Dominion abandons merchant coal business, moves to sell plants

Virginia-based Dominion (NYSE: D) announced Sept. 6 that it intends to sell a trio of major merchant fossil plants in Massachusetts and Illinois as part of a plan to exit merchant coal generation and concentrate more on regulated utility projects in the East.

Dominion said it will pursue sale of the Brayton Point station in Massachusetts as well as the Kincaid and Elwood facilities in Illinois. All three can generate upwards of 1,400 MW and two of the three power complexes, Brayton Point and Kincaid, are fueled primarily by coal.

The sales are expected to be completed in the first half of 2013. The company plans to invest the proceeds in growth of the company’s regulated businesses and reduce debt needs.

Dominion announced the sale plans as President, Chairman and CEO Thomas Farrell was addressing the Barclays Energy Conference in New York City. Farrell described the move as the latest and most dramatic step in Dominion’s effort to reduce risk by shrinking its merchant generation profile.

Dominion is already seeking to sell its merchant Kewaunee nuclear plant in Wisconsin. In August, Dominion reached a deal to sell its Salem Harbor fossil plant (mostly fired by coal) in Massachusetts to Footprint Power. Earlier this year it shut its coal-fired, 515-MW State Line plant in Indiana due to age and new environmental mandates.

“We announced a few minutes ago that we are exiting the merchant coal business entirely,” Farrell said, “and we are exiting PJM West.”

In 2006, Dominion was a company that was 58% unregulated and 42% regulated. But by 2011 the company was 76% regulated and the company hopes to become 80%-to-90% regulated sometime after 2013, Farrell told the Wall Street analysts.

Dominion expects to continue to increasingly grow the regulated side of its business in the next few years, the CEO said. This includes building new regulated assets in generation, electric transmission and pipeline infrastructure.

CEO says these are fine plants that no longer fit Dominion profile

These are excellent, well-operating and well-maintained facilities, and state-of-the-art emissions controls have been or are being installed at the coal-fired units, which are fully compliant with stringent, new federal air regulations, Farrell said.

“However, as we have said for some time, Dominion continually reviews its assets to ensure they still fit strategically and support our objectives to improve return on invested capital and shareholder value,” Farrell said.

  • Brayton Point is a 1,536-MW power station in Somerset, Mass., with three coal-fired units and one unit fired by oil or natural gas. Dominion has owned it since 2005.
  • Kincaid is a 1,158-MW power station in Kincaid, Ill., with two 579-MW coal-fired units. Dominion has owned Kincaid since 1998.
  • Elwood is a 1,424-MW power station outside Chicago, with nine 158-MW natural gas-fired combustion turbines. Dominion has owned a 50% interest in and operated the station since Elwood became operational in 1999.

“In the right capital structure, Brayton Point is going to make some buyer a lot of money,” Farrell said.

In 2006, Dominion’s merchant fleet was at roughly 10,300 MW excluding wind assets. By the end of 2012, however that figure should be roughly 7,000 MW, Farrell indicated.

Going forward, Dominion’s non-wind merchant fleet will be only 3,600 MW of natural gas and nuclear generation in the Northeast, Farrell indicated in his presentation.  

Dominion is very busy on its electric transmission infrastructure in Virginia, Farrell said. This includes 500-kV line “rebuild” projects that span Mt. Storm to Doubs and Lexington to Dooms, the CEO said.

Dominion’s updated capital plan calls for spending $16bn-$17bn between 2012 and 2017. That includes anywhere from $2.5bn to $3.5bn to develop the Cove Point gas liquefaction project in Maryland.

Dominion is also busy pursuing various gas transmission pipeline projects in the Mid-Atlantic region.

Finally, Farrell said the company is developing a new ‘smart grid’ technology dubbed ‘EDGE’ for energy distribution and grid efficiency. This is a voltage control algorithm technology that should help reduce demand and conserve energy by sub-station voltage monitoring and control. Dominion is partnering with Elster, Landis+Gyr, Silver Spring Networks and Lockheed Martin on the technology.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.