NGI The Weekly Gas Market Report
Following through on its intention to sell the company,independent power producer Sithe Energies yesterday sold 49.9% ofits North American businesses to Philadelphia-based PECO Energy Co.for $682 million, with an option by PECO to purchase the rest ofthe company within five years.
The deal, which boosts PECO’s presence in the U.S. power marketin the Northeast, is expected to close by the end of the year. Theclosing will coincide with the expected completion of PECO’spending merger with Unicom Corp., which will form Exelon Corp. (seeDaily GPI, April 13).
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 purchaseinvolves 3,800 MW of existing merchant generation, 2,500 MW underconstruction and another 3,700 MW of generation in various stagesof advanced development. It also involves Sithe’s domesticmarketing and development businesses.
When PECO completes buying the entire company, Exelon willincrease its hold on the North American market to 46,000 MW, andbecome one of the top generation companies in the United States.
A joint statement by PECO CEO Corbin A. McNeill Jr. Unicom CEOJohn W. Rose — the new co-CEOs of Exelon — called the purchasea “a significant step forward for Exelon’s generation strategy andour objective of becoming the nation’s premier power generator andmarketer. The transaction expands our core competencies in naturalgas-fired generation, greenfield development and trading andmarketing.” The two also said the buy reflects Exelon’s strategy toimprove its portfolio with a “balanced generation mix andgeographic presence.”
Sithe CEO William Kriegel said his company had assembled “one ofthe largest portfolios of environmentally-friendly, non-nuclearpower generating facilities,” and said Sithe was proud to havedelivered value to its shareholders.
McNeill said the purchase would be earnings neutral to positivethrough 2002, and that he expects it to contribute to the bottomline beginning in 2003. “This transaction clearly helps accelerateour generation strategy and asset-based trading capabilities, andit puts us in a very strong position to achieve our goals that willsustain our growth beyond 2003.”
Merrill Lynch’s Steven Fleishman said the Sithe purchase fits inwell with Exelon’s long-term plans, and he said the “gas-firedplant portfolio” would enhance PECO’s generation position “bydiversifying fuels, geography and dispatch.”
The new Exelon remains “our favorite utility pick,” he said. “Webelieve the new Exelon will be viewed as one of the top utilities— by size and market cap, by generation/marketing capability, byearnings growth, by ‘new economy’ initiatives, and by managementstrength.”
The PECO-Unicom merger will create a utility with more than $12billion in annual revenues. The Federal Energy RegulatoryCommission approved the merger in April, and it now awaits approvalfrom the Nuclear Regulatory Commission and the Securities andExchange Commission, both which are expected by the end ofSeptember. With the merger, about 1,200 PECO jobs are expected tobe lost, with 5% of the workforce for the combined companies.Headquartered in New York, the rest of Sithe’s ownership willremain in the hands of France’s utilities and media group company,Vivendi.
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