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International Power to Buy Sempra Plant for USD 1.14 Billion

April 20 (Bloomberg) -- International Power Plc, the UK firm owner of power plants in 17 countries, agreed to pay USD 1.14 billion for a Texas generating plant, expanding its production 20 percent in the state as U.S. electricity prices recover.

The Coleto Creek coal-fired power station will immediately add earnings of about 1 penny (USD 0.02) per share, International Power Chief Executive Officer Phil Cox said in an interview. The owners, including Sempra Energy and Carlyle Group, are selling the plant for more than double what they paid for it in 2004.

The purchase allows International Power to diversify from natural gas-fired plants, whose operating costs have risen amid soaring prices for the fuel in the past year. San Diego-based Sempra will use the proceeds to help fund some of its planned USD 10 billion in spending over the next five years on gas pipelines and power systems.

“It's a very beneficial deal for shareholders because it's cash- and earnings-enhancing,” said Brian Gallagher at Gartmore Investment Management in London, where he helps manage about USD 1.07 billion. ``It's an illustration that they think the U.S. market recovery will come through.''

Shares of International Power fell 0.6 percent to GBP 3.025 in London, taking this year's gain to 26 percent. Sempra shares fell 10 cents to USD 45.61 as of 1:15 p.m. in New York Stock Exchange composite trading. Before today, they had climbed 1.9 percent this year.

Profit Margin

The 632-megawatt Coleto Creek power plant supplements International Power's 3,000 megawatts of gas-fired power generation in Texas, the London-based company said today in a statement. The coal-fired Coleto Creek station has profit margins of about $20 per megawatt-hour, double the profits at International Power's three gas-fired plants in Texas, Cox said in the interview.

The purchase values Coleto Creek at about USD 1,800 per kilowatt-hour, more than the USD 1,600 per kilowatt-hour NRG Energy Inc., the biggest U.S. electricity producer that doesn't own a utility, paid for Texas Genco LLC in February, Cox said. On that basis, the price is the highest paid for a U.S. coal-fired plant in at least the past 10 years, Sempra Chief Financial Officer Mark Snell said.

The pace of utility mergers and acquisitions has accelerated this year as companies seek to expand using cash generated from increasing energy prices. There have been about USD 160 billion in industry transactions this year, according to data compiled by Bloomberg. That's more than five times the USD 30.4 billion in the same period a year ago.

National Grid Plc, a British owner of utilities in New York and Massachusetts, in February agreed to buy New York's KeySpan Corp. for USD 7.3 billion in cash, an acquisition that will almost double the London-based company's U.S. customers.

‘Outstanding Return'

Sempra and a venture between Carlyle and Riverstone Holdings LLC bought the Coleto Creek plant for USD 430 million from American Electric Power Co. Carlyle, a private equity firm which manages USD 35 billion, and Riverstone, which manages USD 6 billion, invested in the plant through the Carlyle/Riverstone Global Energy & Power Fund II.

“We've had an outstanding return,” Snell, 49, said in a telephone interview. “We're repositioning our portfolio of assets.”

The partners will divide the proceeds after repaying about USD 350 million in debt. Snell declined to disclose the effect on Sempra's earnings from the sale. Sempra, which owns the San Diego Gas & Electric and Southern California Gas utilities, is building two plants for processing imported liquefied natural gas and is teaming up with Kinder Morgan Energy Partners to build a pipeline for transporting gas from Wyoming to Ohio.

Sempra, which plans a record USD 2.3 billion in investments this year, is also building pipelines in Mexico and Texas and power lines in Southern California.

Second Sale

The company earlier this week completed the sale of another Texas coal-fired electricity generator, the 305-megawatt Twin Oaks Power plant, for USD 480 million, to PNM Resources Inc. Sempra paid USD 120 million for the plant in 2002. One megawatt is enough to power about 800 U.S. homes.

Sempra and the venture between Carlyle and Riverstone will still own Texas gas-fired power plants that can generate more than 1,000 megawatts of electricity. The sale of those plants is continuing, with proceeds expected be lower than the gains from the coal-fired plants, Snell said.

The sale of the Coleto Creek plant is expected to be completed in the third quarter, International Power said today. Texas, the second-most populous U.S. state, accounts for about two-thirds of the company's business in the country.

International Power said it will fund a quarter of the acquisition with cash and the rest with debt. Lehman Brothers Holdings Inc. advised the company on the acquisition. Credit Suisse Group and Goldman Sachs Group Inc. are arranging the debt.

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