By Geert De Lombaerde
A consortium of firms led by Invenergy LLC has agreed to buy American Electric Power Co.’s unregulated renewables portfolio, which spans 14 projects in 11 states, in a deal worth US$1.5 billion.
Columbus-based AEP brought its contracted renewables group to market a year ago and its executives had initially targeted late summer for a sale of the portfolio, which comprises 1,365 megawatts (1,200 of them wind). The sale to IRG Acquisition Holdings—which includes Quebec pension manager CDPQ and some Blackstone Infrastructure funds in addition to Chicago-based Invenergy—is expected to close by June 30 and should net AEP about US$1.2 billion in cash.
The renewables sale is one of two key transactions recently named President and CEO Julie Sloat is looking to close so her team can reassess AEP’s need to raise money from investors to fund its long-term plans to add more than 15 gigawatts of renewables to its portfolio. The other is the planned sale of Kentucky Power to Algonquin Power & Utilities Corp., which was initially turned down by federal regulators in December but for which the two companies recently submitted new filings. If completed, that sale also should bring in about US$1.2 billion.
“We want to make sure we have a strong balance sheet because we don’t want anybody worried about any dilutive otherwise actions that we would have to take,” Sloat told analysts on a conference call discussing AEP’s quarterly results about these deals’ potential benefit to the company’s funding plans. “Top of mind for us is making sure that balance sheet is in check.”
AEP posted a fourth-quarter profit of US$384 million, a big drop from the US$539 million of the last three months of 2021, as revenues rose to US$4.9 billion from US$4.1 billion. Taking out a US$100 million expected loss on the Kentucky Power sale and nearly US$24 million in asset impairments and other charges, operating earnings climbed to US$540 million versus US$496 million in the prior-year quarter.
During the quarter, normalized residential sales fell 0.8 per cent from late 2021 while commercial sales climbed 5.4 per cent and industrial sales rose 1.5 per cent. Those numbers combined to help give AEP total normalized sales growth of 2.8 per cent for the year—the company’s highest since the late 1990s—but new CFO Ann Kelly told analysts the company expects that number to fall to 0.7 per cent in 2023 and 1.0 per cent next year. Residential sales this year are forecast to slip 0.5 per cent while commercial growth is expected to slow to just 0.6 per cent but industrial activity is forecast to grow more than 2 per cent.
“The story is changing somewhat to further remove away from the pandemic,” Kelly said. “In 2022, the boost from fiscal policy overwhelmed the Federal Reserve’s efforts to constrain the economy through monetary policy. In 2023, we expect the fiscal boost to date given the congressional changes after the election, while the Fed’s efforts to tame inflation remain in place. We expect this to result in a slight moderation of economic growth for the balance of this year.”
Shares of AEP (Ticker: AEP) ended Feb. 23 trading essentially flat at US$90.71. Over the past six months, they have slipped about 10 per cent, shrinking the company’s market capitalization to about US$47 billion.
