Benzinga | Oct 26, 2021 04:45PM EDT

AEP To Sell Kentucky Operations To Liberty, Subsidiary Of Algonquin Power & Utilities For $2.846B

American Electric Power (NASDAQ:AEP) has entered into an agreement to sell its Kentucky operations, which include Kentucky Power and AEP Kentucky Transco, to Liberty, the regulated utility business of parent company Algonquin Power & Utilities Corp. (NYSE:AQN), for $2.846 billion enterprise value. The sale is expected to close in the second quarter of 2022, pending regulatory approvals.

AEP announced in April 2021 that the company was conducting a strategic review of its Kentucky operations, including a potential sale, and held a competitive process as part of the review.

"Kentucky Power and its employees are an important part of the communities in eastern Kentucky, and I am grateful for their valuable contributions to AEP," said Nicholas K. Akins, AEP chairman, president and chief executive officer. "Liberty's commitment to safety and operational excellence will allow Kentucky Power employees to continue their critical work producing and delivering reliable power for customers and communities. At the same time, the sale will strengthen AEP's ability to invest in projects that will support a resilient, cleaner energy system."

Founded in 1919 and headquartered in Ashland, Kentucky Power serves approximately 165,000 electricity customers in 20 eastern Kentucky counties. AEP Kentucky Transco is a regulated transmission business with assets exclusively in Kentucky.

The sale directly impacts 360 employees, including 315 who work for Kentucky Power and 45 from AEP whose roles directly support Kentucky operations. These employees will transfer to Liberty when the sale is completed.

"We've been proud to serve Kentucky Power customers for more than a century, and the commitment of our employees will remain strong throughout this transition and beyond," said Brett Mattison, Kentucky Power president and chief operating officer. "We are working closely with Liberty to ensure a seamless transition for our customers and communities. Through their focus on safety, reliability, customer service and sustainability, Liberty is well-positioned to serve Kentucky customers. The same skilled and experienced employees who work to keep the lights on for our customers will continue to do so as part of Liberty."

Liberty provides regulated electricity, natural gas, water and wastewater services to more than 1 million customer connections, mainly in 13 U.S. states and Canada.

Upon close of the sale, Liberty will acquire AEP's Kentucky operations by purchasing all the stock of Kentucky Power and AEP Kentucky Transco. AEP expects to net approximately $1.45 billion in cash after taxes and transaction fees. The proceeds from the sale will be used to eliminate AEP's forecasted equity needs in 2022 as the company invests in regulated renewables, transmission and other projects. Liberty will acquire all assets and assume liabilities of the Kentucky operations except for pension and other postretirement benefit obligations for the period the impacted employees were employed by AEP. AEP expects to provide customary transition services to Liberty after the closing.

AEP expects the sale to have an immaterial, one-time impact to after-tax book earnings. The transaction will be $0.01-$0.02 accretive to 2022 ongoing earnings.

The sale is subject to regulatory approvals from the Kentucky Public Service Commission and the Federal Energy Regulatory Commission. The transaction is also subject to federal clearance pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and clearance from the Committee on Foreign Investment in the United States.

Kentucky Power owns 1,075 megawatts of generation including Big Sandy, a 295-megawatt natural gas-fueled plant located in Louisa, Kentucky. Kentucky Power also operates the 1,560-megawatt coal-fueled Mitchell Plant located in Moundsville, West Virginia, and owns 50% of the plant. Separate from the transaction approval process, Kentucky Power and AEP's Wheeling Power subsidiary plan to file for approval of new ownership and operating agreements for Mitchell Plant consistent with recent orders issued by the Kentucky and West Virginia Public Service Commissions. These filings will request that Mitchell Plant be operated by Wheeling Power, which owns the remaining 50% of the plant. The 200 employees who operate Mitchell Plant will be transferred from Kentucky Power to Wheeling Power upon approval. The filings also will address environmental compliance cost allocations and plant ownership arrangements for the period after Dec. 31, 2028. Liberty will own and obtain power from Kentucky Power's 50% portion of Mitchell Plant through 2028.

Barclays and Goldman Sachs and Co. served as AEP's financial advisors for the strategic review of the Kentucky operations. Morgan Lewis & Bockius LLP served as legal counsel to AEP.

American Electric Power, based in Columbus, Ohio, is powering a cleaner, brighter energy future for its customers and communities. AEP's approximately 16,800 employees operate and maintain the nation's largest electricity transmission system and more than 223,000 miles of distribution lines to safely deliver reliable and affordable power to 5.5 million regulated customers in 11 states. AEP also is one of the nation's largest electricity producers with approximately 31,000 megawatts of diverse generating capacity, including more than 5,900 megawatts of renewable energy. The company's plans include growing its renewable generation portfolio to approximately 50% of total capacity by 2030. AEP is on track to achieve an 80% reduction in carbon dioxide emissions from 2000 levels by 2030 and has committed to achieve net zero by 2050. AEP is recognized consistently for its focus on sustainability, community engagement, and diversity, equity and inclusion. AEP's family of companies includes utilities AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana, east Texas and the Texas Panhandle). AEP also owns AEP Energy, which provides innovative competitive energy solutions nationwide. For more information, visit aep.com.