Dive Brief:

• American Electric Power (AEP) said Tuesday it has entered into an agreement to sell its Kentucky operations, including Kentucky Power and AEP Kentucky TransCo, to Liberty Utilities, an indirect subsidiary of Alqonquin Power & Utilities Corp. (AQN), for $2.846 billion, including the assumption of $1.221 billion of debt.
• "The sale will strengthen AEP's ability to invest in projects that will support a resilient, cleaner energy system,” AEP Chairman, President and Chief Executive Officer Nicholas Akins said in a statement.
• AEP expects the sale to close in the second quarter of 2022, pending regulatory approvals.

Dive Insight:

AEP said in April it was conducting a strategic review of its Kentucky operations, including a potential sale. It also announced a goal to cut carbon emissions 80% below 2000 levels by 2030 and achieve net zero emissions by 2050.

Akins told analysts on the company's 2021 Q2 earnings call that it expects to add nearly 16,600 MW of renewable energy generation by 2030.

"The proceeds from the sale will be used to eliminate AEP's forecasted equity needs in 2022 as the company invests in regulated renewables, transmission and other projects," the company said on Tuesday.

"While we don't expect a major financial impact to AEP from the transaction, we think it makes sense," Mike Doyle, senior equity analyst, utilities, at Edward Jones, said in an email.

"First, it simplifies the regulatory structure somewhat for AEP by taking the company out of one of the 11 states in which it currently operates utility assets. Additionally, the proceeds from the sale will be used to fund the equity portion of AEP's 2022 capital expenditures. This would prevent AEP from needing to issue new shares next year," he continued. 

According to Doyle, "Kentucky Power's contribution to AEP's overall earnings is minimal and the 5.9% return on equity it earned over the past 12 months is the lowest among AEP's utilities by a fairly wide margin."

For its part, Algonquin said it expects the acquisition to add over $2 billion of regulated electricity generation, distribution and transmission rate base assets to its current portfolio and shift its business mix to nearly 80% regulated operations as of mid-year 2022.

“The acquisition of Kentucky Power and Kentucky TransCo is a continuation of AQN's disciplined growth strategy, adding to its regulated footprint in the United States," AQN President and Chief Executive Officer Arun Banskota said in a statement.

The transaction is expected to provide "an opportunity to replace over 1 GW of [Kentucky Power's] rate-based fossil fuel generation with renewable energy, and add long lived, regulated assets to its portfolio,” Banskota added.

Earlier this month, Alqonquin also announced plans to achieve net zero emissions by 2050.

According to AEP, Kentucky Power serves about 165,000 electricity customers in 20 eastern Kentucky counties while AEP Kentucky Transco is a regulated transmission business with assets exclusively in Kentucky.

The sale must be approved by the Kentucky Public Service Commission and the Federal Energy Regulatory Commission. It is also subject to federal clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and requires clearance by the Committee on Foreign Investment in the United States.