- The Washington Times - Tuesday, June 6, 2006

Constellationdeal in limbo


Constellation Energy Group, whose $10.5 billion acquisition by FPL Group Inc. is stalled by a rate dispute in Maryland, said it hired advisers to help sell six natural-gas-fueled generating plants to reduce debt.

Up for sale are plants in five states, including California and Texas, Constellation, the largest U.S. power marketer, said yesterday. The plants, which may fetch more than $800 million based on prices from similar sales in the past year, are more costly to operate than Constellation’s coal-fired and nuclear plants.

“There’s a lot of private equity out looking for generation assets,” said Paul Patterson, a utility analyst at Glenrock Associates LLC in New York. “It’s probably a good time to sell.”

Natural-gas prices have doubled over the past four years amid growing demand and dwindling domestic production. In addition to providing funds for debt reduction, selling the plants would free up cash for investment or share repurchases, Constellation said.

“They’re getting a low yield on these assets and they may actually be losing cash,” said Ralph Barbaro, a principal at Energy Ventures Analysis Inc., an Arlington-based consultant on power plant transactions.

Shares of Constellation fell 10 cents to $52.09 in New York Stock Exchange composite trading. The stock, which rose 9.5 percent in the three days after a Dec. 14 news report of the planned purchase by FPL, has since given up all that gain and is down 9.6 percent for the year.

Up for sale are the High Desert Power plant in California, Rio Nogales Power in Texas, Holland and University Park in Illinois, Big Sandy in West Virginia, and Wolf Hills Energy in Virginia, Baltimore-based Constellation said. High Desert comes with a contract to sell power to the Los Angeles Department of Water & Power, which extends through 2011.

The plants can produce a combined 3,145 megawatts, enough power for 2.5 million average U.S. homes. LS Power Equity Partners LP, a New York-based private equity firm, paid $1.6 billion, or $254 per kilowatt of capacity, in May for gas-fueled power plants in the U.S. West and Northeast owned by Duke Energy Corp. A sale of Constellation’s plants at that price would raise $790 million.

Reliant Energy Inc. sold New York City power plants in February to an investor group led by Madison Dearborn Partners LLC for $464 per kilowatt of generating capacity.

“Gas plants have gone up in value recently in Texas, California and other areas where little capacity is being built, so they can probably get what the plants cost to build,” said Daniele Seitz, a utility analyst at Dahlman Rose & Co. in New York, “That will allow them to focus on gaining market share in other areas of the country.”

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