Dominion Resources Inc. (D) gained the most in almost nine months after announcing it was selling its fleet of merchant coal-fired power plants and focusing on its less-volatile regulated businesses.
The utility owner, based in Richmond, Virginia, rose 2.4 percent to $53.77 at the close in New York, the biggest increase since Dec. 20.
“We are glad to see the decision to downsize the merchant power exposure as it reconciles with our bearish view on PJM power prices,” Angie Storozynski, utilities analyst with Macquarie Capital USA Inc., wrote in a note to clients today. Wholesale electricity prices for PJM Interconnection LLC, the largest competitive U.S. power market, “seem to be testing historical lows,” Storozynski said in a Sept. 4 note.
After the plant sales, which are expected to close early next year, Dominion will be an almost fully regulated energy company with more than 80 percent of its earnings derived from operations where rates and returns on investment are dictated by state and federal regulators, Thomas Farrell, Dominion’s chairman and chief executive officer, said at a Barclays Plc (BARC) conference today.
Dominion would exit PJM’s western region with the sales of its 1,158-megawatt plant in Kincaid, Illinois, and 50 percent interest in a 1,424-megawatt plant outside Chicago. Virginia’s largest utility owner is also divesting a 1,536-megawatt power station in Somerset, Massachusetts.
Dominion’s plants are expected to sell for a total of $600 million to $800 million, or about $175 to $230 per kilowatt of generating capacity, Julien Dumoulin-Smith, utilities analyst with UBS Securities LLC, wrote in a research note today.
The fleet will probably collect more than the $150-per- kilowatt price that Exelon Corp. (EXC) received last month for three Maryland plants because the Dominion plants comply with pending environmental rules and “are higher quality and generate more cash flow” per kilowatt, Dumoulin-Smith said.
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