PG&E; to Buy 18 Plants in Northeastern U.S.
PG&E; Corp. said it will buy 18 power plants from New England Electric System for $1.59 billion, a move that will help the San Francisco-based company expand into the Northeastern United States.
PG&E;, the parent of Pacific Gas & Electric, said it beat 25 competitors, including Duke Energy Corp. and Southern Co., in the first of several expected power plant auctions by utilities in the Northeast. It agreed to pay $1.59 billion, 45% more than book value, although the amount could fall by as much as $225 million if New England states delay plans for opening the sale of electricity to competition.
The premium price was expected. Companies such as PG&E;, Duke, Southern and Enron Corp. are seeking to sell power to New England consumers next year and want their own electricity supplies.
“It’s going to be hard to get cheap assets when everyone’s trying to buy the same things,” said John Blue, an analyst with the Ohio Public Employment Retirement System, which holds 1.3 million PG&E; shares.
In addition to the purchase price, PG&E; also agreed to spend $85 million for training programs for New England Electric employees fired because of the plant sales. New England Electric expects to shed 33% of its work force, cutting 1,500 jobs.
Shares of New England Electric rose $1.75 to close at $38.75 and PG&E; fell 19 cents to close at $24.13 in New York Stock Exchange trading.
California and Massachusetts have ordered their largest utilities to shed some power plants and other generation assets. The intent is to quickly bring more competition to power sales by supplying new rivals with generating plants. PG&E; plans to sell four large fossil-fueled plants and some smaller geothermal ones in California.
The deal announced Wednesday will allow PG&E; to cut its plant payments by $225 million if at least half of New England’s consumers aren’t allowed to choose their own power suppliers by 1999. The plants are worth the premium price only if PG&E; can steal sales from the region’s existing utilities.
Rhode Island and New Hampshire intend to let consumers choose next year. Massachusetts, has signaled it intends to the same, though Connecticut is moving more slowly than its neighbors. If Massachusetts or Connecticut delay, PG&E;’s payments could drop.
The purchase will make PG&E; an even stronger international competitor. Its main unit, Pacific Gas & Electric, already has more customers than any other U.S. utility, serving 4.5 million businesses and consumers.
PG&E; also plans to buy two natural gas companies in Texas, build an Australian pipeline and buy out its partner in a joint venture that operates power plants across the U.S.
“They have to do something and they seem to be coming up with good ideas,” Blue said.
The New England deal will cut earnings by about a penny a share in 1999 and 2000 and will add to earnings thereafter, PG&E; estimated. The transaction is expected to be completed late next year.
