With an eye toward reducing debt and bolstering its low-risk regulated utility business in Florida and the Carolinas, Progress Energy announced plans Tuesday to sell 1,855 MW of unregulated gas-fired power generation in Georgia to energy investment fund Arc Light Capital Partners and executed a deal to sell its wholesale forward gas and power contracts with 16 Georgia electric cooperatives to Constellation Energy Commodities Group, Inc. The forward contracts include about 140 Bcf of gas supply for the cooperatives through 2015.
The sales, which are valued at $480 million, represent substantially all of subsidiary Progress Ventures' physical and commercial assets and liabilities, said Progress CFO Peter Scott. "These transactions, combined with other Progress Ventures' asset sales that we are working on, put us on track to meet our 2007 divestiture proceeds target.
"Our exit from Progress Ventures' nonregulated businesses, including sales of merchant plants and the natural gas E&P [exploration and production] business, is expected to result in the company earning a modest positive return on its capital," he said. "We have strengthened our balance sheet and credit metrics and lowered our risk profile. With this latest transaction, we are well positioned to accommodate the significant future growth that is expected in our electric utilities."
Progress Energy announced plans last December to sell substantially all of Progress Ventures' commercial operations. The company took a net noncash, after-tax charge against earnings of $165 million, or $0.66 per share, in the fourth quarter of last year. Progress previously announced the sale of its natural gas E&P businesses in October to a subsidiary of Texas-based EXCO Resources Inc. for $1.16 billion in cash. The E&P sale resulted in an after-tax gain of $300 million.
The goal in the restructuring was to reduce holding company debt, lower Progress' risk profile, and strengthen its balance sheet and credit metrics. Progress cut its debt by about $1.7 billion last year exceeding a target of reducing debt by $1.3 billion by the end of 2007. These asset sales are a major part of that debt reduction process.
The Georgia generation asset sale to ArcLight that was announced Tuesday involves 1,855 MW of gas-fired generation assets, including Effingham County Power LLC (485 MW), Monroe Power Company Generating LLC (320 MW), Walton County Power LLC (450 MW) and Washington County Power LLC (600 MW). The sale is expected to close in the second quarter.
In addition, Progress Ventures plans to assign its contract portfolio, which consists of full-requirements contracts with 16 Georgia electric membership cooperatives, forward gas and power contracts, gas transportation contracts and other structured agreements, to Constellation Energy Commodities Group Inc. The Constellation agreement is expected to close in the second quarter.
The combination of the two transactions is expected to result in net proceeds of $265 million to Progress Energy. In addition, Progress expects income tax benefits resulting from the loss on sale of these assets of $215 million in 2007. Progress anticipates recording a net noncash, after-tax charge of $290 million in discontinued operations primarily in the second quarter related to these transactions. Additionally, as a result of the gas and power hedges being assigned, the company will return posted collateral to counterparties following the transaction's close.
Progress spokesman David McNeill said the company still intends to sell its river terminals in West Virginia and Kentucky, a coal mine in Virginia, a synthetic fuel operation and Progress Materials in Raleigh, NC. McNeill said the company's focus is on its core utility business, which serves about 3.1 million customers in Florida and the Carolinas. Progress also retains more than 23,000 MW of regulated power generation capacity.
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