American Electric Power Co. Inc. does not see economic and policy risks derailing its plans to transition to a fully regulated clean energy provider.
The management team for American Electric Power, or AEP, spent a good portion of a first-quarter earnings call trying to quell any investor concerns about the Ohio investor-owned utility's regulated renewables growth and planned sale of its competitive renewables portfolio.
"I don't see a lot of risk," Nicholas Akins, AEP chairman, president and CEO, said on the April 28 call. "The reason why is because [our capital plan] is defined through 2030. A lot of these projects will come into play in the [2024 to 2025] time frame, so we have time ... for activities to level out somewhat before we are actually out back in the market acquiring these types of resources."
A U.S. Commerce Department investigation into whether solar manufacturers used factories in Southeast Asia to circumvent American tariffs on imports from China has exacerbated supply chain constraints.
AEP said this has not upended plans to sell its competitive renewables portfolio and build out its regulated renewables footprint.
"Most of our assets are wind assets, and as we go forward with the transactions, we don't see any issues with that," Akins said. "Even on the regulated side, the timing of which we actually need assets for solar and that kind of thing comes later. ... So, on both sides of the ledger, we are in good shape from that perspective."
AEP launched a process Feb. 24 to sell all or a portion of subsidiary AEP Renewables' 1,600-MW competitive contracted renewables portfolio, which consists of 1,435 MW of wind capacity and 165 MW of solar capacity in 11 states.
"Interest in the sale of the portfolio has been robust," Akins said, adding that the company has seen strong interest from potential strategic and private equity buyers.
AEP will officially market the assets in the second half of the year, the CEO added. "To us, the process will continue, and there is nothing stopping it," Akins said.
AEP is also targeting nearly 8,600 MW of wind generation and 6,600 MW of solar additions in its regulated resources base from 2022 through 2030 as part of plans to move its fleet to about 50% renewables over the same time frame. The company allocated $8.2 billion for about 5,800 MW of regulated renewables in its 2022-2026 $38 billion capital plan.
"These plans are really fungible from year to year based upon what we see in terms of the value proposition of each type of resources," Akins said. "We've always said that if something were to happen relative to the renewables build-out, we've got transmission. We can soak up a lot of capital from that perspective."
Kentucky sale update
The company is nearing the closing of the sale of its Kentucky operations.
In October 2021, AEP announced an agreement to sell its Kentucky Power Co. utility and AEP Kentucky Transmission Co Inc. business to Liberty Utilities Co., a subsidiary of Canada's Algonquin Power & Utilities Corp., in a deal with a $2.85 billion enterprise value.
Akins said the transaction is on track to close in the second quarter despite some regulatory concerns about the transfer in ownership of the 1,560-MW Mitchell coal-fired power plant in West Virginia.
Kentucky Power owns a 50% interest in the Mitchell plant. Another AEP subsidiary, Wheeling Power Co., also owns a 50% interest in the Mitchell plant and is expected to take over plant operations following the sale of Kentucky Power.
The company expects a decision from the Kentucky Public Service Commission by May 4 on the sale and transfer of its Kentucky operations to Liberty, followed by a decision on the plant transfer. The sale also awaits approval from the Federal Energy Regulatory Commission and the Public Service Commission of West Virginia.
AEP announced a strategic review of its Kentucky assets in April 2021 as the company looked to finance renewable energy additions.
AEP reported a 3.2% increase in total retail normalized sales in the first quarter compared to the year-ago period.
"The AEP service territory is extremely fertile for economic growth right now," said Julie Sloat, AEP executive vice president and CFO. "In fact, as of the first quarter, our load has officially fully recovered from the pandemic recession and has now transitioned into the expansionary phase of this business cycle."
Normalized residential sales are up 0.8% compared to the first quarter of 2021, and commercial sales increased about 4.2% year over year.
Industrial sales were up 5.6% compared to the first quarter of 2021.
On April 28, AEP reported first-quarter earnings of $616 million, or $1.22 per share, compared to $571 million, or $1.15 per share, in the first quarter of 2021. The S&P Capital IQ normalized consensus EPS estimate for the quarter was $1.20.
AEP reaffirmed its 2022 operating earnings guidance range of $4.87 to $5.07 and its 6% to 7% long-term EPS growth rate.