Deep Creek sale indicative of trend Companies finding it less profitable to generate energy

Utilities

March 02, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF Sun staff writer Mary Maushard and contributing writer Cindy Stacy provided information for this article.

Deep Creek Lake has become a pawn in a high-stakes chess game for survival in the energy business of the future.

The 4,500-acre man-made lake, an ideal recreation spot for tens of thousands of tourists, also supplies water to a hydroelectric plant.

And in the eyes of GPU Inc., a New Jersey-based utility that owns both the plant and the lake, they are assets to be packaged and sold as part of a plan to streamline the company and improve its profitability.

"Our strategy going forward will be to focus on the distribution side of the energy business" rather than generating electricity, said Ron Morano, a GPU spokesman.

GPU isn't alone in its decision to sell.

Nationwide, utility companies are selling power plants in record numbers to prepare for a deregulated and competitive future, brought about by federal legislation five years ago.

"Two years ago, you seldom if ever saw a sale of any generation assets," said Lawrence Makovich, a director of Cambridge Energy Research Associates, a Massachusetts utility consulting firm.

"But with the restructuring of the industry, utilities like GPU have to sell," he said, "because they can rely on market prices that are likely lower than their own cost of generation."

In the past few months, utilities in Maine, California, Massachusetts, Illinois and other states have sold off power plants to focus on distributing or transmitting power, rather than producing it.

Most recently, Central Maine Power took a cue from state utility regulators in January and struck a deal to sell its power plants to FPL Group Inc., the parent company to Florida Power & Light Co. and the Sunshine State's biggest utility, for $846 million.

As in Maine, many of the sales are the result of pressure from regulators, who are smashing monopolistic energy supply systems and pledging rate cuts for consumers.

As a result, many utilities are being forced to sell to companies such as AES Corp. or Sithe Energies Inc., which focus exclusively on low-cost power generation.

Makovich estimates that one-seventh of all U.S. power plants will have been sold between 1997 and the end of this year.

But in Maryland, where regulators and legislators are studying other states to formulate a model for a deregulated electric and natural gas supply system by 2002, GPU's decision is evidence of the industry trend.

"This is the first fallout of utility deregulation in Maryland," said state Sen. John J. Hafer, an Allegany County Republican whose district includes part of Garrett County.

GPU began pitching 35 plants -- including Three Mile Island in Pennsylvania -- to investors last month, said Larry O'Reilly, a company spokesman. In all, the plants are valued at roughly $2.6 billion.

Even if Three Mile Island, site of the nation's worst nuclear energy accident in 1979, doesn't attract much investor interest, GPU is expected to have little trouble selling Deep Creek and its other four hydroelectric plants, according to industry experts.

That's because hydroelectric plants -- unlike coal- and oil-fired facilities -- don't require expensive fuel or cause high levels of pollution that push up their cost of operation.

"Hydro plants typically produce electricity at relatively low rates, especially as compared to fossil fuel plants, so they ought to be pretty valuable," said Michael J. Travieso, head of the state's Office of People's Counsel, a citizens advocacy agency.

GPU hopes to complete a sale of its plants -- and probably Deep Creek Lake -- by the end of the year.

Pub Date: 3/02/98

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.