Duke Energy Corp., the largest U.S. utility owner, agreed Monday to sell most of the plants operated by its money-losing wholesale power business to an investment fund for about $1.54 billion.
Duke will sell power plants in the West and Northeast and stakes in two others to LS Power Equity Partners, which raised $1.2 billion last year for electricity generation acquisitions. The natural gas-fueled plants can generate about 6,200 megawatts, Charlotte, N.C.-based Duke said. That's enough to supply power to nearly 5 million homes.
Chief Executive Paul M. Anderson announced in September plans to sell most of Duke Energy North America after a glut of generating capacity and a run-up in natural gas prices made the plants unprofitable. Anderson plans to expand the company's regulated utility operations through the proposed $8.54-billion acquisition of Cinergy Corp.
"This materially completes their exit from the energy merchant business," said Nathan Judge, an analyst in London for Atlantic Equities.
LS Power is buying Duke plants in California and Arizona that can produce a combined 4,645 megawatts, enough for 3.7 million homes, based on Energy Department estimates. The largest properties in California are the 2,538-megawatt plant in Moss Landing and a 1,002-megawatt plant in Morro Bay.
The fund also would acquire California plants in Chula Vista and Oakland, a plant in Maricopa County, Ariz., and a half-stake in a plant in Mohave County, Ariz. In the Northeast, the fund would obtain a plant in Veazie, Maine, and a stake in a Bridgeport, Conn., plant.
LS Power in October acquired a 550-megawatt power plant in Pennsylvania for $225 million from San Jose-based Calpine Corp., which filed last month for Bankruptcy Court protection. LS Power investors in the last year included endowments, foundations, pension plans and wealthy families, Credit Suisse First Boston, the fund's placement agent, said in an August statement.
LS Power is among investment funds that have taken advantage of reduced plant valuations to acquire U.S. generating capacity for less than the cost of building the generating stations, expecting growing electricity demand.
"This is a strong portfolio," said Darpan Kapadia, managing director of LS Power, referring to the Duke Energy North America plants. "We're comfortable with each of the individual markets and each of the individual projects."
Shares of Duke rose 6 cents Monday to $27.85.