NRG Energy Inc. officials Friday the independent power producer will cancel some projects and sell others to help fund the purchase of 2,535 Mw of generation from FirstEnergy Corp.
Under the agreement, Minneapolis, Minn.-based NRG agreed to pay $1.5 billion for four primarily coal-fueled generating stations located along Lake Erie, near Cleveland, and Toledo, Ohio. Chief financial officer Leonard Bluhm said the company will take two projects “off the radar screen” and has identified two to three operating projects that could be sold as part of a capital redeployment scheme.
He said the total generation to be canceled or sold amounts to less than 1,000 Mw. In addition, he said, the acquisition will be funded through an off-balance sheet leveraged lease at the project level, by tapping the company’s revolving credit agreement, and internal cash. Bluhm also said the company expects to maintain its investment grade credit rating.
As back up, Bluhm said Xcel Energy Inc. has committed to supply up to $300 million, “if we are not able to redeploy capital in a timely manner.”
Chairman David Peterson said a transitional power purchase agreement with FirstEnergy for more than 90% of the plants’ output is in place through 2005. He estimated 2002 earnings will be at the higher end of previous guidance of $1.65-$1.70/share, with the acquisition contributing 17-23¢/share to earnings on an annual basis. Peterson said the range is variable because the company hasn’t designated which assets to sell yet.
Craig A. Mataczynski, CEO of NRG North America, said as a result of the acquisition about 40% of the company’s US portfolio will be coal-fired, “up significantly.” He said one-third of the acquisition is base load generation and two-thirds will be intermediate generation. Significant sums are included to upgrade the plants environmental systems, he said, especially to cut nitrogen oxide emissions.
Because the facilities are on Lake Erie, along with NRG’s Huntley and Dunkirk stations in western New York, Mataczynski said there will be opportunities to reduce the company’s coal costs and improve margins at the plants. He said the acquisition is also expected to improve gross margins of the company’s marketing operations 5%-15%.
The assets covered by the acquisition include the 1,262 Mw Eastlake, 376 Mw Ashtabula, and 249 Mw Lake Shore power stations, near Cleveland, Ohio; and the 648 Mw Bay Shore power station, near Toledo, Ohio. Also included in the purchase are two ash disposal sites, one in Painesville Township and another in Ashtabula and Kingville Townships.