Combined Cycle

Allegheny Energy to spend $1 billion on 3 peakers

OGJ Online

Nov. 15, 2000—Allegheny Energy Inc. will buy three natural gas peaking plants from Enron North America for about $1 billion.

The simple cycle peaking units total 1,710 MW and began operation in June 2000. They are located in Gleason, Tenn., Wheatland, Ind., and Manhattan, Ill. The locations provide Allegheny with gas-fired generating capacity within the East Central Area Reliability Region (ECAR), Mid-American Interconnected Network (MAIN), and the Southeastern Electric Reliability Council (SERC).

The company revealed the $600/kW price when asked by analysts during a conference call today. The price is substantially higher than the customary construction costs of a new simple cycle peaking unit. Usually those power plant costs range from $250/kW to at most $400/kW, industry sources say.

The plant sites can accommodate more turbines and the plants could be eventually converted to combined cycle, says Janice Lantz, spokesperson for Allegheny.

The acquisition is part of an overall strategy by Allegheny to enter the national arena of merchant energy supply and trading, says Lantz.

The new peaking units will be paid for with a combination of debt and equity, Lantz says. But the details have not been specified yet. The company might issue more than $500 million of common shares and use the proceeds to develop or acquire more power plants in addition to this purchase, she said.

On balance, investor reaction was neutral to the prospect of issuing new shares and having a more leveraged balance sheet. The company did promise investors that the acquisition would be immediately accretive to earnings after the transaction was completed in 2001. Allegheny

Allegheny already owns 11,000 MW that were transferred to the company from its regulated utilities as a result of restructuring in the states where the utilities operate. The company is also in the midst of obtaining permits to build a 1,080 MW natural gas combined cycle plant in La Paz County, Ariz. With this acquisition, Allegheny will own more than 12,000 MW of total generating capacity.