Fire sale: Power plants priced to move after Enron
NY, Feb. 20 — Forced to raise cash in the wake of Enron's demise, the energy industry has begun to resemble a pawn shop, with "For Sale!" signs plastered on power plants across the nation.
But El Paso Corp., Williams Cos., AES Corp. and other energy companies hoping to sell at least $7.5 billion worth of assets have their work cut out for them: this is a buyer's market if ever there was one. "It's obviously an adverse environment to be selling assets, given the market knows their condition and the pressure that's on them," said Jeffrey Gildersleeve, an analyst at Argus Research. "That doesn't necessarily improve their negotiating abilities."
Enron's bankruptcy in December sent the utility sector into a downward spiral, crushing stock prices and making it tougher for a number of power companies to tap the debt markets. To shore up their balance sheets, a host of companies are issuing more stock and cutting capital spending.
What's more, they've decided to part with power plants, natural gas pipelines and trading units, probably at discount prices.
If sellers think prices have fallen too low, "you might see some of these sales not going through," said one investment banker.
The sales range from energy trader and pipeline operator Williams' plan to raise up to $750 million, to independent power producer NRG Energy's bid to reap almost $2 billion in proceeds from the sale of international assets. El Paso, North America's biggest natural gas pipeline operator, is seeking to raise a total of $2.25 billion.
Global power generator AES added to the glut this week by saying it will try to raise as much as $1.5 billion from the sale of assets, including some merchant and trading operations in New York, California and the United Kingdom.
'A QUESTION OF PRICE' Now power companies such as Duke Energy Corp. , which carry strong balance sheets and credit ratings, say they can scoop up power plants for far less than it would cost to build them.
In addition to Duke, bankers and analysts point to American Electric Power Co., Dominion Resources, FPL Group and Southern Co. as the most likely companies to snap up power plants.
But they may choose to play the waiting game. "How many willing buyers are there at today's levels? I don't know -- maybe they are all sitting on the sidelines and waiting to get bargain basement pricing on assets," said Chris Budzynski, an analyst with Legg Mason.
One of the first to announce asset sales was Mirant Corp, a power marketing company based in Atlanta that has been especially hard hit by the Enron fallout. The early move to raise $1.6 billion has paid off.
Already it has grabbed more than $1 billion from the sale of its German utility and another $300 million of sales is "very well-advanced" and will be completed in the next couple of months, according to Chief Financial Officer Ray Hill.
With the number of assets on the block, the cat and mouse game of when to pounce and at what price will soon likely generate a lot of sparks. "There are a lot of big companies, domestic and possibly international, that are waiting to see how much pressure comes into the market and forces prices down further," Gildersleeve said. Or as Mike Heim, an analyst at A.G. Edwards, put it "There is always a buyer for everything. It's just a question of price."
Chevron Texaco seeks investments in Korea-official
SEOUL, Feb. 19 — Chevron Texaco Corp. is seeking investment opportunities in South Korea ahead of the country's planned privatisation of its gas and power sector, an energy ministry official said on Tuesday, after the U.S. group's vice president Patricia A. Woertz met Shin Kook-hwan, Minister of Commerce, Industry and Energy.
The government's plan to privatise power monopoly Korea Electric Power Corp (KEPCO) and Korea Gas Corp (KOGAS) is a key part of a broader privatisation effort and a benchmark for the government's reform drive in a presidential election year.
"She came to introduce the newly merged company and to tap investment conditions in our country, and the minister Shin asked her to consider investing in South Korea as the government is not putting too much restriction on foreign investment," an official at the ministry who asked not to be identified told Reuters.
Leading U.S. energy marketer Mirant Corp, which acquired Hyundai Energy Co at the end of December and plans to build a 520-megawatt power plant in Korea, is the only foreign company so far to say it intends to bid for any of the privatised Korean energy companies.
Other potential foreign bidders for these state companies include Tractebel of Belgium, state utility Singapore Power, El Paso Corp and British Gas, analysts say.
Woertz leaves Korea on Wednesday after a visit to a 650,000 barrel-per-day refinery of LG-Caltex in Yeochon, a joint venture between LG Group and Chevron Texaco, a LG-Caltex spokesman said.
Lost tax revenue means trouble
The town seeks a new strategy to raise funds after Mirant pulls the plug on a plan to upgrade its canal plant
By JAMES KINSELLA / and KEVIN DENNEHY
Feb. 8 - SANDWICH - For decades, the Canal Electric plant was the bedrock of the town's financial security. Even though toxic emissions landed the power plant on an environmental group's list of the five dirtiest facilities in Massachusetts, Sandwich officials could point to the significant contributions Canal Electric made to the town's coffers.
When representatives of the Mirant Corp., Canal Electric's new owners, unveiled plans to convert part of the facility from oil-burning to natural gas-fired, town officials were delighted: Not only would the facility pump less pollution into the air, but the increased revenue expected from the improvements would mean significantly more tax dollars for the town.
This week, however, it turned out Mirant's plans were a mirage, and cash-strapped Sandwich could be headed for a financial crisis.
With taxes on the rise and state aid suffering deep cuts this year, Selectman Pamela Terry said she was "devastated" by the news. Terry said town officials recently learned state aid to the town, which was cut already for the current budget year, likely will be cut another 10 percent in the coming budget year.
"Given that bleak news, there was always Mirant on the horizon," Terry said. "I don't see anything out there now to give us tax relief." Terry said the town must examine new revenue streams in light of Mirant's decision.
The company announced Wednesday that it was canceling the repowering of Mirant Electric, the power plant on the Cape Cod Canal formerly known as Canal Electric.
Mirant officials cited several reasons, chief among them the need to retain more financial capital in the wake of the collapse of Enron, a massive power company whose collapse has shaken the nation.
Mirant had yet to obtain the permits it needed to proceed with the repowering, which would have increased the plant's electricity output from 1,126 to 1,789 megawatts.
The repowering would have more than doubled the assessed value of the plant from $217 million to $450 million.
And that would have more than doubled taxes paid by Mirant on the plant. Over 20 years, the repowered plant would have paid more than $113 million in tax revenue to the town.
In the repowered plant's first year on the tax rolls, the impact would have reduced the average residential property tax bill by an estimated $400. The median single-family house in Sandwich now pays about $3,000 a year in taxes. |
