Edison International, parent of Southern California Edison Co., said Monday that its unregulated Edison Mission Energy unit will acquire a western Pennsylvania coal-fired power plant for $1.8 billion.
"They bought the best power plant in the region. It is always dispatched first, and it straddles two [power transmission] pools," said Ed Tirello, an analyst at BT Alex. Brown Inc.
The plant, jointly owned by GPU Inc. and Energy East Corp.'s New York State Electric & Gas Corp., has a book value of $450 million, according to Rosemead-based Edison.
Although Edison paid four times that, analysts said the plant's low operating costs and location make it well worth the money.
"The only thing cheaper in terms of generation costs are nuclear and hydroelectric plants," said Edward Muller, Edison Mission Energy's chief executive.
Edison shares rose 6 cents to close at $27.81 on the New York Stock Exchange.
The Pittsburgh-area Homer City power plant, which has a capacity of 1,884 megawatts, is the only major regional coal-fired plant with direct high-voltage access to both the New York power pool and the Pennsylvania-New Jersey-Maryland power pool.
Tirello estimated a profit margin for Homer City of about 1 cent per kilowatt-hour. "That is very good, but I think power prices will eventually rise out here and they can get double that," he added.
The company also plans to make "substantial capital investments," including catalytic converters and a scrubber, in order to reduce emissions and enable the use of cheaper coal, he said. Muller said the environmental upgrades would turn the facility into a net seller of nitrogen oxide credits.
Edison would sell the power generated at Homer City into the adjacent power pools much the way most California power generators sell into the state's centralized power exchange.
Irvine-based Edison Mission Energy, which specializes in developing, acquiring, constructing and operating power plants worldwide, owns power-generating assets throughout the U.S. and in Europe and Asia.
The unregulated unit has been a big contributor to Edison's earnings in recent years. Analysts estimated that the Homer City plant would add about 5 cents a share to the company's earnings starting in 2000.
Edison said the deal, which is expected to close in the first quarter of 1999, would not dilute its 1999 earnings.