As a part of its ‘PowerChoice’ proposal to reduce average rates, Niagara Mohawk Power Corporation of the US has announced a plan to divest its fossil-fuelled and hydroelectric generating assets by auction. Niagara Mohawk (Nimo) proposed the divestiture plan as a part of PowerChoice. The proposal is currently being reviewed by the New York State Public Service Commission (PSC). Decisions on PowerChoice and the divestiture plan are anticipated early this year.
The divestiture plan proposes a schedule under which bids would be accepted in the second quarter of 1998. Selection of winning bidders is expected by the middle of this year. Following additional regulatory review, a transfer of the assets is projected to occur within six to 12 months after the selection of the winning bidders.
Nimo’s fossil and hydroelectric generating portfolio includes 4217MW of capacity. The company operates four fossil-fuelled plants, with a combined capacity of 3256MW. The company’s 72 hydroelectric plants will be auctioned off in two packages. Package one consists of 55 plants with 378MW of capacity located north and west of Utica. Package two consists of 17 plants with 283MW of capacity located east of Utica.
Potential buyers may bid on the entire portfolio of generating assets or any combination of the fossil assets and/or hydro packages. Bids will not be accepted for individual hydro facilities. Obligations associated with ownership of the fossil and hydro assets, including environmental regulations, licence requirements and local property taxes, will become the responsibility of the buyers.
Nimo said that it will seek opportunities for employees associated with fossil and hydro generation plants to gain employment with the buyers of the assets. Nimo’s fossil and hydro generation group has approximately 700 employees, including 541 members of Local Union ‘97 of the International brotherhood of Electrical Workers (IBEW). Any buyer will be obligated to honour the current Nimo/IBEW labour agreement until its expiration on May 31, 2001.
To increase the potential value of certain generating assets, Nimo will continue to pursue the regulatory and permitting processes necessary to upgrade certain facilities. Actual implementation of the proposed facility improvements will be at the discretion of the buyers. The auction proposal requires the fossil and hydro generation asset buyers to contract for the sale of electricity to Nimo for a transition period of up to four years.
The auction process will be conducted in three phases: buyer qualification, preliminary bidding and final bidding by selected potential buyers. Consistent with its policy to reduce involvement in electricity generation, Nimo will not bid to retain any of its fossil or its hydro assets.
However, the company has reserved the right to reject all bids and to seek alternative methods of divestiture if the auction process does not produce adequate value for the assets. Investment bankers, Merrill Lynch & Co and Donaldson, Lufkin & Jenrette Securities Corp., have been retained by Nimo as financial advisers for the sale.
In addition to the approval of the state PSC for the PowerChoice settlement, dives-titure plan and asset transfer, the company will seek authorization from the Federal Energy Regulatory Commis-sion and make all required filings with the Federal Trade Commission, Department of Justice and any other appropriate government agencies.