Monday, February 24, 2014

Power plants for sale

If you have a spare billion dollars or two, Duke Energy is having a clearance sale on power plants.

Last week the nation's largest electric power holding company confirmed what had been said off the record for several months: that it is exiting the wholesale electricity market.

It seems the wholesale market is not nearly as lucrative as the retail market, and Duke would rather sell power it generates than generate electricity and sell it to other companies that provide it to homes and businesses.

If you look at the list of plants that Duke plans to sell its interest in, you'll find several of them are along the Ohio River -- Beckjord, Zimmer, Stuart, Killen and Hanging Rock, to name the ones I'm most familiar with. About half the generating capacity Duke wants to sell is coal-fired. The rest is natural gas.

Duke executives say the asking price is about half the plants' book value. So if you want to spend $2 billion to pick up $4 billion worth of generating assets, have at it.

But the wholesale market may not be the place to put your money now. Electricity demand is down from 2008, including the PJM Interconnection region that includes the area along most of the Ohio River. It's a tough business now.

Beyond that, who would want to buy coal-fired power plants that have ash ponds, ash piles or slurry landfills as part of the deal? Duke is having enough problems with the ash spill on the Dan River in North Carolina earlier this month. How would taking on such a potential liability be attractive to investors?

Duke executives say they expect to close on the sale of their merchant assets early next year.