AEP Looks to Sell Merchant Coal Fleet

According to a story first reported by Amanda Levin of TheStreet.com, American Electric Power Co. (AEP) has retained the services of Goldman, Sachs & Co. in an effort to unload its 7,923-MW merchant generation fleet.

AEP—headquartered in Columbus, Ohio—is one of the largest electric utilities in the U.S., serving over five million customers in 11 states. The company owns or operates more than 60 generating stations in the U.S. with a total generating capacity of nearly 38,000 MW.

The move to divest merchant generation is a trend gaining momentum throughout the power industry. In August, Duke Energy and Energy Capital Partners both signed deals with Houston-based Dynegy to sell over 6,000 MW of generating capacity each. At the time, Marc Manly, president of Duke Energy’s Commercial Businesses, said, “This transaction is an important milestone in our strategy to exit the merchant generation business.”

Only a couple of months earlier, PPL Corp. announced that it would merge its merchant generation assets with those of Riverstone Holdings to form a new company, Talen Energy. Talen will become one of the largest independent generators in the country—owning and operating around 15,000 MW of generation in Maryland, New Jersey, Texas, Massachusetts, Pennsylvania, and Montana—if the spinoff goes through as planned during the first half of 2015. Currently, it is still pending the approval of several regulatory agencies.

Merchant power plants are unregulated and sell power into the competitive marketplace unlike the traditional regulated model, in which rates are negotiated with state utility commissions, providing a guaranteed rate of return. Many nuclear and coal-fired facilities are finding it hard to compete in the merchant market, which has led to threats of early retirement for some facilities.

Chris Crane, president and CEO of Exelon Corp., is one outspoken critic of current energy policy and its effect on merchant generators. In a conference call in early 2014, he blamed low natural gas prices and renewable energy subsidies for the problem saying “It is clear that Exelon and other competitive generators are not really compensated for their reliable generation … some of our nuclear units are unprofitable at this point in the current environment due to the low prices and bad energy policy that we are living with.”

AEP has operations in both regulated and unregulated territories. In October, AEP’s Ohio unit asked the state’s Public Utilities Commission for permission to essentially charge customers for costs to operate its share of the units at four coal plants totaling about 2.7 GW: Cardinal Unit 1; Conesville Units 4, 5, and 6; Stuart Units 1, 2, 3, and 4; and Zimmer Unit 1. However, many, including environmentalists, consumer advocates, and competing electricity suppliers, have raised their voices against the plan, saying it provides an unfair subsidy that prolongs the life of uneconomic coal-fired plants.

Now it appears AEP is hedging its bets by having Goldman, Sachs & Co. explore sales options for the merchant facilities. Of course, there is no guarantee that a buyer will be found. Levin reported that AES Corp. tried to exit the merchant business by selling its subsidiary DPL Inc. last year, but pulled the sale when it could not find anyone willing to pay its asking price.

—Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)