AEP eyes sale of competitive retail business in PJM as company focuses on regulated wires, renewables

Dive Brief:

American Electric Power is considering selling its competitive retail business, the fourth largest non-residential retail power supplier in the PJM Interconnection and the eighth largest nationally, company officials said Tuesday.
Also, AEP agreed to reduce the sale price of its Kentucky utility operations to Liberty Utilities by 7.5%, to $2.65 billion from $2.85 billion, and delay the sale to January, the companies said Friday.
AEP, based in Columbus, Ohio, expects to close on the sale of 1,365 MW of unregulated wind and solar assets early in the second quarter, according to company officials. “The sale of our unregulated, contracted renewable assets and our Kentucky operations will allow us to shift capital to revitalize our transmission and distribution systems,” Julie Sloat, AEP chief financial officer and president, said.

Dive Insight:

AEP may sell its AEP Energy subsidiary as part of its shift away from unregulated assets.

“We’re a firm believer in moving more things to the regulated side,” Matt Satterwhite, senior vice president, regulatory, said during an investor meeting Tuesday.

AEP Energy has about 494,000 electric customers that use 24 TWh annually in seven Mid-Atlantic states, as well as about 180,000 gas customers in Ohio, according to the company’s investor day presentation.

The business has about $170 million in net equity and accounts for 6 cents of AEP’s expected 2022 operating earnings of $4.97/share to $5.07/share, according to Sloat, who is set to succeed Nick Akins as the company’s CEO on Jan. 1.

Meanwhile, bids are due in about two weeks for AEP’s unregulated wind and solar portfolio. The company is seeing “strong” interest from financial and strategic buyers, according to Greg Hall, AEP executive vice president and chief commercial officer.

Besides direct asset sales, AEP is examining its options for its utility subsidiaries that operate in multiple states, such as Southwestern Electric Power Co., which serves parts of Arkansas, Louisiana and Texas.

AEP wants to align its generating portfolio with the policies of the individual states it serves, according to Satterwhite, who noted a utility may share generation across states with different energy policies, like Virginia and West Virginia.

After encountering disagreements between states over individual power plants, AEP is reviewing options for having dedicated state-by-state generating resources, according to the presentation.

“While it may not look exactly like a sale, I think there may be some other opportunities there,” Sloat said about AEP’s options for its multi-state utilities.

Looking ahead, AEP expects its utilities will own about 6,500 MW of coal-fired generation by the end of 2028, down from about 11,850 MW last year and 24,800 MW in 2010.

The company on Tuesday accelerated its goal to have net zero greenhouse gas emissions by 2045, five years ahead of an earlier target, and cut its Scope 1 emissions — emissions from sources owned or controlled by AEP — by 80% by 2030 from a 2005 baseline.

Over the next five years, AEP expects to spend $15 billion on transmission, $10.8 billion on distribution facilities and $8.6 billion on regulated renewable generation, while holding average annual rate hikes to 4%, company officials said. The company has a $35 billion pipeline of potential transmission projects over the next decade, according to Sloat.

The most recent long-range resource plans for AEP’s utilities call for adding 8,170 MW of solar by 2032, followed by 7,200 MW of wind, 1,528 MW of gas and 310 MW of storage, according to the presentation.

AEP owns about 31,000 MW of generation in total. By the end of this decade, the company expects renewable generation will account for about 52% of its generating capacity, followed by gas at 20% and coal at 19%. Energy efficiency and demand response account for 3% in avoided capacity additions, according to the presentation. Coal made up 70% of its generating capacity in 2005.

AEP’s utilities have nearly 5.5 million retail customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.