Power plant asset value pricing point ... another view of merchant plant value

May.30.05 | About: Public Service (PEG)

An announcement by Public Service Enterprise Group (NYSE:PEG) on Friday, May 27th, 2005, has set another pricing point on the value of merchant and power plant assets in today's marketplace.  This is the latest in a series of recent power plant sales, and continues the trends that will help investors better understand the parties who are willing to purchase these plants, and at what price.

In several recent pieces this site has highlighted the trend towards increased power plant assets sales, and has tried to track and predict the potential buyers (see these 2 links:  a) EEI Financial Conference Panel 1, and b) Point and Counterpoint ... The Bull and Bear Case for Power Plant Sales.  These articles also represent the beginning of this site's effort to keep track of the trend for valuation of these merchant power plant assets.

The 2 takeaways from the PEG announcement on Friday in our view are:

1) This purchase is by an regulated utility, otherwise known (and referenced in our articles) as a "strategic" buyer ... not a financial buyer (private equity).

2) The price was $220 million for 821 MW, or $268/KW (PEG took a $180 million after tax loss on the sale), or less than half of its capital cost into the project ... well less than the prices paid for the 3 projects recently bought that were cited in the 2nd link above.

For more details on the transaction see the PEG investor relations article and press release: PEG Sale of Power Plant.