Orion to buy 7 power plants

Joint venture paying $1.71 billion for sites in Pennsylvania, Ohio

September 28, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Orion Power Holdings Inc., a joint venture between Constellation Energy Group and Goldman Sachs Group Inc., said yesterday that it agreed to buy seven power plants from a Pittsburgh company for $1.71 billion in cash.

Baltimore-based Orion will acquire the plants, in Pennsylvania and Ohio, from Duquesne Light Co., a subsidiary of DQE Inc.

The seven plants have a total capacity of 2,614 megawatts -- enough to light 2.6 million homes -- and would double the megawatt capacity of Orion's portfolio, which includes power plants throughout New York, the company said.

Also, Orion said it is in discussions with Tokyo Electric Power Co., Japan's largest utility, and Japanese trading company Mitsubishi Corp. about a possible investment in Orion by the Japanese companies.

An Orion spokeswoman would not comment further.

Orion Power Holdings was founded last year to acquire, finance, manage and operate power plants. Its major investors are investment funds managed by New York investment bank Goldman Sachs and an affiliate of Constellation Energy Group, the parent of Baltimore Gas and Electric Co.

The Duquesne acquisition, which is subject to approval by Pennsylvania and Ohio state regulators and several federal agencies, is expected to be completed by mid-2000,

Orion said. "With the Duquesne assets, we increase the fuel and geographic diversity of our business and will elevate our presence in an attractive energy market," Jack Fusco, Orion's chief operating officer, said in a statement.

Analysts said the deal is good for buyer and seller.

As part of the deregulation effort in Pennsylvania, Duquesne decided to sell its generation assets to focus on the distribution business, which will remain regulated.

As part of the deal, Orion must provide electricity to Duquesne's customers if they choose to stay with the utility. Pennsylvania opened its electricity market to customer choice in January.

"This is a seller's market for power plants," said Timothy M. Winter, an analyst with A. G. Edwards in St. Louis. "It was a good decision for DQE to take advantage of pricing in the market."

Orion also did well in the deal, which gives the company access to one of the best markets in the country, said Thomas Hamlin, an analyst with First Union Capital Markets in Richmond, Va.

The deal "provides Orion with the assets necessary for a successful merchant power business in the Midwest," he said.

"These assets are located in a market which has had some of the highest prices for power in the last few years," Hamlin said.

"Constellation, with its expertise in constructing and operating power plants, has partnered with the trading expertise of Goldman Sachs to produce a company that has so far done reasonably well."

Once the Duquesne acquisition is completed, Orion would have invested more than $2.7 billion in power plants in the Northeast and Midwest in the past 18 months. Its portfolio will include more than 5,200 megawatts of capacity.

Orion said it will open a second regional operating company in the Pittsburgh area to support the acquisition.

The company opened its first such regional headquarters last month in Syracuse, N.Y., to operate power generating stations throughout that state with total capacity of 2,613 megawatts.

Shares of Constellation closed yesterday at $27.75, up 18.75 cents. Shares in Goldman Sachs closed at $61.5625, down 37.5 cents. DQE shares closed at $37.75, up 56.25 cents.

Pub Date: 9/28/99

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