By Steve Blankinship
Associate Editor, Power Engineering

Mid-September brought announcements 24 hours apart on major power industry mergers. One merger was announced and is moving forward. Another merger died.

Dynegy and LS Power Group announced that the companies have executed a definitive agreement to create a common generation portfolio of more than 20,000 MW concentrated in Midwest, Northeast and Western U.S. Meanwhile, Exelon announced that it's proposed merger with PSEG, which would have created the largest electric utility in the U.S., was dead.

The newly announced agreement would combine Dynegy's current assets and operations with LS Power Group's generation portfolio to create a combined company with 31 power plants in 15 states. Dynegy will acquire a 50 percent ownership interest in a development joint venture with LS Power. The transaction will provide significant growth prospects through greenfield development, expansion and repowering opportunities.

In addition to creating a company with significant scale and scope in three key geographic regions, the acquired assets balance Dynegy's generation mix by adding intermediate combined-cycle capacity to an existing portfolio that largely consists of baseload and peaking assets. The company's expanded portfolio will also include a controlling interest in the Plum Point facility in Arkansas, the only coal-fired plant in the country currently under construction by an independent power producer.

Dynegy chairman and CEO Bruce Williamson and the rest of Dynegy's management will lead the combined company, which will retain the Dynegy name and remain headquartered in Houston. LS Power — a privately held power plant investor, developer and manager — will have 40 percent equity ownership in Dynegy.

The joint venture will immediately own a pipeline of nine greenfield projects totaling more than 7,600 MW of predominantly coal-fired capacity in various stages of development and approximately 2,300 MW of predominantly gas-fired combined cycle capacity repowering opportunities and provide Dynegy with a portfolio of assets in California. These include the repowering of an adjacent site at an existing facility in Oakland, California for 250 MW of combined cycle capacity and developing a 1,200 MW combined cycle project on an adjacent parcel of land at Morro Bay.

Meanwhile, Public Service Enterprise Group (PSEG) and Exelon Corporation announced that Exelon has given PSEG formal notice of termination of the merger agreement announced in December, 2004. The companies agreed to withdraw their application for merger approval, which was pending before the New Jersey Board of Public Utilities for more than 19 months. Discussions with state officials and other interested parties made clear that gaps separating the parties' respective settlement positions were insurmountable. Major differences included issues relating to rate concessions and market power mitigation.

Chicago-based Exelon has 5.2 million customers, more than $15 billion in annual revenues and one of the industry's largest power generation portfolios in the U.S. located primarily across the Midwest and Mid-Atlantic regions. PSEG has annual revenues of more than $12 billion and serves customers through Public Service Electric and Gas Company, New Jersey's oldest and largest energy distribution utility company; independent power producer PSEG Power; and, PSEG Energy Holdings, a holding company for other non-regulated energy businesses.

E. James Ferland, the chairman and CEO of PSEG, said that while disappointed the plan to merge with Exelon would not be completed, he could to point to one positive result of the merger talks. Ferland said the improvements in PSEG's nuclear facilities reflect the success of the nuclear operating services agreement with Exelon implemented in January, 2005.

"Both Salem and Hope Creek are showing gains in the areas of safety and reliability while producing significantly more electricity," he said. "The operating agreement with Exelon has already reaped tremendous results, and we intend to keep the positive momentum going."

The nuclear operating services agreement with Exelon remains in effect through mid-January, and PSEG has options to renew the agreement for up to three years. "We plan to keep the Exelon team in place while we evaluate our strategic options for our nuclear facilities in the future," Ferland added.