the Northeast-six in California, three in Idaho and one each in North Carolina, Colorado and Ontario. The company's flagship station is the 1,040 MW gas-fired Independence plant in Scriba, NY, which opened in 1994. Sithe also has an extensive global portfolio of projects under operation, construction or active development. Countries involved include China, Australia, Pakistan, the Philippines and Thailand. In total, Sithe, including its domestic projects and the GPU acquisition, will generate more than 20,000 gross MW of power when its development and expansion projects are completed. All new generation is to be gas-fired, a spokeswoman said. Projects include 2,800 MW of new capacity on the Boston Edison sites Sithe recently acquired. The new generation there is to cost more than $1 billion.

In a separate deal, FirstEnergy Corp. of Akron, OH, agreed to buy from GPU 87 MW of capacity at the Seneca Pumped-Storage Hydroelectric Generating Station, near Warren, PA. FirstEnergy already owns the remaining capacity at the 438 MW plant. FirstEnergy was the successful bidder for this capacity in an auction of GPU's generating plants. The $43 million transaction is expected to be completed by June 1999.

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

Joe Fisher, Houston

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