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Southern Energy Buys 5,889 MW Of Generation from Pepco

Southern Energy Buys 5,889 MW Of Generation from Pepco

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

Southern Energy is an independent power production and energy marketing subsidiary of Atlanta's Southern Co., which has more than 48,000 MW of electric generating capacity worldwide.

The four Washington, D.C.-area power plants will become Southern's first facilities linked to the PJM Interconnection, responsible for the day-to-day electricity grid operations for New Jersey, Delaware, D.C., most of Pennsylvania and Maryland, and parts of Virginia. The PJM also operates a wholesale energy market in the region.

Southern spokesman David Mould declined to comment on details of the sale, or whether Southern Energy was planning future purchase agreements in the region, citing the company's filing earlier this year with the Security and Exchange Commission (SEC) for its initial public offering (see NGI, April 24). The SEC is expected to make a decision on the filing in the next few months, 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 and natural 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 natural gas; and the 482 MW Potomac River Station, Alexandria, VA, which is fueled by coal.

In the agreement, Southern Energy also acquired the Piney Point Oil Pipeline, a 51.5-mile pipeline serving the Maryland power plants, Pepco's rights and obligations to the 84 MW Southern Maryland Electric Cooperative combustion turbine, and an engineering and maintenance service facility.

For the next four years, Southern Energy also agreed to sell power back to Pepco "at prices below Pepco's current average cost of production." However, Southern may decide where the power comes from - it does not have to be provided by Pepco facilities, said Pepco President Dennis R. Wraase. Southern owns power generating systems in every major region of the country.

When the sale is completed, probably by the fourth quarter, an agreement approved by Maryland and District of Columbia regulators will require Pepco to share its profits with customers. Pepco's Wraase said he did not know how much customers could expect to receive because it would depend on how many of them stayed with Pepco 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 paying for "stranded costs," relating to the transition to a deregulated market.

Details on the agreement have taken several weeks to iron out, but news of it was not a surprise. In January, Pepco announced the beginning of what it thought would be a year-long auction process by which it would sell its electric generating facilities. Pepco decided to exit the generation business early in 1999 to focus on delivering electricity into the newly deregulated energy markets, and to sell new products and services from its subsidiaries (see NGI, Feb. 7). The Public Service Commissions of the District of Columbia and Maryland approved the divestiture plan in December 1999.

Carolyn Davis, Houston

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