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Plants for Sale: Pricing the New Wave

Financial players and load-serving utilities are looking for power asset deals.
Fortnightly Magazine - February 2004

bear, and transfer risk; other financial players with access to capital (e.g., private equity firms); and financially healthy utilities with retail load to support.

Endnotes

  1. This study does not claim to have accounted for all transactions over the past two years, but is rather a best effort attempt to track all publicly disclosed deals. All information used in the analysis is public. Information on terms and conditions of sales is not complete for all transactions. In particular, the existence, value, and length of power purchase contracts attached to deals or signed thereafter is not consistently available. Consequently, it is difficult to say how many, if any, transactions are "pure merchant" deals. This study also does not include the transfer of assets from project sponsors to the lenders and other investors. Information was sourced from company press releases, SEC filings, and news stories. In total, there were 44 transactions where megawatt capacity sold and dollar value information were available. An additional eight deals were identified but without sufficient details on either sales price or capacity sold. Finally, eight wind transactions were identified, but only two with sale prices.
  2. Due to a few large or geographically diverse portfolios (e.g., ArcLight's purchase of Aquila assets and Goldman Sachs' purchase of Cogentrix), which make it difficult to value individual plants sold, the data used for both this discussion and the next on sales by region does not cover the full 42 transactions.
  3. This level of participation is understated given that financial players made up six of the nine sales with insufficient information on dollar value or megawatt capacity.
  4. Dow Jones, Oct. 21, 2003.
  5. Dow Jones, Oct. 27, 2003.
  6. For example, on Oct. 31, 2003, Reliant announced it had updated its estimate of the fair market value of its wholesale energy business. The update was triggered by SFAS No. 142, which requires goodwill to be tested periodically. At the same time, Reliant announced that its evaluation "could lead to decisions to mothball, retire or dispose of assets."
  7. For example, the state Public Service Commission recently gave Wisconsin Energy the green light to build two 615-MW coal plants in Oak Creek, at a cost of $2.15 billion. The price looks right-the commission endorsed a return on equity for the utility of 12.7 percent a year.

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