American Electric Power expects to use the $1.2 billion in expected proceeds from selling its 1,365-MW unregulated renewable energy fleet to bolster its regulated utility operations, Julie Sloat, AEP president and CEO, said Thursday during the company’s Q4 earnings conference call.
The utility company anticipates deciding whether to sell AEP Energy, its competitive retail energy business, in the first half of this year, according to Sloat. The subsidiary had 736,000 customer accounts in six states and Washington, D.C., at the end of 2022.
It also aims to sell its Kentucky utility operations to Liberty Utilities, a subsidiary of Algonquin Power & Utilities, by a contractual April 26 deadline, assuming the Federal Energy Regulatory Commission approves a revamped application in time, Sloat said. The companies have asked FERC to approve the $2.65 billion deal by March 31 after the agency rejected an earlier application, saying they failed to show it wouldn’t increase transmission rates.
Sloat told analysts she has made it a priority to simplify and “de-risk” AEP’s portfolio.
The company plans to sell 1,200 MW of wind and 165 MW of solar assets in 11 states in the second quarter to IRG Acquisition Holdings, a partnership owned by Invenergy, pension fund Caisse de dépôt et placement du Québec, and funds managed by Blackstone Infrastructure, at an enterprise value of $1.5 billion, including project debt.
AEP expects it will take a $100 million to $150 million after-tax loss on the transaction, according to the company’s earnings presentation.
“The transaction proceeds will be directed to support our regulated businesses as we enhance the energy delivery infrastructure and transform our generation fleet,” Sloat said.
AEP isn’t alone in selling unregulated renewable energy facilities.
Consolidated Edison is preparing to sell its 4-GW unregulated renewable energy fleet to RWE Renewables Americas in a deal valued at $6.8 billion. FERC approved the deal on Jan. 20. And Duke Energy is shopping its 3.4-GW fleet of unregulated renewable generating resources.
Another top priority for AEP is increasing the return on equity at its utilities, which last year combined for a 9.1% ROE, according to Sloat. The Columbus, Ohio-based company expects the combined ROE to increase to 9.4% this year through higher rates in states like Louisiana, Virginia and Oklahoma.
Weather-normalized electric sales at AEP’s utilities climbed 2.8% last year, the best annual load growth in 15 years, Ann Kelly, AEP CFO, said, noting the increase was partly driven by a 4.5% jump in industrial sales.
Looking ahead, AEP expects its load growth will slow to 0.7% this year, with residential sales shrinking by 0.5% as people respond to higher inflation, energy costs and interest rates, according to Kelly.
The company expects industrial sales to fall roughly in half. “The combination of sustained inflation, supply chain disruptions, increasing borrowing costs, strong dollar and elevated energy costs have formed significant challenges for domestic manufacturing,” Kelly said.
On the financial front, AEP’s earnings fell to $2.31 billion in 2022 from $2.49 billion the year earlier, driven down in part by a loss on the expected sale of its Kentucky operations and increases in interest expense due to higher interest rates and debt balances, the company said in its annual report at the Securities and Exchange Commission.
AEP’s revenue increased to $19.6 billion in 2022, up from $16.8 billion in 2021.
AEP’s utilities have 5.6 million retail customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.