NGI The Weekly Gas Market Report
Add a few letters, along with a few major acquisitions, and”Dynegy” is quickly becoming “Dynamo” in the power generatingbusiness. Last week, the Houston company said it was buying twoupstate New York fossil fuel power plants for $903 million, adding1,700 MW of electricity to its portfolio, but more important,increasing its geographic impact on the generation marketnationwide.
Dynegy, which has been on a buying spree in all parts of thecountry in the past year, announced it would buy the 500-MWDanskammer Power Plant, now owned by Central Hudson Gas &Electric, as well as the 1,200-MW Roseton Power Plant. Bothfacilities are located in Newburgh, about 50 miles north of NewYork City.
Central Hudson, a unit of CH Energy Group Inc., owns 35% of theRoseton plant, and is expected to realize $450 million after taxesand post a gain from the plant sales. Also holding stakes in theRoseton plant are Consolidated Edison of New York Inc., with 40%interest, and Niagara Mohawk Holdings, with 25%. The sales are partof an attempt by New York’s power utilities to sell off theirgeneration plants as the state moves into a deregulated electricitymarket.
Following expected approvals from the Federal Trade Commission,the Federal Energy Regulatory Commission and the New York PublicService Commission, the sales could be finalized by the firstquarter of 2001.
“This purchase clearly aligns with and advances our long-termenergy convergence strategy to expand our energy portfolio ingeographically diverse regions of the country through theacquisition of clean, safe and affordable unregulated generationassets,” said Dynegy CEO Chuck Watson. He said the deal is expectedto be accretive to 2001 earnings “and beyond.”
The power plants are a combination of baseload and intermediategeneration facilities with multiple fuel sources. The DanskammerPower Plant, constructed between 1951 and 1967, has four generatingunits, two that burn fuel oil and natural gas and two that burncoal and natural gas. The two identical Roseton units, which firstwent on line in 1974, use natural gas and fuel oil, either as asingle fuel source or together.
The 380-acre site where the two generators are located hasseveral fuel access points, including four interstate gastransmission systems, rail and barge delivery for coal and terminaldelivery for fuel oil. Besides the plants and land, the sale alsoincluded interconnection facilities, fuel supply systems andcontracts, inventories, control systems, office systems, emissionallowances and other assets related to the stations’ operations.
“This sale will complete the divestiture of our fossil-fueledand hydroelectric generating assets,” said Niagara Mohawk CEOWilliam E. Davis. Davis said the company will use the sale proceedsto retire capital, consistent with a strategy to improveshareholder value.
Central Hudson plans to use the sale proceeds to avoidcompetitive transition charges and will use them to recoverstranded costs, and also to accelerate programs to enhance electricservice reliability. It expects that the sale will help it maintainlow delivery wire charges also.
“The power plants are on the preferred eastern side of the NewYork Central transmission system, a factor that will enable us todeliver power to wholesale customers in both the PJM and NEPOOLmarkets,” said Dynegy COO Steve Bergstrom. “The multiple fuelsources will give us the ability to utilize our marketing, tradingand arbitrage capabilities to create additional value fromcross-commodity opportunities.”
Along with the acquisitions, Dynegy also has set up a transitionpower agreement to sell varying amounts of electricity from theplants through 2004 to Central Hudson.
Dynegy is expected to finance the purchases with a combinationof project and corporate debt. Banc of America Securities LLC actedas financial adviser. Dynegy said it expected to keep all of theunion employees, and will assume the current collective bargainingagreement. It also is expected to offer jobs to the 40-plusmanagement staff. Any jobs lost would be re-employed by CentralHudson, 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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