BGE seeks to purchase power plants Orion Power Holdings created by local firm and Goldman, Sachs

Looking in U.S., Canada

Greater market share, diversification sought in changing industry

March 11, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Baltimore Gas and Electric Co. is expected to announce today that it has created a new company with investment house Goldman, Sachs & Co. to buy power plants.

The creation of Orion Power Holdings Inc. is intended to take advantage of the changing energy industry. It comes as several other utilities nationwide -- including Florida Power & Light Co. and U.S. Generating Co. -- already are working to acquire generating assets.

"This is a logical extension of what we set up with Constellation Power Source," said Charles W. Shivery, chief executive of the BGE subsidiary devoted to marketing power.

"It melds BGE's expertise in the generating business with the risk management and financial expertise of Goldman, Sachs," he explained. "It gives us the opportunity to be one of the premier energy companies in the United States."

Combined, BGE and Goldman, Sachs intend to initially invest $315 million to buy power plants in the United States and Canada. BGE's stake in the privately held company will come from shareholders' profits.

Shivery declined to identify what types of plants Orion would invest in, though he did say that Constellation Power Source would have an exclusive arrangement with the new company to buy power from its plants.

In the past year, states such as California, Massachusetts and Illinois, which are deregulating their electric supply systems, are forcing sales of power plants. Several other utilities are selling their plants to focus on energy distribution and transmission, rather than production.

Most recently, New Jersey-based GPU Inc. announced that it would sell 35 power plants -- including one at Deep Creek Lake -- as part of its future business strategy. GPU values the plants at $2.6 billion.

GPU's decision follows Central Maine Power's $846 million sale of its plants to the FPL Group Inc., the parent of Florida Power & Light Co. Utilities such as Pacific Gas & Electric also are working to shed generation assets to prepare for competition and deregulation.

But the increased competition has been driving power plant prices up, often as much as twice their book value.

BGE's decision to partner with Goldman, Sachs also comes as it prepares to open Constellation Power Source's marketing operation, which it announced a year ago. The two companies have invested $100 million in the marketing group, which will supply power and related services to utilities and municipalities.

Build for future

"The industry is changing fundamentally, more than it has in the past 100 years," said Roger W. Gale, president of the Washington International Energy Group, an energy consulting firm.

"And every company is having to find something to put their money into and build their future on," Gale added. "BGE and Goldman, Sachs are on the right side of the curve. It's important that they do this now, or they could miss their chance."

Both Constellation Power Source and Orion Power Holdings are part of BGE's plan to expand its diversified energy services business and capture more market share. The potential market for selling power to other utilities is valued at more than $300 billion a year.

"As deregulation and competition go through, lots of states and utilities are auctioning power plants," Shivery said. "Our sense is that over the next few years, there will be a lot of opportunities to buy plants."

Pub Date: 3/11/98

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