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AEP Executives Line Up Asset Sales, Reviewing Transmission JVs

May 5, 2023
Despite strong Q1 business load growth, leaders are sticking to a cautious full-year forecast; slower growth is already ‘having a material impact on our customers’ finances.’

On the heels of the demise of their deal to sell Kentucky Power Co., the leaders of American Electric Power Co. have announced plans to dispose of their retail energy and distributed resources divisions as well as the company’s stake in a New Mexico solar portfolio. The team led by President and CEO Julie Sloat also have launched a review of the company’s holdings in various transmission joint ventures.

Details of AEP’s plans, which were announced alongside the company’s first-quarter earnings, are as follows:

• The company has hired an advisor for the planned sale of the AEP Energy retail business, which it was values at $200 million, as well as the AEP OnSite Partners venture that includes solar, storage, fuel cell and substation assets and is valued at about $350 million. Sloat and CFO Ann Kelly are looking to formally launch a sale process this summer and close deals in the first half of next year

• Also coming to market is AEP’s 50% stake in New Mexico Renewable Development, with PNM Resources Inc. being the other owner. The portfolio comprises eight operating solar projects with another seven being built or prepped that, when complete, will grow the JV’s capacity to 625 MW. As of March 31, the AEP team valued this holding at $102 million.

• Potentially joining those businesses on the auction block are a group of transmission investments into which AEP has invested $551 million. Most of these joint ventures also include Evergy Inc. and are located as far afield as Maryland and Missouri, areas outside of AEP’s core markets.

“Simplification and derisking the business should be part of our fabric,” Sloat told analysts on a conference call. “We are going to continually look at where the best use and highest value is for each of the dollars that we put to work […] Our job is to make sure that the portfolio of assets we have is the best we can have, [with] the highest earnings.”

In the first three months of this year, AEP produced a net profit of $397 million, down from $715 million in early 2022 due in large part to the company marking to market some commodity hedges and booking a $90 million charge related to the planned $1.5 billion sale of a portfolio of unregulated contracted renewables. Total revenues ticked up to $4.7 billion during the quarter, restrained by a mild winter. Excluding special items, operating earnings were $572 million versus $616 million in the prior-year period.

Normalized residential sales were down 1.4% from early 2022 in part because of the warm weather but both commercial (+7.8%) and industrial (5.1%) customers put up strong load growth. Kelly said commercial growth was spurred by new data centers as well as the real estate, retail and dining sectors. But she and Sloat are sticking to their full-year forecasts of far slower growth of just 0.8% for commercial sales and 2.1% for industrial.

“Our expectations for 2023 load growth are still muted,” Kelly said on the conference call. “The probability of a national downturn is extraordinarily high and it’s clear that activity has already slowed to a point that it’s having a material impact on our customers’ finances.”

Shares of AEP (Ticker: AEP) rose slightly to $91.44 May 4 on the heels of the earnings report and asset sale plans. Over the past six months, they have risen about 4%, growing the company’s market capitalization to about $47 billion.

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