Algonquin Power & Utilities Corp T.AQN

AEP to sell Kentucky operations to Liberty

[Puffpuff02]

AEP to sell Kentucky operations as it continues move toward more renewable energy

American Electric Power is selling its Kentucky operations as the Columbus-based power company continues its pushtoward more reliance on renewable energy.

AEP on Tuesday announced the sale of Kentucky Power and AEP Kentucky Transco to Liberty for $2.85 billion, including debt.

Liberty is the parent of Algonquin Power & Utilities, a Canadian-based company that provides electricity, natural gas, water and wastewater services to more than 1 million customer connections, mainly in 13 U.S. states and Canada.

“Kentucky Power and its employees are an important part of the communities in eastern Kentucky, and I am grateful for their valuable contributions to AEP,” Nick Akins, AEP's chairman, president and CEO, said in a statement. “Liberty’s commitment to safety and operational excellence will allow Kentucky Power employees to continue their critical work producing and delivering reliable power for customers and communities. At the same time, the sale will strengthen AEP’s ability to invest in projects that will support a resilient, cleaner energy system.”

AEP announced in April a strategic review of its Kentucky operations. 

The deal is expected to close next spring, pending regulatory approvals.

AEP said it figures to net $1.45 billion from the sale, money that the company plans to invest in renewable energy, transmission and other projects.

In April, AEP set a goal of having renewable energy make 50% of its portfolio by 2030, including buying the power from three wind projects being developed in Oklahoma.

AEP has said its goal is to reduce carbon dioxide emissions by 80% from its 2000 baseline by 2030.

At one time, AEP was largely dependent on coal for electric generation. In 2005, coal-fired power plants made up 70% of the company's fleet.

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

The sale affects 360 employees, including 315 who work for Kentucky Power and 45 from AEP whose roles directly support Kentucky operations. These employees will transfer to Liberty when the sale is completed.

Kentucky Power owns 1,075 megawatts of generation, including Big Sandy, a 295-megawatt natural gas-fired power plant in Louisa, Kentucky.

Kentucky Power also operates the 1,560-megawatt coal-fueled Mitchell Plant located in Moundsville, West Virginia, and owns 50% of the plant.

Separate from this process, AEP is requesting that its Wheeling Power utility in West Virginia take over operations of the Moundsville plant. Wheeling Power owns the other half of the plant. 

The 200 employees who operate Mitchell Plant will be transferred from Kentucky Power to Wheeling Power upon approval. Liberty will own and obtain power from Kentucky Power’s 50% portion of Mitchell Plant through 2028.

After 2028, the plant will exclusively serve customers West Virginia.

 

[rustyblades]

The way I read this, the incumbent has the same long term objective as AQN i.e reduce carbon emissions and increase green generation. So the incumbent with full detailed knowledge of the operations thinks it's better to sell the operation rather than improve it. I assume that if AEP was to implement the changes they would be more or less similar to what AQN is planning to do. Perhaps there is

[Capharnaum]

There are many factors in play. AQN has a lot of experience and expertise in renewable projects and with its current size can spend $1-2B in Kentucky Power in the future. AEP could be selling now to fund renewable projects they are developping or to purchase another utility that's already more advanced in their transition. Based on AQN's renewables track record, I think they know the

[rustyblades]

My point exactly. AEP has found a better return pursing other opportunities than hanging on to KP.

[SargeX]

Hey Cap Dont forget it was the old CEO (and AQN founder) that was steering the ship back then. This new guy seems like another BTO (Big Time Operator) like ALA's Harris and IPL's Bayle. Way too many of this type of CEO out there these days. Ciao   Sarge

[BSdetector2016]

Hi Sarge, VET's Marino is part of this illustrious club; professing all's good and no dividend cut then it was cut twice the same week to SFA. CEO trust-o-meter is pinned on low side for this investor.

[SargeX]

Hey BS Good one. I was originally thinking of only the companies I owned but thought of him with both Baytex and VET after I had posted. Definitely want to steer clear of that guy. Another one that also comes to mind is Sonshine at REI. I'm sure there's quite a few others as there are a ton of bad/lyling CEOs out there. Take her easy    Sarge

[Capharnaum]

So long as they manage the debt, I don't think AQN can be compared to Harris' ALA or IPL. For the purchase of Kentucky Power, they aren't ballooning the debt like ALA. Their payout ratio is also quite reasonable (and will stay that way with Kentucky Power), compared to both Harris' ALA or IPL. Most of the latest transactions for regulated assets have been done between 1.8 and 2

[TickerTwit]

There was assumed debt, so the net purchase price was $2.846B+$1.221B = $4.067B. The rate base is important for future income, but the actual bought equity appears to be about $1B at a purchase price of $2.846B, implying an acquisition premium of 185%. And the future liability for converting from coal generation is yet to come. I freely admit my lack of experience in regulated utility analysis

[gimebackmymoni]

This post has been removed in accordance with Community Policy

[Capharnaum]

The debt is included in the purchase price, it's not in addition to the $2.725B acquisition. Within the $2.725B, they are taking over $1.2B in debt and they will finance the remainder $1.6B using the public offering of $0.6B-0.7B and the remainder of $0.9B-1.0B will be hybrid debt/equity (like they did previously this year) or monetization of non-regulated assets/investments. (Slide 13 of

[LTInvest1234]

Good breakdown, that's how I took this as well. Thanks for posting.

[TickerTwit]

Thanks for the reply. Slide 13 was my problem. I misinterpreted it, and your post helped me sort it out. .