Market changes and tough capital market conditions prompted NRG Energy Inc. to cancel plans last week to buy 794 MW of power generation from Conectiv subsidiary Atlantic City Electric Co.

“Due to a combination of increased operating costs and changes in the electricity market, NRG has decided not to move forward with this acquisition,” said David H. Peterson, CEO of NRG Energy. “Canceling this acquisition will result in a $230 million decrease in NRG’s capital obligations for 2002.”

The assets include the 447 MW BL England Generating Station on Great Egg Harbor Bay in the town of Beesley’s Point, NJ, the 239 MW Deepwater Generating Station near the town of Pennsville, NJ, and a 66 MW interest in the Conemaugh station and a 42 MW interest in the Keystone Generating Station, both located in western Pennsylvania.

NRG will retain its 63 MW interest in Keystone and 64 MW interest in Conemaugh that the company acquired during its June 2001 acquisition of 1,081 MW of assets from Delmarva Power and Light, another Conectiv subsidiary.

In February, NRG received a one-year power contract to supply 500 MW of power to Atlantic City Electric beginning Aug. 1, 2002. The one-year power agreement, which remains in place, was the result of an online auction and bidding process to serve New Jersey’s Basic Generation Service (BGS).

“NRG will continue to look for investment opportunities in the Mid-Atlantic region when power and capital market conditions warrant,” said Craig A. Mataczynski, CEO of NRG North America. “The BGS contract with Atlantic City Electric increases NRG’s presence in the Mid-Atlantic region and its commitment to providing reliable and affordable power in New Jersey.”

“While we are disappointed that the sale of the plants will not proceed as planned, today’s announcement is not expected to affect electric rates, the availability of electricity or the reliability of electric service in New Jersey or the mid-Atlantic region,” said Tom Shaw, President of Conectiv.

Conectiv also announced that, in light of the termination, it will consider various alternatives for the generating assets covered by the agreements, including the merits of conducting another auction of these assets in the current energy market.

In other news regarding NRG last week, Xcel Energy raised its exchange offer for all of the publicly held shares of NRG and the NRG board accepted the deal and recommended that its stockholders tender their shares in the offer. Xcel also announced that it reached an agreement to settle stockholder class action suits related to the offer.

In the revised offer, NRG’s public stockholders would receive 0.50 of a share of Xcel Energy common stock in a tax-free exchange for each outstanding share of NRG common stock they hold. That compares to Xcel’s prior offer of 0.4846 Xcel shares for each NRG share. Based on the April 3, 2002 closing price of Xcel Energy shares, the new exchange ratio represents a value of $12.86 per NRG share, which represents a 28.6% premium to NRG’s closing price on Feb. 14, the day prior to the announcement of the original exchange offer and a 5.3% premium to NRG’s closing price on April 3.

Xcel Energy also has extended the expiration of the exchange offer to April 17. Completion of the offer remains conditioned on NRG’s public stockholders tendering enough shares so that, Xcel Energy would own at least 90% of NRG’s common stock. To satisfy this condition, which will not be waived, NRG stockholders must tender approximately 61% of the publicly held NRG shares currently outstanding. Xcel also must receive approval of the Securities and Exchange Commission under the Public Utility Holding Company Act.

Xcel is a major U.S. electricity and natural gas company with operations in 12 western and midwestern states. Formed by the merger of Denver-based New Century Energies and Minneapolis-based Northern States Power Co., Xcel serves 3.2 million electricity customers and 1.7 million natural gas customers through its regulated operating companies.

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