AEP Looking To Sell Midwest Power Plants For Around $3 Billion

AEP Looking To Sell Midwest Power Plants For Around $3 Billion

American Electric Power announced on Tuesday, January 6th, that it had hired Goldman Sachs to advise the firm regarding the possible sale of seven power plants in Ohio and Indiana.

The plants are capable of generating 7,923 megawatts, burning mainly coal or natural gas, Melissa McHenry, a spokeswoman for AEP noted in an interview with Bloomberg Tuesday morning. She also emphasized that no deadline has been set for a decision about the sale. Of note, the planned sale includes AEP’s stakes in two plants operated by other firms.

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The power plants are probably worth somewhere around $2.8 billion to $3.6 billion, based on the price Dynegy Inc. agreed to pay for similar plants owned by Duke Energy Corp. recently, Andrew B. Smith, an energy analyst for Edward Jones, commented in a phone interview. Smith rates American Electric Power as a Hold and does not currently hold any shares.

Details on AEP power plant portfolio

AEP’s power plant portfolio is part of the PJM (Pennsylvania, New Jersey, Maryland Power Pool), and AEP fully owns and operates 69% of the plant fleet. The portfolio includes three coal facilities, consisting of Gavin (2,665), Cardinal 1 (595 MW), and Conesville 5, 6 (810 MW), and two gas plants: Waterford (840 MW) and Darby (507 MW).

The firm also operates 4% of Conesville 4, a 339 MW coal plant. It also has a 12% non-operating interest in Zimmer and Stuart, two coal-fired facilities with 330 MW and 603 MW of capacity, respectively; as well as a 15% stake in Lawrenceburg, a 1,186 MW gas facility.

Power utilities looking to shed unregulated power plants

American Electric and a number of other power utility owners are trying to sell plants that compete to sell their output, as they prefer to pursue safer returns under state-regulated rates. For example, Duke Energy last year agreed to sell plants in Ohio, Pennsylvania and Illinois to Dynegy for $2.8 billion. Also of interest, PPL Corp. is planning to spin off some of its power plants into a joint venture with Riverstone Holdings.

Power prices are down significantly over the last year or two following increased gas production from shale reducing fuel costs by a third or more. Natural gas is the second greatest source of fuel for U.S. electricity generation, with coal being first (EIA data).

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