Constellation aims to buy Boston plants for $1.1 billion

Largest power plant acquisition in years for Baltimore energy firm

August 09, 2010|By Gus G. Sentementes, The Baltimore Sun

In one of its largest acquisitions in years, Constellation Energy Group Inc. announced Monday it hopes to purchase five power plants in the Boston area that would boost its energy-producing capacity by a third.

Constellation, parent company of Baltimore Gas and Electric Co., wants to buy the plants from Boston Generating, a part of U.S. Power Generating Co. that is expected to file for bankruptcy protection in the fall. Constellation said it inked a deal that would make its $1.1 billion offer the price to beat in an auction of the utility's assets expected later this year.

"It's a significant transaction for us," said Kathleen Hyle, chief operating officer of Constellation Energy Resources, a company subsidiary that oversees power generation facilities.

The Boston-area plants generate a combined 2,950 megawatts. The Baltimore-based company currently owns and operates power plants that generate 9,000 megawatts of electricity.

The purchase of the Boston plants, some of the newest and most efficient in New England, squares with Constellation's previously announced plans to buy plants in regions where it participates extensively in retail electricity sales to large commercial customers and wholesale sales to local utilities.

Constellation currently serves 13.3 terawatt hours of customer load in the New England market, but does not have any power-generating facilities there.

It's a buyer's market for electricity plants that run on natural gas because prices for that fuel have dropped, depressing the price of electricity produced, Hyle said. Four of the five Boston-area plants that Constellation wants to buy run on natural gas.

"We think we're in a pretty low point in the market for buying," Hyle said.

Constellation plans to finance the deal through a mix of cash and debt. The company expects the acquisition to add to its bottom line next year.

"It's a sizable and significant acquisition," said Paul Fremont, an analyst with Jefferies & Co. in New York. "It fits in with their strategy of buying hard assets to support the retail supply business."

In May, Constellation completed the purchase of two natural gas-generation facilities in Texas for $365 million. Before buying the two plants, Constellation had been buying and selling power in the wholesale and retail markets in that state.

Constellation, however, has encountered some recent hurdles at home in Maryland.

Last month, Constellation CEO Mayo A. Shattuck warned that the company's new nuclear power plant at Calvert Cliffs in Southern Maryland — a partnership with Electricite de France — would be in jeopardy if the project does not receive approval for a federal loan guarantee by the end of the summer.

And, in June, state regulators rebuffed a proposal by BGE that would have deployed "smart meters" to residential customers that would have helped save money and better control electricity usage. BGE has refiled its proposal for the new technology.

gus.sentementes@baltsun.com

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