Atlantic Power Corp (NYSE:AT) just sold off a transmission project to raise cash and funnel funds toward natural gas and renewable generation. “Focusing on ____” is a common theme among utilities as each carves out its own corporate corner, but a bad niche could turn into a bad itch on your portfolio’s profits. Let’s take a look at five utilities’ new-found niches and decide whether their focus will work for your wallet.
On Monday, Atlantic Power Corp (NYSE:AT) announced that it will pass off its Path 15 transmission project to Duke Energy Corp (NYSE:DUK) and American Transmission for $193 million in cash and debt handoffs. The deal is expected to close in Q2 2012 and will help reduce the utility’s $2 billion debt load by around 6.5%.
Atlantic CEO Barry Welch noted that while the project enjoyed “relatively stable cash flow,” his company will be carving out its new niche in renewable and natural gas generation. In 2012, Path 15 revenue clocked in at $31 million, with net income of $5.1 million.
If Welch calculates that consolidation will save Atlantic Power Corp (NYSE:AT) more than $5 million a year, then the move makes sense. The company already has a major focus on natural gas, and its wind portfolio recently mushroomed with Atlantic’s Ridgeline Energy acquisition. But if the sale is just a quick way to balance books, I’d rather Atlantic kick around in the red to make its return to black more sustainable. Either way, this utility needs all the strategy it can get with a slashed dividend and abysmal Q4 earnings.
H2O is a no-go
NextEra Energy, Inc. (NYSE:NEE) , the nation’s largest renewable-energy producer, kicked out its last hydro assets last week. CEO Armando Pimentel cited resource concentration on greater growth as the primary reason for his company’s decision. Hydropower plays an important part in most major utilities’ generation portfolios, but it accounted for just 2% of NextEra’s generation capacity in 2012. With limited prospects for new hydro facilities and tax credits flowing in for wind and solar, NextEra’s decision gets my stamp of approval.
Regulation over generation
Ameren (NYSE:AEE) stumbled this quarter as the company reorganizes itself to focus on its regulated division. The utility will exit its generation business in 2013 and take a $1.5 billion to $2 billion non-cash impairment charge to clear its books. While other utilities have poured money into massive modernization projects, Ameren will focus funds on its 2.4 million customers across Missouri and Illinois.