AEP writes down power plant values; four more coal plants not in AEP’s future

American Electric Power (NYSE: AEP) said in its Nov. 1 quarterly earnings report that it has taken a $2.3 billion impairment charge on certain merchant generation assets.

The $2.3 billion impairment largely relates to AEP’s ownership share of 2,684 MW of competitive generation in Ohio, including the Cardinal, Conesville Units 4-6, Stuart and Zimmer coal plants. It also includes the competitive portion of the coal-fired Oklaunion Plant in Texas, plus the Desert Sky and Trent Mesa wind farms, and some coal-related properties.

“Our strategic focus on our regulated operations continues to support strong operating earnings performance. All of our regulated segments grew during the quarter, but we experienced declines in our competitive operations year-over-year.” said Nicholas K. Akins, AEP chairman, president and chief executive officer.

“Residential and commercial sales in the third quarter were in line with our expectations, but the weak global economy, low energy prices and a strong dollar are still generating economic headwinds. The growth in residential and commercial sales that we’ve seen this year is being offset by declining industrial load in many states that we serve,” Akins said.

“We took steps in the third quarter to significantly reduce the risk and earnings volatility associated with our competitive businesses, which includes power plants that for many years benefited our Ohio customers. We announced the sale of four of our competitive power plants and took a pre-tax impairment charge to write-down our remaining competitive generation assets to their estimated fair value. We will continue the strategic review of those plants and work on restructuring in Ohio to properly value future generation investments for the benefit of our customers,” Akins said.

Notable is that a projected future resource mix in AEP’s Nov. 1 earnings presentation excludes the Cardinal, Conesville, Stuart and Zimmer plants. The presentation also excludes future (beyond 2017) emissions from those four plants. That would indicate these plants are to be sold, or shut. AEP co-owns some of this capacity with other parties.

AEP had announced on Sept. 14 that it had signed an agreement to sell four competitive power plants totaling approximately 5,200 MW for about $2.17 billion to a newly-formed joint venture of Blackstone (NYSE: BX) and ArcLight Capital Partners LLC. That deal is due to close in the first quarter of 2017. The four involved plants are:

  • Gavin, a two-unit coal-fired station located in Cheshire, Ohio, with a summer net capacity rating of 2,665 MW that began commercial operation in 1974;
  • Lawrenceburg, a two-unit, natural gas-fired combined-cycle station located in the City of Lawrenceburg, Indiana, with a summer net capacity rating of 1,120 MW that began commercial operation in 2004;
  • Darby, a six-unit natural gas-fired simple-cycle station located near Mount Sterling, Ohio, with a summer capacity rating of 471 MW that began commercial operation in 2001; and
  • Waterford, a natural-gas fired combined cycle station located in Waterford Township, Washington County, Ohio, with a summer net capacity rating of 866 MW that began commercial operation in August 2003.
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.