1 Regulator Could Kill This Dividend Stock Deal

Ameren (NYSE: AEE  ) is one step closer to switching to entirely regulated sales. The dividend stock just snagged approval to offload more assets, putting the company in a better position than ever to pull sustainable sales. But there's one regulator that's less than elated, and its rejection could pull the entire deal apart. Here's what you need to know.

Keeping out of competition
Ameren announced this week that the Federal Energy Regulatory Commission (FERC) has approved its request to divest its merchant generation business to ex-competitor Dynegy (NYSE: DYN  ) . 

"Receipt of these FERC approvals and the agreement with Rockland are key steps forward in executing our plan to divest the merchant generation business," said Martin Lyons, Jr., Ameren executive vice president and CFO. "These divestitures are a key component of our strategy of focusing on our rate-regulated operations and allocating our growth capital to higher return opportunities. Our planned investments in transmission, distribution and generation infrastructure will help ensure reliable service for our customers and drive enhanced shareholder value."

Ameren and Dynegy operate in similar spots all over Illinois, and this latest move will allow Ameren its clean exit, while Dynegy will capture increasing economies of scale.

Source: Dynegy.com. 

The move will add 4,119 MW of net capacity to Dynegy's Illinois operations, almost doubling its current fleet size. And while many companies are cutting out coal, Dynegy's latest additions are all coal-fired when operating as baseload plants.

Dynegy is pushing hard to keep coal, and spent around $1 billion on various emissions reduction technology between 2005 and 2012. While the deal is expected to be completed in Q4 2013, the utility will still need to secure approval from the Illinois Pollution Control Board before it's officially allowed to add on more coal.

But the deal ain't done yet
Ameren's switch to regulated earnings is enough to make any investor salivate, but its divestiture has been tough. Although financial details weren't disclosed in this latest press release, Dynegy is undoubtedly paying bottom dollar for these polluting power plants. Pleading tough times, Ameren has avoided adding on soot-control equipment to its coal plants, a move that the Pollution Control Board might not tolerate from "willing buyer" Dynegy.

If the Board doesn't extend the same waiver to Dynegy, the Associated Press reports that Dynegy's Board of Directors "would have to reevaluate" the seemingly solid deal.

Deal breaker?
The future of this deal relies on fickle regulators, which is never a good thing. Dynegy has proven that it's willing to pay to cut coal pollution, and its deal with Ameren should reflect those expected costs. American Electric Power (NYSE: AEP  ) won the Edison Award this year for one of the cleanest coal plants around, pulling a record-breaking 39% efficiency from low-sulfur coal at its $1.7 billion 600 MW plant. Duke Energy (NYSE: DUK  ) opened the doors on its own 618 MW coal-fired plant in June that uses advanced gasification technology to produce 10 times the power of its predecessor plant with 70% fewer emissions.

Cleaner coal is possible – but it comes at a price. Ameren is opting out, and for utilities like American Electric Power and Duke Energy, their willingness to pay is at least allowing them to use this energy source for the short-term future. But Dynegy's strategy is risky business, and investors would do well to wait this one out before making any major moves.

Cleaner than coal
One home-run investing opportunity has been slipping under Wall Street's radar for months -- and it's cleaner and cheaper than coal. But it won't stay hidden much longer. Forward-thinking energy players like GE and Ford have already plowed sizable amounts of research capital into this little-known stock... because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2681790, ~/Articles/ArticleHandler.aspx, 9/17/2014 4:02:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement