Con Ed starts bidding process for plants.

Con Ed has opened the first round of the bidding process for three of its electric generation bundles and expects to anoint the ultimate winners early next year.

The bidding for the Astoria, Arthur Kill and Ravenswood plants and other electric power generation capacity will be run by Morgan Stanley. But bidding is by "invitation only," so as to cut out those that would not qualify to bid or are merely seeking information.

The sale of these three plants is just the beginning of Con Ed's divestiture program, which is designed to open competition and lower electrical prices.

"The idea is to have outside generators that are experienced and well-heeled in power production - come in and purchase these plants," said Peter L. DiCapua, president of the Owners Committee on Electric Rates and senior vice president of Atco Properties a Management. "I've heard pitches from various companies that fit that bill, and they believe that by coming in, they can re-power and operate plants better than before."

Since these firms are entrepreneurial and not regulated, they expect to spend capital dollars to update and efficiently operate the plants to create cheaper power, stimulate competition and thereby lower costs for building owners.

Once a confidentiality agreement is signed, bidders will be provided with a "fairly substantial" package. After perusing that, those that want to continue in the process can submit a non-binding bid for each plant.

According to Andrew Jacob, chief engineer of generation planning and head of the divestiture team for Con Ed, the non-binding bid would be considered, along with the group's financial, operational and maintenance credentials, as well as their price, their ability to close on the sale, and some other considerations.

Bids for two of the three plants are due on October 13th, while those bidding an the Astoria package have until November 3rd. Since bidders are able to bid on all three packages, but cannot win more than one, Con Ed wanted to enable more bidders to spend more time on due diligence for the bundles.

"We decided to stagger the bids because Astoria is a more complicated bundle (that) contains three distinct sites," explained Jacob. By contrast, Ravenswood is located on one site, while Arthur Kill comprises two sites.

"When Morgan Stanley was reviewing the information, they felt there was more there for people to consider and it would be worthwhile for bidders to be provided more time," said Jacob.

At Astoria, for instance, a new operator could update two of three generators that are now off-line, bring them on and then update the current generator, significantly increasing power production.

Astoria is also bundled with two gas turbine barge generators that a real estate investor might target for its own properties, although DiCapua says such a plan would have to be thoroughly investigated to determine if the "insurance of having the power" available would make it worth the large upfront capital outlay.

Those bidders that make the first cut would then be allowed to proceed through a second phase, at which point they would be given more information, tours of the plants, and access to both management personnel and a data room. At the end of the second round, they would submit a binding bid, and Con Ed expects to select a winner by the beginning of next year.

The Public Service Commission (PSC) will not have a say in the selection of the winners, but Jacob said Con Ed will be discussing the process with the PSC as the bidders proceed, and review each of the major steps with the Commission.

Con Ed has refused to set a floor price, but they are hopeful that the limited ability to bring power into New York City, and the number of interested bidders that want a foothold in the captive market, will boost the price.

A recent sale in Homer City, PA of a 1,900 megawatt facility fetched $1.8 billion, much more than was expected. The three Con Ed plants have a total generating capacity of 5,500 megawatts.

Although these plants are not considered future redevelopment sites for housing, the agreements call for the current generation capacity to ba maintained only until 2002, by which time full-scale competition is expected to be fully phased-in.

The generating capacity at the Astoria plant on the Queens side of the East River, for instance, could also be purchased and then relocated to another, less desirable industrial site without Manhattan views.

But as Dicapua points out, "You'd have to identify the land with no environmental concerns or concerned community around it. You'd have to find something on Mars."

Such a land play, as described in Real Estate Weekly on May 28th, could more easily be made with the Waterside and East River sites that are awaiting Public Service Commission approval before being marketed by Con Ed, probably next year.

Additionally, in mid-September, Con Ed expects to release the Cushman & Wakefield recommendations on what it should do with its numerous non-power generation sites, such as parking lots and office buildings. Major developers have already been circling those, especially several on the East Side of Manhattan.