AUGUSTA — In one of the largest sales state officials can remember, Central Maine Power Co. has cut a deal to sell all of its non-nuclear power generating assets for $846 million to the Florida-based FPL Group Inc.
For CMP’s 520,000 customers, the sale could translate into a 10 percent reduction in rates by the end of this year, if state regulators approve the sale this fall. The average residential customer could save $75 a year in bills.
CMP President and CEO David T. Flanagan, who announced the pending sale at a press conference Tuesday morning, said the rate reduction would come because the sale price is in excess of the book value of the assets.
Last year, Gov. Angus King signed a bill into law opening Maine’s electric industry to retail competition whereby customers may chose their power suppliers beginning in March 2000. The new law requires the state’s three investor-owned utilities to sell off their power generation assets by the turn of the century.
Rather than waiting for the deadline, CMP decided to put its assets up for sale. “There was a lot of interest not just from American companies, but from international companies,” said Flanagan of the sale of the company’s 1,185 megawatts of generating capacity in its hydro, fossil and biomass power plants. “What attracted them was primarily the hydro assets, which have some unique and irreplaceable qualities,” he said.
“Ownership of the CMP assets will make us a leading generator of electricity in the Northeast, one of the nation’s most dynamic energy markets,” said James L. Broadhead, chairman and chief executive officer of FPL Group Inc.
“It is a region where reserve margins are already low and may go lower because of nuclear plant closures. Both of these factors provide a favorable environment for owning existing and new generation,” Broadhead said in a prepared statement. “The acquisition and development of these assets will allow us to build on our skills in generation and will enhance our position as a premier clean fuel generator.”
FPL Group Inc. is the holding company for both Florida Power & Light Co., one of the largest electric utilities in the United States, and ESI Energy, the nation’s second-largest independent power producer. FPL provides electricity-related services to more than 3.6 million customers in the Sunshine State and has a generating capacity of more than 16,000 megawatts.
“It’s not an issue of bidding so high,” said Dale Thomas, a corporate spokesman for the FPL Group Inc. “We felt we bid the appropriate price for what we believe is the market value of these plants. These plants in our estimation are the finest hydro assets in New England. They have been well-operated and well-maintained … and we will certainly be able to continue that operational record and make money off them,” said Thomas.
The $846 million sale price is far greater than the $240 million book value on CMP’s assets, according to utility officials. But CMP won’t be able to simply pocket the difference between the sale price and the book value of the assets it plans to sell. The state’s largest utility must pay off the debt on those assets and state and federal taxes, which could total $312 million or more.
Flanagan says proceeds from the sale will be used first to pay off existing mortgages, estimated at $240 million. Next, CMP must pay federal and state taxes. Company officials estimate state income taxes to cost as much as $60 million, state real estate transfer taxes to be about $2 million, and federal taxes about $250 million.
Also, Flanagan says the utility will use a portion of the proceeds from the sale to buy electricity from the FPL Group Inc. so it can continue to provide energy to its customers between the time of the closing of the sale and March 2000 by buying electricity from FPL Group Inc. Officials declined to release those costs.
While CMP officials won’t say exactly how many bids they received, Flanagan says there was lots of interest in its assets. CMP sent out nearly 200 invitations for bids.
Flanagan is proposing that the state place the one-time $60 million in state income tax revenues it will get from the sale in a trust fund to help pay electric bills of low-income customers and that the charge now included in electric bills for that subsidy be removed.
Rep. Carol Kontos, D-Windam, House majority leader, says she is very pleased with the CMP sale. “CMP should be applauded,”said Kontos in a telephone interview Tuesday.
By putting its assets up for sale early and getting a good price, Kontos said, CMP is in a much stronger position for the future and its actions will benefit not only the company but ratepayers.
“They [CMP] got a good price,” said Kontos. The Windam lawmaker said she was pleased to learn that FPL Group Inc. intends to offer employment to the 215 CMP employees who work at the facilities that will be sold.
Kontos says stranded costs, those left by opening the electric industry to retail competition, is a big component in customers’ electric bills. Lower stranded costs will mean lower electric bills. CMP officials say the price offered by FPL Group Inc. will lower by nearly $500,000 million the utility’s stranded costs and other costs that otherwise would have been collected from customers.
Like Kontos and others, Public Advocate Stephen Ward said he was pleased with the sale. “I congratulate CMP for timing the sales of assets in a way that produced very positive results for ratepayers,” said Ward, who has not seen the details on the pending sale.
“It really is a seller’s market right now. There is a lot of optimism about the deregulation of electric generation in the Northeast and from people all over New England, Florida and California who want to be players in the new market,” said the public advocate.
The sale of CMP’s non-nuclear power generating assets has been approved by the boards of directors of both companies. It is now subject to approvals by federal and state regulators, which company officials expect will come in the fourth quarter of 1998.
Thomas L. Welch, chairman of Maine’s Public Utilities Commission, offered no opinion on whether regulators should approve the deal or not. “It is encouraging that there at least appears to be the prospects of some significant benefits for Maine ratepayers from the sale of these assets,” Welch said. CMP has 45 days to file its sale proposal with the PUC, which will review it during the next six or seven months, he added.
Central Maine Power is selling its 31 hydroelectric stations on the Saco, Androscoggin and Kennebec rivers, which total 373 megawatts of generating capacity; its three oil-fired stations in Yarmouth, Wiscasset and South Portland totaling 781 megawatts of capacity; and its 31-megawatt wood-fired plant in Fort Fairfield.