Dive Brief:
- American Electric Power plans to sell its stakes in two transmission joint ventures — Pioneer Transmission and Prairie Wind Transmission — with a decision on whether to sell its share in Transource Energy, another transmission joint venture, expected by the end of the year, Julie Sloat, AEP president and CEO, said Thursday during an earnings conference call.
- Sloat said AEP expects to close in August on the $1.5 billion sale of its 1,365-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.
- Those potential and pending sales, plus the planned sales of AEP Energy, the company’s competitive retail energy business, OnSite Partners, a distributed energy company subsidiary, and AEP’s stake in NM Renewable Development, a solar company focused on New Mexico, are part of the utility company’s effort to focus on its regulated utilities, according to Sloat.
Dive Insight:
“When people buy AEP shares or invest in our bonds, they’re not necessarily looking to buy something that is not a traditional regulated utility type of business,” Sloat said on the earnings conference call.
The Columbus, Ohio-based utility company wants to channel its efforts and investment into its regulated footprint, according to Sloat. “That’s where we want to play,” she said.
AEP’s investment in Pioneer Transmission, a joint venture with Duke Energy, was $46 million and its investment in Prairie Wind Transmission, co-owned with Evergy and Berkshire Hathaway Energy, was $19 million, as of June 30, the company said in a Securities and Exchange Commission filing Thursday. The net book value of Transource Energy, a majority-owned joint venture with Evergy, was $278 million.
Meanwhile, AEP’s utilities are advancing their renewable energy plans. State regulators have approved $5.2 billion of a five-year $8.6 billion renewables capital plan, with $1.7 billion under review at state utility commissions, according to Sloat.
Last month, the Louisiana Public Service Commission approved a plan by Southwestern Electric Power Co., an AEP utility, to buy 1 GW of wind and solar being built by Invenergy for about $2.2 billion.
On the regulatory front, AEP is focused on closing the gap between what return on equity its utilities are allowed to earn and what they actually earn, according to Sloat.
Efforts to increase the average ROE to 9.4% were delayed by mild weather in the second quarter, Sloat said. Average returns were 8.6%, with the weather reducing the returns by 0.4%, according to Sloat.
“Closing this gap is going to take a little longer than we had anticipated … but I’m confident that we’ll reduce this gap by year-end and still meet our earnings guidance,” she said.
In the second quarter, AEP’s weather-normalized retail sales grew 1.5% from the year-ago period. Weather-normalized residential sales fell 2.4%, commercial sales jumped 7.7% and industrial sales inched up 0.1% compared to the second quarter of 2022, according to an earnings presentation.
“Industrial load is beginning to reflect the expected slowdown in the outlook for manufacturing across the country,” Ann Kelly, AEP’s chief financial officer, said.
AEP expects industrial load growth to remain “subdued” this year because of tighter financial conditions and slowing levels of demand for finished goods, Kelly said.
The utility company anticipates that its normalized retail load, an estimate that aims to remove the effect weather can have on sales, will grow 0.8% this year and 0.6% in 2024.
Partly driven by mild weather, AEP’s second-quarter income dipped to $521.2 million, or $1.01/share, from $524.5 million, or $1.02/share, a year ago, the company said in a news release. Revenue slipped to $4.4 billion in the quarter from $4.6 billion in the year-ago period.
Operating earnings fell 6% in the second quarter to $582.2 million, or $1.13/share, down from $617.7 million, or $1.20/share, a year ago. Operating earnings exclude certain items such as mark-to-market commodity price changes.
AEP’s utilities operate in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.
