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
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
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
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
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