AEP plans to sell competitive retail, distributed energy businesses in move to simplify, lower risks

Dive Brief:

American Electric Power plans to sell AEP Energy, its competitive retail energy business, and OnSite Partners, a distributed energy company, as part of a strategy to de-risk and simplify its businesses, Julie Sloat, AEP president and CEO, said Thursday during an earnings conference call.
The Columbus, Ohio-based company is also considering selling its Pioneer Transmission, Prairie Wind Transmission and Transource Energy joint ventures, which total about $551 million in net plant investment for AEP, according to Sloat.
Looking ahead, the chance of a downturn in the national economy is “extraordinarily high,” Ann Kelly, AEP chief financial officer, said, noting that economic activity is slowing in its service territory.

Dive Insight:

Simplifying and derisking its businesses is a top priority for AEP, Sloat told analysts.

The company expects to close before July on the $1.5 billion sale of its 1,360-MW unregulated renewables portfolio to IRG Acquisition Holdings, a partnership owned by Invenergy, pension fund Caisse de dépôt et placement du Québec, and funds managed by Blackstone Infrastructure. AEP plans to use the sale proceeds for its regulated utility operations, according to Sloat.

AEP expects it will sell AEP Energy in the first half of next year. The retail energy provider had about 752,000 customers in Delaware, Illinois, Maryland, New Jersey, Ohio Pennsylvania and Washington, D.C., at the end of March, the company said in a quarterly filing with the Securities and Exchange Commission.

Last month, AEP decided to include AEP Onsite Partners in a sale process. The unit focuses on distributed solar, combined heat and power, energy storage, waste heat recovery, energy efficiency and peaking generation.

It owned projects in 22 states, including about 168 MW of installed solar, and about 26 MW of solar projects that are under construction, according to the SEC filing. Its net book value was $350 million at the end of March. AEP expects to sell the unit in the first half of next year.

AEP Onsite Partners also has a 50% stake in NM Renewable Development, totaling $102 million. PNM Resources owns the other half.

NMRD owns eight operating solar projects totaling 135 MW, one 50-MW project that is under construction and six projects totaling 440 MW that are under development, all in New Mexico, according to AEP’s earnings presentation. AEP and PNM have agreed to initiate a separate sales process for their interests in NMRD. AEP expects to sell the business in the fourth quarter.

AEP expects to decide whether it will sell its transmission JVs by the end of this year. The possible sale of those assets is driven by a desire to focus on customers within AEP’s footprint, according to Sloat.

“We love the assets, but we'd really like to take those dollars and channel them toward the traditional core utility business and [transmission] utility business,” she said.

Utility-owned renewable energy is a major focus for AEP’s utilities, which operate in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.

The utilities are seeking state approval to acquire about 2,600 MW of utility-owned renewable generation totaling about $6.1 billion, according to the SEC filing. They also have pending requests for proposals for 4,850 MW of wind and solar.

AEP’s utilities own about 24,600 MW, including about 10,700 MW of coal-fired generation, according to the filing.

In the first quarter, AEP’s weather-normalized retail sales grew 3.3% from the year-ago period. Weather-normalized residential sales fell 1.4%, commercial sales jumped 7.8%, mainly due to new data centers, and industrial sales climbed 5.1% compared to the first quarter of 2022, according to the filing.

Despite the strong first quarter, AEP expects weather-normalized sales will grow 0.8% this year.

“The probability of a national downturn is extraordinarily high, and it's clear that activity is already slowed to a point that it's having a material impact on our customers' finances,” Kelly said. “While we expect the pace of economic growth to slow further, we don't anticipate a severe economic contraction across our service area in 2023.”

Partly driven by a mild winter, AEP’s first-quarter income fell 44% to $397 million, or 77 cents/share, from $714.7 million, or $1.41/share, a year ago, the company said in a news release. Revenue increased to $4.7 billion in the quarter from $4.6 billion in the year-ago period.

Operating earnings fell 7% in the first quarter to $571.6 million, or $1.11/share, from $616.4 million, or $1.22/share, a year ago. Operating earnings exclude certain items such as mark-to-market commodity price changes.