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Dominion to Hive Fossil Fuel Units

AEP NI D

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Dominion Resources, Inc. (D - Snapshot Report) announced its intention to divest three fossil fuel fired power stations with a combined generation capacity of 4,118 megawatts (MW). The company will utilize the proceeds from sale of these assets to expand its regulated business operations and lower its debt levels. The assets sales are expected to be completed in the first six months of 2013.

The stations which are going to be divested are Brayton Point Power Station, a 1,536 MW power station in Somerset, Massachusetts; Kincaid Power Station, a 1,158 MW power station in Kincaid, Ill and Elwood Power Station, a 1,424 MW power station in Illinois.

We believe the company will not find it difficult to find buyers for these fossil fired stations as all of these are well maintained and fitted with emissions controls equipment as per the new federal emission regulations.

Dominion has been working on the development of a few new projects and we believe the sale proceeds from these assets will allow the company to fund as well as complete development projects on time.

The company has started constructing a 1,329 MW, gas-fired power station in Warren County, Virginia, scheduled for completion in late 2014. The company intends to file regulatory applications in the fourth quarter of 2012 for its next gas-fired generating facility, in Brunswick County, Virginia, which is expected to come online in 2016.  

The company’s outstanding long-term debt at the end of the second quarter 2012 was $17 billion, down from $17.4 billion at prior-year quarter end. The debt-to-capital ratio of the company at the end of the second quarter was 58.2%, higher than the peer group average of 40.4%. So, the freed up capital from the asset sale will help Dominion to reduce its debts and at the same time lower the interest burden.

The company expects full year 2012 earnings per share between $3.10 and $3.35 per share. The Zacks Consensus Estimate for 2012 is currently at $3.17 per share.

Dominion Resources retains a Zacks #3 Rank which translates into a short-term Hold rating. The company primarily competes with American Electric Power Co. (AEP - Analyst Report) and NiSource Inc. (NI - Analyst Report).

Richmond, Virginia based Dominion Resources Inc., together with its subsidiaries, engages in producing and transporting energy in the U.S. The company was founded in 1909 and has 15,800 employees.

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