TransCanada to sell $3.7B of merchant generation to finance pipeline acquisition

Dive Brief:

TransCanada has announced it plans to sell its U.S. Northeast Power business to private equity interests for a total of $3.7 billion. Proceeds will help fund the $13 billion acquisition of the Columbia Pipeline Group.
The company is selling its Ravenswood, Ironwood, Ocean State Power gas plants and the Kibby Wind facility, to Helix Generation LLC, an affiliate of LS Power Equity Advisors, for $2.2 billion. The plants have a combined capacity of 3,950 MW.
TransCanada also is selling its 600 MW of Northeast hydroelectric assets, TC Hydro, to Great River Hydro LLC, an affiliate of ArcLight Capital Partners, for $1.065 billion. The remainder of the $3.7 billion total in asset sales is attributed to TransCanada's power marketing business, which is also expected to be sold.

Dive Insight:

With its move to sell merchant generation assets to finance a pipeline acquisition, TransCanada is following a path taken by a number of U.S. utilities.

Natural gas and power have become closed linked over the past couple of decades, but volatility in the nation's wholesale markets has driven a number of utilities to move out of the merchant generation business.

In the last few years, Ameren, Duke and PPL have all unloaded their merchant plants, selling to independent power producers, and AEP sold four plants to a private equity group in September after its Ohio plant subsidy proposal was blocked by FERC.

As utilities have turned away from generation, they've looked to gas transport as a safer market. With ample domestic supplies and limited pipeline capacity, the value of existing pipelines is rising.

Duke Energy is acquiring Piedmont Natural Gas for $4.9 billion. DTE Energy in September said it would buy $1.3 billion midstream natural gas assets in support in order to continue to “grow and earn competitive returns for shareholders.”

Dominion Resources has struck a deal to buy natural gas distributor Questar Corp. for $4.4 billion.

Consolidated Edison and Crestwood Equity Partners in April announced a joint venture to own and develop Crestwood's existing natural gas pipeline and storage business in northern Pennsylvania and southern New York.

And in July Southern Co. completed its $8 billion merger with natural gas distributor AGL Resources.

TransCanada’s sale of its generation is part of the company’s strategic review of its business.

“The sale of our merchant U.S. Northeast Power business to fund a portion of our acquisition of Columbia will further enhance the stability and predictability of our earnings and cash flow streams and support a strong and growing dividend,” Russ Girling, TransCanada’s CEO said in a statement.

The two sale transactions are expected to close in the first half of 2017. The company said the closing of the Columbia Pipeline deal will mark the completion of its “review of strategic alternatives for our master limited partnership (MLP) holdings.”