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Progress Deal Worth $1 Billion: The Utility Will Sell Another Power Plant As Part of Its Plan to Shed Noncore Assets to Pay Down Debt

Posted on: Tuesday, 9 May 2006, 06:03 CDT

By John Murawski, The News & Observer, Raleigh, N.C.

May 9--The Georgia corporation rumored to be interested in buying Progress Energy will purchase a second power plant from the Raleigh-based utility.

In package of deals announced Monday that are worth a total of about $1 billion, Southern Co. will also buy electricity from Progress Energy through 2024.

The news might dispel any lingering rumors of a wholesale takeover, but Progress Energy spokesman Keith Poston declined to say whether a larger union could still be in the offing. Progress Energy officials had hinted for weeks to disregard Wall Street buzz of a major corporate marriage.

"Maybe these negotiations were misconstrued as merger talks," said Darin Conti, a utility research analyst with Wachovia Securities in New York. "We didn't put much stock in those rumors."

The rumor that Progress Energy would become part of Atlanta-based Southern Co. had reached a gossip threshold that prompted Robert McGehee, Progress Energy's chief executive, to take the unusual step of issuing an internal memo affirming the company's independence.

Progress Energy announced part of the agreement with Southern Co. last month, saying it would sell a natural gas power plant in Florida. On Monday, Progress Energy filled in the rest of the details, saying it also would sell Southern Co. a second natural gas plant east of Charlotte and enter into long-term contracts to sell electricity to Southern Co. through 2024.

Progress Energy's sale of the DeSoto County Generating Co. plant in Florida and Rowan County Power plant east of Charlotte will yield the company $405 million. Progress Energy is selling the two natural gas fueled plants at a loss. It will take a $70 million writedown on the sale, representing the difference between the plants' book value and the sales price.

The sell-off represents a serious commitment toward debt reduction, Conti said.

Progress Energy officials said in March that the company wants to sell $1.3 billion in noncore assets this year to help trim its $11 billion debt. Other assets that could potentially be sold are natural gas fields in Texas and Louisiana and unclaimed tax write-offs from synthetic fuel operations, Poston said.

Progress Energy has been divesting nonutility assets to focus on its core business of selling power. In recent years, the company has sold a barge company, a railway subsidiary and a telecommunications network, among other things.

The two power plants being sold to Southern Co. are not in Progress Energy's service areas. They sell electricity exclusively to other electric utilities -- Florida Power & Light and Duke Power -- not to Progress Energy's retail customers.

Such unregulated power plants with no guaranteed customer base are known in the industry as merchant plants.

"To sell nonregulated or merchant plants for $405 million, we think is a real good deal, given what the market has been for merchant plants for the last couple of years," Poston said. "It lowers risk of owning plants and not having anyone to sell the output to."

Progress Energy still has four merchant plants in Georgia that sell power to municipalities.

The two natural gas plants being sold to Southern Co. generate electricity primarily during peak demand times and are fired up only about six times a year. Some of the power is for what is called intermediate demand, which runs four months of the year, primarily in the summer, to supplement baseload plants powered by coal and nuclear energy.

"Natural gas is prohibitively expensive to run year-round," Poston said.

Separately, Progress Energy also said it entered into a long-term contract to buy electricity from Southern Co. through 2024. Progress Energy will resell that electricity to municipalities in Georgia.

The electricity that Progress will be buying from Southern is intermediate power, while the electricity Progress will be selling to Southern is peak-demand electricity. In the utility industry baseload, intermediate and peak-demand electricity are sold for different prices, to different customers and often generated by different technologies.

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Source: The News & Observer

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