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Dynegy Powers Up in Northeast, Adds Two NY Power

Dynegy Powers Up in Northeast, Adds Two NY Power

Add a few letters, along with a few major acquisitions, and "Dynegy" is quickly becoming "Dynamo" in the power generating business. Last week, the Houston company said it was buying two upstate New York fossil fuel power plants for $903 million, adding 1,700 MW of electricity to its portfolio, but more important, increasing its geographic impact on the generation market nationwide.

Dynegy, which has been on a buying spree in all parts of the country in the past year, announced it would buy the 500-MW Danskammer Power Plant, now owned by Central Hudson Gas & Electric, as well as the 1,200-MW Roseton Power Plant. Both facilities are located in Newburgh, about 50 miles north of New York City.

Central Hudson, a unit of CH Energy Group Inc., owns 35% of the Roseton plant, and is expected to realize $450 million after taxes and post a gain from the plant sales. Also holding stakes in the Roseton plant are Consolidated Edison of New York Inc., with 40% interest, and Niagara Mohawk Holdings, with 25%. The sales are part of an attempt by New York's power utilities to sell off their generation plants as the state moves into a deregulated electricity market.

Following expected approvals from the Federal Trade Commission, the Federal Energy Regulatory Commission and the New York Public Service Commission, the sales could be finalized by the first quarter of 2001.

"This purchase clearly aligns with and advances our long-term energy convergence strategy to expand our energy portfolio in geographically diverse regions of the country through the acquisition of clean, safe and affordable unregulated generation assets," said Dynegy CEO Chuck Watson. He said the deal is expected to be accretive to 2001 earnings "and beyond."

The power plants are a combination of baseload and intermediate generation facilities with multiple fuel sources. The Danskammer Power Plant, constructed between 1951 and 1967, has four generating units, two that burn fuel oil and natural gas and two that burn coal and natural gas. The two identical Roseton units, which first went on line in 1974, use natural gas and fuel oil, either as a single fuel source or together.

The 380-acre site where the two generators are located has several fuel access points, including four interstate gas transmission systems, rail and barge delivery for coal and terminal delivery for fuel oil. Besides the plants and land, the sale also included interconnection facilities, fuel supply systems and contracts, inventories, control systems, office systems, emission allowances and other assets related to the stations' operations.

"This sale will complete the divestiture of our fossil-fueled and hydroelectric generating assets," said Niagara Mohawk CEO William E. Davis. Davis said the company will use the sale proceeds to retire capital, consistent with a strategy to improve shareholder value.

Central Hudson plans to use the sale proceeds to avoid competitive transition charges and will use them to recover stranded costs, and also to accelerate programs to enhance electric service reliability. It expects that the sale will help it maintain low delivery wire charges also.

"The power plants are on the preferred eastern side of the New York Central transmission system, a factor that will enable us to deliver power to wholesale customers in both the PJM and NEPOOL markets," said Dynegy COO Steve Bergstrom. "The multiple fuel sources will give us the ability to utilize our marketing, trading and arbitrage capabilities to create additional value from cross-commodity opportunities."

Along with the acquisitions, Dynegy also has set up a transition power agreement to sell varying amounts of electricity from the plants through 2004 to Central Hudson.

Dynegy is expected to finance the purchases with a combination of project and corporate debt. Banc of America Securities LLC acted as financial adviser. Dynegy said it expected to keep all of the union employees, and will assume the current collective bargaining agreement. It also is expected to offer jobs to the 40-plus management staff. Any jobs lost would be re-employed by Central Hudson, said officials.

With these purchases, Dynegy becomes a presence in the Northeast, but in the past year, it has been making its presence known throughout the country. In March of last year, the marketer improved its Southeast stake by announcing construction plans for two separate 500-MW facilities, one in Heard County, GA, and the other in Oldham County, KY (see NGI, March 22, 1999). Those announcements increased Dynegy's Southeast energy assets to five.

Last June, it moved into the Midwest with the Illinova merger (see NGI, June 21, 1999), giving it more than 15,000 gross MW of domestic generating capacity. In December, Dynegy announced plans to develop its first merchant plant, a 500 MW-natural gas-fired peaking facility, for Osceola County, FL, (see NGI, Dec. 13, 1999). That facility will sell power in the wholesale market to public utilities, electric cooperatives and municipalities throughout the state.

Just two months ago, Dynegy's Calcasieu Generation Project, a 155-MW natural gas-fired power generation facility near Lake Charles, LA, began commercial operation (see NGI, June 5). Then, in late July, Dynegy began full-scale operations at its Rockingham Power Plant in North Carolina (see NGI, July 31), which added 1,055 MW, and became the largest facility developed by Dynegy under its planned generation development program.

Carolyn Davis, Houston

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