Potomac Electric Power Co.’s (Pepco) strategy of getting out ofpower generation, focusing on its wires and distribution businessesand emphasizing its non-regulated side is in full swing, says theutility’s top executive.

Two years ago the Washington D.C.-based utility decided its”pockets weren’t big enough” to grow its generation business so itopted to sell the majority of its facilities, said John M DerrickJr., chairman, president and CEO. Currently, Pepco is negotiatingwith six or eight “serious players” to sell nearly all of itsgeneration capacity — about 6,055 MW. Not up for sale, however,are Pepco’s facilities at its Buzzard Point and Benning generationstations in D.C., which have a combined capacity of 800 MW.

Derrick said Pepco hopes to sell its generation capacity for an”upside price” of about $500 per MW, or for a total of $3 million.It expects to complete the sale or transfer of its generationassets by the end of 2000, at which point it will probably use theproceeds to pay down debt and invest in its retail merchantbusiness, he noted.

The divestiture of its generation assets are part of theutility’s preparations to compete in a restructured retail powermarket, which is scheduled to get kick off on Jan. 1, 2001 inWashington and be fully completed by 2003.

Pepco’s purchase of Gas Atlantic, which has been re-named PepcoGas, catapulted the company into the gas business last year for thefirst time, Derrick told reporters at a press briefing held at theUnited States Energy Association (USEA) headquarters in D.C.Tuesday. “We were in nothing but electricity until we started downthis path,” he told NGI. Pepco Gas acts as a consultant and agentfor gas customers (mostly commercial and industrial), according toDerrick.

With the acquisition of Gas Atlantic, the contribution ofPepco’s non-regulated electricity and gas assets to annualrevenues shot up to $105 million in 1999 from $13 million for theprevious year, he said. Still, revenues from Pepco’s non-regulatedenergy operations accounted for only a small portion of theutility’s overall revenues of $2.5 billion last year. But Derrickpredicted that this would start to change “dramatically.”

“If we had our druthers,” Pepco over the next three to fouryears would like to own only transmission and distribution assets,with its regulated businesses dropping to “three-sevenths” of wherethey are now.

Derrick sees the utility as a “niche player” now, quickly addingthat big energy players gobble up “niche players” like Pepco.”Clearly over the longer haul [Pepco] is not going to stay thissize,” he noted. But he said “no comment” when asked point blankwhether Pepco currently was in negotiations with a potentialpartner or partners.

Derrick hopes Pepco’s new strategy will help to change the wayWall Street has viewed the utility industry over the past couple ofyears. “The whole industry at this point is somewhat out of favorwith Wall Street,” he said, noting the industry overall has beenlagging far behind the S&P 500 for several years.

Even investors in the big mutual funds, which traditionally havebeen the utility industry’s bread and butter, have moved money outof utility stocks and into high-technology stocks, Derrick noted.But the “skyrocket[ing] growth” of the high-tech stocks now appearsto be slowing, he noted, opening the door once again for utilities.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.