Southern to acquire 4 plants

Some other assets included in deal for Pepco facilities

1,000 workers involved

Southern to operate 2 Washington plants not part of purchase

June 09, 2000|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Potomac Electric Power Co. said yesterday that it has signed an agreement to sell four power plants in Maryland and Virginia and other assets to a subsidiary of Atlanta-based Southern Co., the largest U.S. electricity producer, for $2.65 billion.

The sale to Southern Energy - which was selected through a bid process that began in January - includes a 51.5-mile pipeline serving the Maryland power plants, an engineering and maintenance service facility, and other assets.

Also, Southern Energy will operate and maintain two other Pepco power plants in Washington that weren't included in the sale.

About 1,000 Pepco employees will join Southern Energy, the companies said yesterday.

Pepco sells electricity to about 700,000 customers in Washington and Prince George's and Montgomery counties. The acquisition is expected to close later this year.

The four power plants - which can produce 5,154 megawatts, enough to light 5 million homes - are in Montgomery, Prince George's and Charles counties and Alexandria, Va.

Southern Energy will sell power from the power plants to Pepco for up to four years, allowing the Washington utility to continue selling power to customers who choose not to switch to another electricity supplier once customer choice starts in Maryland next month.

The Southern acquisition, combined with Pepco's earlier sale of its 9.72 percent stake in a Pennsylvania power plant to PPL Corp. and Allegheny Inc. for $152.5 million, brings the proceeds from Pepco's generating assets to $2.8 billion, a 27.3 percent premium over the assets' value of $2.2 billion.

"We see this as a passing of another major milestone in our transformation to the new Pepco," said Tony Kamerick, Pepco's vice president of finance.

As part of the transformation of its utility business, Pepco said it will divest its power plants to focus on electricity distribution over its power lines, and its growing energy and telecommunications retail businesses.

The utility said it will use the proceeds to reduce its electricity rates, finance a $200 million stock buyback program, and expand its telecommunications business.

"There will be some sharing of the proceeds with customers," Kamerick said, adding that the utility has not yet determined the amount.

Southern Energy officials declined to comment on the acquisition yesterday because the company is in a quiet period related to its parent recently filing to spin off Southern Energy in an initial public offering.

David M. Schanzer, analyst with Janney Montgomery Scott LLC in Philadelphia, said the deal was a win for both parties.

"Southern strengthened its position as one of the pre-eminent merchant generators in the U.S., and this gives them a good foothold in the mid-Atlantic," he said.

"And this allows Pepco to focus on the areas they are good at - their distribution system and the expansion of their telecommunications effort," Schanzer said.

Pepco's shares closed yesterday at $25.875, down 6.25 cents. Southern Co.'s shares closed at $24.9375, down 18.75 cents.

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