Interest in American Electric Power Co. Inc.'s 1.4-GW competitive renewables generation portfolio up for sale is "robust" since the utility giant removed its Flat Ridge 2 Wind Farm from the asset package, executives said.
American Electric Power, or AEP, announced plans in February to sell the contracted portfolio of wind and solar resources and redeploy that capital to its regulated business in a move to de-risk holdings. For the second quarter, however, AEP recorded a $146.6 million impairment to its GAAP operations, representing a 29-cent EPS deduction, related to taking its 50% ownership stake in the 235-MW Flat Ridge 2 wind farm off the market.
"We really wanted that out of the portfolio so that you wouldn't be arguing with bidders about what that valuation was and what the risks were of that particular project," AEP Chairman, President and CEO Nicholas Akins said during a July 27 second-quarter earnings conference call. "The rest of them are excellent projects that should bode well in the marketplace."
AEP Executive Vice President and CFO Julie Sloat said the company values the overall portfolio at about $2.1 billion, but the removal of Flat Ridge 2 should help "improve the valuation opportunity."
AEP is separately pursuing a sale of its interest in the wind farm, according to Akins, and "is in discussions with an interested party." BP Wind Energy North America Inc. owns the other half of the 470-MW Kansas installation. Its output is under contract with several regional utilities, according to S&P Global Market Intelligence data.
Kentucky utility sale update
The utility holding company also took a $73.2 million, or 15-cent per share, impairment on its pending sale of Kentucky Power Co. and AEP Kentucky Transmission Co. Inc. to Algonquin Power & Utilities Corp.'s Liberty Utilities Co. The Kentucky Public Service Commission approved the transaction in May, but AEP still awaits final authorization from the Federal Energy Regulatory Commission.
The write-down specifically concerns future capital investment in West Virginia's Mitchell coal plant, in which Kentucky Power owns a 50% stake. The sale is conditioned on Kentucky Power selling that stake to fellow AEP subsidiary Wheeling Power Co., which is headquartered in West Virginia and which owns the other half of the asset. But a dispute between the West Virginia Public Service Commission and the Virginia and Kentucky commissions over whether to approve environmental upgrades that would keep the facility online beyond 2028 remains a sticking point.
"Kentucky had its view of valuation in 2028, and West Virginia has its view of valuation and 2028, and the two are in very different positions," Akins explained. "When the time comes before 2028, there'll have to be some reconciliation between what Kentucky wants and what the West Virginia commission wants, and we just want to make sure those risk parameters are taken care of on the front end."
AEP expects to close the sale of its Kentucky assets this summer, Akins said.
When it comes to inflation and a potential recession, AEP does not see the macroeconomic environment impeding sales.
"Our sales statistics through the first half of the year show our service territory is still firmly in the expansion phase of the business cycle," Sloat said. "So far, we're seeing little evidence that has dampened the economic activity within our footprint through the first two quarters of this year."
At the same time, however, Sloat said AEP is seeing inflationary pressure on its real estate and residential businesses.
Normalized residential sales are up 8.6% compared to the first quarter of 2021, and commercial sales increased 7%. Industrial sales were up nearly 5% compared to the first quarter of 2021.
On July 27, AEP reported second-quarter non-GAAP earnings of $617.7 million, or $1.20 per share, compared to $589.5 million, or $1.18 per share, in the second quarter of 2021. The S&P Capital IQ normalized consensus EPS estimate for the quarter was $1.19.