CEG plans to buy 3rd nuclear plant

$401 million is price for a New York `jewel' '

November 26, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

In a move to expand its power-generating business, Constellation Energy Group said yesterday that it has agreed to acquire a nuclear power plant from Rochester Gas & Electric Corp. for $401 million.

The R.E. Ginna Nuclear Power Plant northeast of Rochester, N.Y., would be Constellation's third nuclear plant and fit its strategy of generating and selling power nationwide, company officials said yesterday.

Mayo A. Shattuck III, Constellation's chairman, president and chief executive officer, called the Ginna plant "one of the jewels of the U.S. nuclear industry.

"It is exactly the type of plant we have been waiting for," a high-performing "base load" plant - one with low operating costs - that will provide stable cash flows for years, Shattuck said.

"The plant is another step forward on our long-term strategic path of building a marketing and generation footprint in the deregulated markets," he said.

Constellation, the Baltimore-based parent of Baltimore Gas and Electric Co., said it expects to close on the sale June 30. The sale is contingent on final regulatory approvals from the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission and the New York Public Service Commission, and a 20-year license renewal. The plant's current license expires in 2009.

Terms of the deal - to be financed with debt and equity - include a long-term power purchase agreement in which Constellation would sell 90 percent of the plant's output to Rochester Gas & Electric for 10 years.

Rochester Gas, a subsidiary of Albany, N.Y.,-based Energy East Corp., was required to divest its power plants as part of electric deregulation in New York. The remaining 10 percent of the plant's output would be sold on the open market, said Michael J. Wallace, president of Constellation Generation Group.

"This is part of Constellation's strategy of acquiring assets to enhance their merchant business," said Michael S. Worms, a managing director at Harris, Nesbitt Gerard in New York, which has neutral rating on Constellation's stock.

"It's nice to have a 10-year power purchase agreement that will provide them with a steady and stable stream of earnings and cash flow. It's a good long-term move."

Owning the Rochester plant, which has a capacity to generate 495 megawatts, would expand Constellation's holdings in New York; it purchased the Nine Mile Point nuclear plant in Scriba, near Syracuse, in December 2000. By owning a second nuclear plant 50 miles away, Constellation would be able to gain cost efficiencies in the operations of both plants, Wallace said.

"We consider ourselves to have a strong competency" in operating nuclear plants, Wallace said. "We see a base load generator like nuclear to be an important part of the generation portfolio."

The company also owns and operates the Calvert Cliffs nuclear plant in Maryland, which was the first nuclear plant in the country to win relicensing.

The acquisition is envisioned as adding substantially to earnings beyond 2006, when its capacity is to be expanded to 580 megawatts, the company said.

"I definitely think it will be a profitable investment for them," said Edward Metz, director of the energy group at SNL Financial in Charlottesville, Va. "It will generate $95 million in free cash flow."

Constellation is one of a number of companies, including Excelon and Dominion, that have acquired nuclear power plants in recent years.

Other companies are looking to leave the business, either because they're required to do so as part of electric industry restructuring or because the nuclear plants no longer fit into their core businesses.

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