American Electric Power (AEP) to Sell Four Competitive Power Plants To Blackstone And ArcLight for $2.17B

September 14, 2016 8:02 AM EDT

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American Electric Power (NYSE: AEP) has signed an agreement to sell four competitive power plants totaling approximately 5,200 megawatts (MW) for approximately $2.17 billion to a newly formed joint venture of Blackstone (NYSE: BX) and ArcLight Capital Partners LLC (ArcLight).

The sale agreement includes:

  • Lawrenceburg Generating Station, 1,186 MW natural gas, Lawrenceburg, Indiana
  • Waterford Energy Center, 840 MW natural gas, Waterford, Ohio
  • Darby Generating Station, 507 MW natural gas, Mount Sterling, Ohio
  • Gen. James M. Gavin Plant, 2,665 MW coal, Cheshire, Ohio

AEP announced in January 2015 that the company was exploring strategic alternatives for these power plants, including a potential sale. All of this generating capacity is located in the region served by the PJM Interconnection.

"AEP's long-term strategy has been to become a fully regulated, premium energy company focused on investment in infrastructure and the energy innovations that our customers want and need. This transaction advances that strategy and reduces some of the business risks associated with operating competitive generating assets," said Nicholas K. Akins, AEP chairman, president and chief executive officer.

"Our employees have done an incredible job operating these power plants in PJM, and I'm confident that they will contribute to the future success of Blackstone and ArcLight. We will continue to operate these plants safely in the coming months while working closely with the Blackstone and ArcLight teams to obtain the regulatory approvals necessary to complete the sale. We also will be working with employees and community leaders to ensure a smooth transition," Akins said.

"Blackstone and ArcLight are two of the leading private equity funds focused on energy infrastructure, with significant investments and experience owning and operating power generation in North America and Europe. Combined they have owned and operated more than 38,000 megawatts of power generation globally, including operations in the PJM Interconnection, New York ISO and Electric Reliability Council of Texas competitive markets in the United States," Akins said.

The sale is expected to close in the first quarter of 2017. AEP expects to net approximately $1.2 billion in cash after taxes, repayment of debt associated with these assets and transaction fees. The company is evaluating options and will share details about its plans for investment of the proceeds from this transaction at an analyst day Nov. 1. These plans may involve reinvestment in its regulated businesses, including transmission; renewable projects; additional debt retirement; and share buybacks.

AEP expects to record an after-tax gain of approximately $140 million from the sale, subject to inventory true-ups, income tax and other adjustments.

The sale is subject to regulatory approvals from the Federal Energy Regulatory Commission, the Indiana Utility Regulatory Commission and federal clearance pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Goldman Sachs and Co. served as AEP's lead financial advisor for the strategic evaluation of these assets. Citigroup Global Markets Inc. also served as a financial advisor for AEP during the process. Simpson Thacher and Bartlett served as legal counsel.

AEP owns 2,677 MW of additional competitive generation in Ohio. The company is continuing an independent strategic evaluation of that generation while also working on the restructuring of Ohio electricity regulations to allow those assets to be acquired by AEP Ohio for the benefit of its customers. AEP also is continuing a separate strategic review of its 48 MW hydroelectric Racine Plant in Racine, Ohio.

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