American Electric Power Co. (AEP), the biggest U.S. operator of coal-burning power stations, may decide later this year or early next whether it will follow Duke Energy Corp. (DUK) by selling plants in the Midwest.
“We’re a regulated utility,” Chairman and Chief Executive Officer Nick Akins said in an interview at Bloomberg headquarters in New York yesterday. “We have an unregulated generation piece of our business we’re trying to bring some stability to.”
Without more earnings stability, such as long-term agreements with power buyers, Columbus, Ohio-based American Electric will look to sell the unit, which doesn’t get guaranteed returns like its regulated business. The unit includes Ohio power plants that were separated from transmission and distribution operations at the start of the year.
American Electric’s AEP Generation Resources owns 10,002 megawatts of power plant capacity and had an initial capitalization of about $3 billion, according to the company’s website. Akins said his promise of 4 percent to 6 percent annual growth in per-share profit for the company doesn’t hinge on those power plants.
“We’ve always said if we could not make it look quasi-regulated it may be appropriate for someone else to have,” Akins said of the competitive unit. The company is seeking ways to hedge risks associated with fluctuating power prices to reduce earnings volatility. “We don’t have to be part of a forced sale process or sell prematurely.”
Citing “volatile returns in the challenging competitive markets of the Midwest,” Duke CEO Lynn Good announced in February that the company is seeking to sell 6,600 megawatts of generation in the region. Duke expects $2.1 billion for its plants, Good said May 7.
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