Electric Utility Power Plant Asset Values - Pricing Point in NY

Earlier this week Reliant Energy (RRI) announced the sale of 2,100 megawatts of capacity to a private group for $975 million, writes utility analyst Sandy Cohen. The sale price was for approximately $443/kw. RRI's incentive for the sale was to continue to reduce its excessive debt burden (and with this transaction will have reduced debt by about $4 billion since 2003).

See the following link for more details: PR Newswire and RRI Press Release.

Some highlights:

1. RRI sold all its merchant generating assets in New York City, about 2,100 MW of capacity
2. RRI will take a $160 million pre-tax loss on the sale
3. RRI was expecting $200-$250 million of EBITDA and $125-$175 million of cash flow from the sold assets

Merrill Lynch also wrote a report about the deal (Merrill Lynch PDF on the RRI Sale -- may not be accessible). Merrill Lynch is disappointed in the sales price, and indicates the sales price implies 2 things of note:

1. RRI is much more pessimistic on the NYC power market than is Merrill Lynch, and therefore RRI was willing to accept a lower than anticipated sales price; and
2. RRI's earnings could be hurt by $0.15-$0.0 per share.