Hydro for sale10 June 1999
Generation assets are changing hands in the US as utilities opt out — or are forced out — of the market. To keep readers up-to-date, here is a summary of hydro generation facilities whose ownership has changed
In the past two years more than US$20.5B in power generation assets totalling 550GW of capacity (thermal, coal and hydro) has been sold on the US market, at prices generally greater than their book value. Generation assets are changing hands in the US because many utilities are moving out of the generation market to focus on transmission and distribution. In some states this is because regulators have mandated the divestiture of generation assets. But not all utilities are selling their plants. Some are becoming specialist generators, while some utilities and developers simply foresee a huge increase in demand and are expanding their portfolios as a result.
The Clinton administration has unveiled its own deregulation plan, in a new electric market restructuring bill aimed at opening the nation’s US$215B power sector. It is hoped the 1999 bill will meet with more success than the Administration’s 1998 bill, which died with dissolution of the Congress.
Changes in the market affecting hydro assets are:
•In 1997 Ogden Corporation acquired Pacific Energy, a subsidiary of Pacific Enterprises that will be renamed Ogden Power Pacific Co. The sale comprises 18 hydro, geothermal, gas and wastewood plants totalling 181MW.
•In 1997 USGen, a subsidiary of PG&E, purchased generation assets from the New England Electric Systems. The assets comprised 15 hydroelectric plants, three fossil fuelled plants and some electricity purchase contracts, together providing some 4000MW.
•In 1998 Niagara Mohawk sold 72 hydro units in New York State, averaging less than 10MW, to Orion Power Holdings. The selling price was US$425M, compared to a book value of US$250M. Orion is a holding company set up in March 1998 to acquire capacity in the US and Canada. It is owned by a subsidiary of Baltimore Gas & Electric, and an investment fund operated by Goldman Sachs.
•In 1998 the Orange and Rockland power company completed the sale of its Mongaup, Swinging Bridge and Grahamsville projects, all located in Sullivan county, to the Southern Company. The plants were part of a package of projects sold for US$480M that included four gas fired stations.
•In 1998 GPU sold 23 hydro and fossil plants to Sithe Energies for US$1.72B. GPU has also sold its 20% interest in the 88MW Seneca pumped storage plant to First Energy for US$43M, and is negotiating to sell its half interest in the 400MW Yard Creek pumped storage plant to its current co-owner, Public Service Electric & Gas.
•In 1998 PG&E asked for regulatory approval to transfer 68 hydro plants totalling 3889MW to its subsidiary US Generating.
•In 1998 Portland General planned to divest all its generating assets, including eight hydro units totalling 533MW.
•In 1999 Maine Public Service sold 92MW of generating assets to WPS Power Development for US$37.425M. The mostly hydro capacity was sold to comply with a 1998 Maine law requiring utilities to sell their generating assets. (See pp28-30 in this issue).
•In 1999 Central Maine Power has transferred licences for its hydro and other generating assets to a subsidiary of FPL Group, FPL Energy Maine Hydro. The sale is to comply with a 1997 Maine state law intended to separate generation from transmission and distribution assets.
•In 1999 PP&L Resources acquired hydro assets from Bangor Hydro Electric and Montana Power (see IWP&DC, May 1999, p30).
•In 1999 Pacific Gas & Electric transferred the licence for its El Dorado hydro plant to the El Dorado Irrigation District.
The routes of deregulation being followed in many South American countries follow what is becoming an accepted pattern. A single utility is split into generation, transmission and distribution functions. The generation side is further split into one or more generating companies who compete to sell electricity to the new distribution companies.
There is as yet no consensus on the best way to allot generating assets: keeping all hydro facilities in a dedicated hydro company is as popular as setting up companies with a mix of generation.
It is clear from deregulation in the US and Europe, however, that companies change very rapidly in this new marketplace. Mergers, acquisitions and asset sales mean that generating facilities can change hands very quickly indeed.
Among the South American changes:
•In Argentina, the 450MW Cerros Colorades is now majority-owned by Richmond, US-based Dominion Energy. A future concession for two new plants on the San Juan river rated at 125MW and 60MW, and rights to operate an existing 45MW plant, have been awarded to AES, following a competitive bidding process.
•In Bolivia, a 75% interest in Hidroelectrica Bolivia (HB) has been purchased by US-based Teaska International. HB operates a small hydro power plant on the Taquesi river and plans to develop three more 25MW units.
•In Brazil the processes of deregulation vary. In some areas such as Minas Geras an integrated utility still exists, a stake in which has been bought by the US Southern Company. Other
previously-integrated utilities have been split; Eletrobras, for example, now has three generation subsidiaries. Hydroelectric plants are variously wholly-owned by a generation company with other assets, part-owned by several companies, or operating as stand-alone independent power generation companies.
•In Chile, generation company Chilgener has taken an active interest in opportunities in other countries including Argentina, Colombia and Peru. Shares in Chilgener itself have been bought by Central and South West System of the US and by Copec.
•In Mexico, plans have been published to introduce private investment in the electricity supply industry. The government plans to retain ownership of its dams and transmission function, as well as oversight of the industry.
•In Panama, four electricity generation companies have been created from the state-run utility. In a 1998 auction, a Hydro Québec–Coastal Power venture bought a 49% stake in the 300MW Fortuna hydro facility, and AES bought 49% interests in the Chiriqui and Bayano hydro plants.