The Federal Energy Regulatory Commission last week denied the proposed $2.6 billion acquisition of American Electric Power Co. Inc.’s Kentucky Power Co. unit by Algonquin Power & Utilities Corp., saying the Ontario-based buyer hasn’t provided sufficient assurances that transmission rates will not climb as a result of the transaction.
Algonquin and Columbus-based AEP announced their planned deal in October of last year, with the latter’s CEO, Nick Akins, saying it is a key element of AEP’s plans to improve its margins and fund its energy transition investments. Kentucky Power’s assets include 1,075 MW of generation and more than 1,260 miles of transmission facilities that generate about $550 million in revenues annually. The entity employs about 425 people and services about 165,000 customers in 20 counties in the eastern part of the Bluegrass State.
In their ruling issued Dec. 15, FERC’s five members said officials with Algonquin—which would buy Kentucky Power via their Liberty Utilities Co. subsidiary—haven’t adequately outlined their commitment to guarantee that some of those customers’ rates will be protected “for a significant period of time following the merger” or that any such cost increases be offset in other ways.
“Applicants’ commitment to hold their customers harmless from costs related to the Proposed Transaction is not a substitute for identifying the effects of the Proposed Transaction on rates and demonstrating that such effects are not adverse,” the commissioners wrote, noting that their decision is without prejudice, which leaves the door open for the companies to revise or add to their application. “As the Commission noted in the Hold Harmless Policy Statement, an increase in rates that results from a transaction is not the equivalent of a transaction-related cost.”
A number of utility customers and advocacy groups early this year filed protests against the planned sale of Kentucky Power. After a number of subsequent filings, FERC said in June it was extending its timeframe to hear the case. In October, the customer group said its concerns had still not been adequately addressed and pushed for regulators to deny the transaction.
A spokesperson for Algonquin said the company’s leaders “are studying all the implications of the Order, and will be working with the Seller on the path forward.” An AEP official statement offered a similar comment, adding that the company is disappointed in the decision, “as this sale provides benefits for Kentucky customers.”
Shares of Algonquin (Ticker: AQN) were down more than 5% to $6.88 on the afternoon of Dec. 16. They had closed at $7.13 the day before FERC published its order and have now lost nearly half of their value over the past six months, trimming the company’s market capitalization to about $4.7 billion. AEP shares (Ticker: AEP) were down slightly to $94.89 Dec. 16; they are up about 5% since mid-year.