Duke Energy Mulls Sale of International Power Plants

Duke Energy is considering the sale of all or most of its international power plants, about 4,400 MW dispersed throughout Central and South America.

The company’s international business segment, Duke Energy International (DEI), was forced to make the disclosure in light of a required statement from its Brazilian subsidiary, Duke Energy International, Geração Paranapanema S.A. That company has publicly traded securities in Brazil.

DEI, which is headquartered in Houston, Texas, owns power plants in Argentina, Brazil, Chile, Ecuador, El Salvador, Guatemala, and Peru. About half are sited in Brazil, and two-thirds is hydro capacity. The sale would not include the company’s 25% equity interest in National Methanol Co. in Saudi Arabia.

“The majority of the power generated by the plants is either contracted or receiving a capacity payment,” the company said on February 4.

The international segment brought in about 12.5% of Duke Energy’s total earnings in 2014. U.S.–based regulated utilities brought in most of the remainder.

Duke Energy underscored, however, that preparations for the sale of its international unit are at a preliminary stage. “No binding or non-binding offers have been requested or submitted,” it said. “Management will provide any updates during its regularly scheduled earnings call on Feb. 18.”

According to credit ratings agency Moody’s Investors Service, the sale would be “credit positive” because it would reduce the most volatile and highest risk portion of its operations. It would also be in line with Duke Energy’s strategy to increase its proportion of lower risk, fully regulated U.S. utilities in its business mix, the agency noted.

It would come on the heels of the 2015 sale of Duke Energy’s non-regulated Midwest Commercial Generation Business for $2.8 billion in cash to Dynegy, including ownership interests in 11 power plants—with a capacity of approximately 6,100 MW—and Duke Energy Retail Sales, the company’s competitive retail business in Ohio.

Moody’s noted that Duke could use proceeds from the international sale to help finance the acquisition of Piedmont Natural Gas, a company engaged in the distribution of natural gas in North Carolina, South Carolina, and Tennessee.

Targeting close of the transaction by the end of 2016, Duke expects the majority of the $4.9 billion purchase price to be financed with debt, “which could increase the level of parent company debt at Duke to approximately 35% of total debt from 30% as of 30 September 2015,” Moody’s said. “The company has indicated that other cash flow sources could reduce these debt funding requirements.”

For more on Duke Energy’s transition away from wholesale markets, see “Duke Energy Generation: Wholesale Retreat” in POWER’s June 2015 issue, a story that is part of POWER’s Generation Transition series.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)