Utility operator Dominion Resources Inc. ( D ) has signed a purchase
and sale agreement with a subsidiary of Energy Capital Partners, a
private equity firm, to sell three of its merchant power
plants.AES CORP (AES): Free Stock Analysis ReportBROOKFIELD INFR (BIP): Free Stock Analysis
ReportDOMINION RES VA (D): Free Stock Analysis ReportOTTER TAIL CORP (OTTR): Free Stock Analysis
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The units which are earmarked for sale are in Massachusetts,
southern Illinois and outside Chicago. The three power stations,
namely Brayton Point Power Station, Kincaid Power Station and
Elwood Power Station, have a combined generation capacity of 4,110
megawatt (MW). We note that Dominion's total merchant generation
capacity at present is 7,880 MW.
Dominion having decided to sell its merchant generation assets in
Sep 2012 was looking for the right buyer. Given the continued
economic weakness, we believe the sale of the merchant units is a
smart move for Dominion. This would lower the uncertainty of the
company to sell electricity in the open markets.
The sale of these assets is expected to generate after-tax
proceeds of $650 million, which Dominion intends to utilize for
debt reduction and further develop its regulated business
The transaction is expected to close in the second quarter of
2013, subject to the necessary Federal Energy Regulatory Commission
(FERC) and Hart-Scott-Rodino antitrust clearance.
Dominion's merchant business is presently operating under
challenging market conditions. Exposure to fuel cost volatility
impacts the profitability of these units. We believe if the
continued weakness in the market persists, the company might decide
to sell more units from its merchant fleet.
Dominion presently has a Zacks Rank #3 (Hold). Other utilities
like Otter Tail Corporoatin ( OTTR ) and
Brookfield Infrastructure Partners L.P. ( BIP ) are better placed
with a Zacks Rank #1 (Strong Buy). We also like Zacks Rank #2 (Buy)
The AES Corporation ( AES ).
Richmond, Virginia based Dominion Resources Inc. was founded in
1909. The company together with its subsidiaries engages in
producing and transporting energy in the U.S. With approximately
15,500 employees, the company's market capitalization is $32.45