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Ameren Corp. (AEE - Analyst Report) has received approval from the Federal Energy Regulatory Commission (FERC) for the sale of its five coal-fired power plants in Illinois to power generator Dynegy Inc. (DYN - Snapshot Report). With this sale, the company is divesting its merchant generation business, Ameren Energy Resources Company (“AER”).

In Mar 2013, the company had announced its intention to sell the following power plants, namely, the 410 megawatt (MW) Duck Creek plant, 650 MW E D Edwards plant, 895 MW Coffeen plant, 1,197 MW Newton plant and 1,002 MW Joppa coal plant.

The company is selling its merchant power plants to focus on its regulated utilities in Missouri and Illinois. However, the deal is subject to approval from the Illinois Pollution Control Board on its Illinois Multi Pollutant Standard variance request. The company expects a decision on Nov 21, 2013.

The company has also received FERC approval for Ameren's transfer of three natural gas-fired power plants in Illinois from one Ameren unit to another. Per this approval, Grand Tower Energy Center, a 478 MW combined cycle facility in Grand Tower, Ill, Elgin Energy Center, a 460 MW simple cycle facility in Elgin, Ill, and Gibson City Energy Center, a 228 MW simple cycle facility in Gibson City, Ill will be transferred from Ameren Energy Generating Company (Genco) to AmerenEnergy Medina Valley Cogen, LLC (Medina Valley). We note that this asset transfer is not a part of the Dynergy deal.

Genco had received an initial payment of $100 million from Medina Valley for these three centers in Mar 2013. Post approval, Genco received an additional $37.5 million, as per the terms of the agreement between Genco and Medina Valley.

Meanwhile, Medina Valley has entered into an agreement to sell these three plants to Rockland Capital. The deal is expected to close by the end of 2013. The company expects Medina Valley to realize after-tax sale proceeds in excess of $137.5 million inclusive of funds held in escrow two years after the closing of the deal. Per the terms of the AER divestiture agreement, Genco would then receive after-tax proceeds realized in excess of $137.5 million.

These divestitures will allow the company to focus on its rate-regulated operations and allocate capital to other higher return opportunities. Moreover, the company will be able to focus more on planned investments in transmission, distribution and generation infrastructure that will ensure enhanced shareholder value.

Also, this transaction would enable the company to abide by the President’s fresh climate strategy laid out in June this year. It calls for limiting pollution from existing coal-fired power plants. We view the sale as positive for the company as the profit from these businesses were affected by low power prices.

The company presently has a short-term Zacks Rank #3 (Hold) given its pending regulatory cases. Stocks that are worth considering in the space are Alliant Energy Corporation (LNT - Snapshot Report) and Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report), both with a Zacks Rank #2 (Buy).

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