Southern Energy agreed last week to purchase four PotomacElectric Power Co. (Pepco) power plants for $2.65 billion, givingthe power generator an additional 5,889 MW of capacity, and directaccess to the mid-Atlantic states market.

Southern Energy is an independent power production and energymarketing subsidiary of Atlanta’s Southern Co., which has more than48,000 MW of electric generating capacity worldwide.

The four Washington, D.C.-area power plants will becomeSouthern’s first facilities linked to the PJM Interconnection,responsible for the day-to-day electricity grid operations for NewJersey, Delaware, D.C., most of Pennsylvania and Maryland, andparts of Virginia. The PJM also operates a wholesale energy marketin the region.

Southern spokesman David Mould declined to comment on details ofthe sale, or whether Southern Energy was planning future purchaseagreements in the region, citing the company’s filing earlier thisyear with the Security and Exchange Commission (SEC) for its initialpublic offering (see NGI, April 24). TheSEC is expected to make a decision on the filing in the next fewmonths, Mould said.

The power plants purchased are the 2,423 MW Chalk Point Station,Prince George’s County, MD, which is fueled by coal, oil andnatural gas; the 1,412 MW Morgantown Station, Charles County, MD,which is fueled by coal and oil; the 837 MW Dickerson Station,Montgomery County, MD, which is fueled by coal, oil and naturalgas; and the 482 MW Potomac River Station, Alexandria, VA, which isfueled by coal.

In the agreement, Southern Energy also acquired the Piney PointOil Pipeline, a 51.5-mile pipeline serving the Maryland powerplants, Pepco’s rights and obligations to the 84 MW SouthernMaryland Electric Cooperative combustion turbine, and anengineering and maintenance service facility.

For the next four years, Southern Energy also agreed to sellpower back to Pepco “at prices below Pepco’s current average costof production.” However, Southern may decide where the power comesfrom – it does not have to be provided by Pepco facilities, saidPepco President Dennis R. Wraase. Southern owns power generatingsystems in every major region of the country.

When the sale is completed, probably by the fourth quarter, anagreement approved by Maryland and District of Columbia regulatorswill require Pepco to share its profits with customers. Pepco’sWraase said he did not know how much customers could expect toreceive because it would depend on how many of them stayed withPepco or switched to another energy provider.

“I am confident there will be some profit sharing,” Wraase said.The sale agreement also eliminated customers’ exposure to payingfor “stranded costs,” relating to the transition to a deregulatedmarket.

Details on the agreement have taken several weeks to iron out, butnews of it was not a surprise. In January, Pepco announced thebeginning of what it thought would be a year-long auction process bywhich it would sell its electric generating facilities. Pepco decidedto exit the generation business early in 1999 to focus on deliveringelectricity into the newly deregulated energy markets, and to sell newproducts and services from its subsidiaries (see NGI, Feb. 7). The Public Service Commissions ofthe District of Columbia and Maryland approved the divestiture plan inDecember 1999.

Carolyn Davis, Houston

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