AEP to Sell Power Plants for $2.17 Billion
September 14 2016 - 8:10AM
Dow Jones News
American Electric Power Co. agreed to sell four Midwest power
plants for $2.17 billion to a venture formed by Blackstone Group LP
and ArcLight Capital Partners LLC.
Under the deal, which was previously reported by The Wall Street
Journal, the private-equity firms plan to acquire the coal-fired
Gavin Power Plant in Cheshire, Ohio, and three natural-gas plants
in Indiana and Ohio, the people said.
The deal comes amid a slump in wholesale electricity rates,
sparked by a slide in natural-gas prices and tepid demand for
electricity. The slump has put pressure on independent power
generators like the ones AEP, of Columbus, Ohio, is selling. Unlike
plants that generate power for customers of regulated utilities,
independent plants sell to other utilities, at market rates.
Wholesale power prices have averaged about $34.10 a
megawatt-hour so far this year in 13 mid-Atlantic and Midwestern
states, 21% below last year's average price, according to a Wall
Street Journal analysis of data from the Energy Department.
AEP is selling the plants as part of a move away from wholesale
power markets and toward its regulated utilities. AEP had announced
in January 2015 that the company was exploring strategic
alternatives for these power plants, including a potential
sale.
The sale is expected to close in the first quarter of 2017,
subject to regulatory approval. AEP expects to net about $1.2
billion in cash after taxes, repayment of debt associated with
these assets and transaction fees.
AEP said it is evaluating options and will provide details about
its plans for the proceeds at an analyst day on Nov. 1. The company
said it may use the money to reinvest in its regulated businesses,
retire additional debt and buy back stock.
The company expects to record an after-tax gain of approximately
$140 million from the sale.
The Columbus, Ohio, company owns or operates more than 60 power
plants across the U.S. About 60% of them are fueled with coal and
23% with natural gas, while 5% are run with nuclear reactors and
the rest with wind and hydro power, according to the company.
The private-equity firms' multiyear investment horizon gives
them an opportunity to bet on a rebound in the wholesale power
market. New York-based Blackstone, the largest private-equity
manager by assets, raised one of the world's largest energy funds
in early 2014 and has ramped up spending on oil-and-gas deals in
recent months.
Boston-based ArcLight, an energy-focused private-equity firm
founded in 2001, has invested about $16.8 billion since then,
according to its website.
George Stahl contributed to this article.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com and
Cassandra Sweet at cassandra.sweet@wsj.com
(END) Dow Jones Newswires
September 14, 2016 08:55 ET (12:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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