Dive Brief:
- American Electric Power (AEP) is considering the sale of its unregulated AEP Generation Resources subsidiary.
- AEP Generation Resources owns 10,002 megawatts of power plant capacity and had an initial capitalization of about $3 billion.
- The recent volatility in electricity prices and resource prices has made it difficult for AEP to stabilize the generation subsidiary’s earnings, especially after the separation of Ohio power plants from transmission and distribution operations at the beginning of 2014, according to CEO/Chair Nick Akins.
Dive Insight:
AEP earnings were up in Q1 but so were volatile natural gas prices, making it more challenging for the vertically integrated regulated utility to follow through on long term plans to shutter 6,600 megawatts of coal.
New power plant emissions regulations expected to be unveiled by the EPA June 2 will likely make it difficult for fossil fuel-dependent power generators like AEP Generation Resources to keep costs in control and compete in a deregulated market.
Increasing availability of distributed renewables and efficiency measures has impacted electricity demand throughout the Midwest and low wind power prices are driving out traditional generation. New transmission and distribution seems to be where Midwestern utilities are building earnings.
The volatility of returns in deregulated Midwest markets was the reason cited by Duke CEO Lynn Good in announcing earlier this month the utility would sell 6,600 megawatts of generation capacity in the region for an estimated $2.1 billion.
