Headquartered in Houston, TX, Dynegy Inc. DYN shares rose 9.2% on receiving the approval from the Federal Energy Regulatory Commission (FERC) to acquire certain generation assets from Duke Energy Corporation DUK and Energy Capital Partners.
The transaction includes acquiring ownership interest in Duke Energy’s Midwest Commercial Generation Business and retail electric business as well as two business wings of Energy Capital – EquiPower Resources Corp. and Brayton Point Holdings, LLC.
The FERC approval concludes all the necessary conditions required to close these transactions. Both the deals are expected to be closed by the end of this week.
Dynegy will pay $2.8 billion in cash for Duke’s 11 power plants in Ohio, Illinois and Pennsylvania, and $3.45 billion in cash as well as stock for Energy Capital Partners’ New England, Pennsylvania and the Midwest power plants.
The acquired properties will add roughly 12,500 megawatts (MW) of generating capacity, doubling Dynegy’s total output to about 26,000 MW. The generation mix of the facilities primarily consists of natural gas and environment-compliant coal, while a few generation units are oil based.
Dynegy believes that the procurement of assets will not only step-up its adjusted EBITDA materially but also bring in other benefits like tax-savings and overhead cost reduction.
With these assets under its belt, Dynegy will now have a significant hold in the PJM (Pennsylvania, New Jersey and Maryland) and New England markets. The resource-rich Marcellus and Utica Shale that cross Pennsylvania and Ohio have triggered huge growth opportunities for power demand in the region.
Global concerns about the pitfalls of green-house gas emissions in addition to increasing restrictions on coal usage have brought a wide array of eco-friendly fuel sources, including natural gas into the limelight. Hence, the deals are a strategic fit giving a much needed boost to Dynegy’s fuel mix from its predominantly coal-based fleet now.
Zacks Rank
Dynegy currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the electric utility space include Empresa Nacional de Electricidad S.A. EOC and Enersis S.A. ENI, sporting a Zacks Rank #1 (Strong Buy).
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