BALTIMORE (AP) — Constellation Energy Group Inc. said yesterday it would sell six power plants to privately held Tenaska Power Fund LP for $1.64 billion in cash.
Constellation, the parent of Baltimore Gas & Electric Co. and a supplier of electricity, natural gas and energy services nationwide, said it expects to net $1.5 billion and record a one-time gain of $245 million.
The gas-fired plants to be sold generate 3,145 megawatts of power. They are the High Desert plant in Victorville, Calif.; the Rio Nogales plant in Seguin, Texas; Holland Energy in Shelby County, Ill.; Big Sandy in Neal, W.Va.; University Park in Chicago; and Wolf Hills in Bristol, Va.
Constellation, which is selling itself to FPL Group Inc., parent of Florida Power & Light, said proceeds will be used to reduce debt until the company reaches a target leverage ratio, then will be used to invest in the business or buy back stock. FPL approved the sale.
The energy supplier said it expects the sale of plants to reduce earnings modestly in 2008 and 2009 and is expected to add to earnings after that.
Paul Fremont, an analyst who follows Constellation for Jefferies & Co., said the plants have not been contributing significantly to cash flow or earnings and the sale helps Constellation improve its balance sheet.
In July, Constellation said second-quarter net income fell 24 percent because of higher fuel costs. The company blamed cost increases, which outpaced higher revenue from gas rates.
Mr. Fremont said uncertainty over the pending sale to FPL Group, a deal that has been put on hold by the Maryland General Assembly, may have played a part in the decision, particularly concerns that the deal might not go through.
“It more looks to me like Constellation is positioning itself, you know, in the event the FPL deal does not happen,” he said.
If the sale goes through, FPL’s assets would improve the combined company’s balance sheet, with or without the sale. If the deal does not go through, the sale could be viewed as a protective move.
, leaving Constellation with a stronger balance sheet.
“That’s how I would interpret it,” Mr. Fremont said.
Constellation spokeswoman Angelique Rewers said the pending deal with FPL did not factor into the decision.
Earlier this month, FPL Group announced it is suing Maryland and the Maryland Public Service Commission over delays in the review of its pending purchase of Constellation Energy.
FPL is seeking a speedy hearing of the proposed $10.8 billion deal, which has been delayed by a bill passed during a special summer session of the state legislature to deal with increased electric rates brought on by deregulation.
The deal is expected to close in 2006 or early 2007, subject to regulatory approvals and other closing conditions.
Shares of Constellation rose 14 cents to close at $59.97 on the New York Stock Exchange.
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