Dominion has announced plans to sell its Dominion Peoples and Dominion Hope natural gas distribution companies to Babcock & Brown Infrastructure Fund North America, a San Francisco-based infrastructure fund, for $910 million. The transaction, expected to close in 2009, is subject to adjustments to working capital and capital expenditures.

In announcing the deal, CEO Thomas F. Farrell II offered no explanation for why the company was disposing of the companies, which serve markets in Pennsylvania and West Virginia. But the news follows an announcement earlier this week that Dominion was selling natural gas drilling rights in Pennsylvania and West Virginia for $552 million. Proceeds from that sale, Farrell said, would "help fund our electric and natural gas growth projects."

Bacon's bottom line: It appears that Dominion is redeploying its energy portfolio, trading in assets generating lower rates of return for assets generating higher rates of return. Dominion hasn't announced any major acquisitions recently, but it is proceeding with construction of a coal-fired power plant in Wise County, and Farrell has confirmed that the company very much wants to add a third nuclear generator to its North Anna complex – a very expensive proposition.

Over the past decade, Dominion had added very little base-load capacity to its operations in Virginia, its largest market, preferring to import electricity over high-voltage electric transmission lines. As a consequence, Virginia is the second largest electricity importer in the country, second only to California. But Dominion's investment calculus changed after passage of a re-regulation bill that provides the utility competitive rates of return on capital invested in the state. The redeployment of assets could reflect a Dominion conviction that it now makes more sense to invest in Virginia.