Algonquin Power & Utilities Corp. executives signaled the Canadian utility is open to pursuing more strategic North American growth but did not directly confirm interest in Kentucky Power Co.
Market speculation surfaced earlier in the week that Algonquin Power was among the companies pursuing American Electric Power Co. Inc.'s regulated Kentucky assets.
"Our $9.4 billion, five-year [capital] plan does not depend on any future acquisitions," Algonquin Power President and CEO Arun Banskota said Aug. 13 on the company's second-quarter earnings call. "But having said that, we do look at that as a possible lever, another growth lever, to enhance our growth even further and provide more shareholder value."
The CEO also suggested that any transaction would have to fit into the company's "very attractive" environmental, social and governance profile including its carbon intensity reduction.
On top of its $9.4 billion capital plan for 2021 through 2025 focused on infrastructure and renewable energy investments, Algonquin has identified a pipeline of 3,400 MW of greenfield investment opportunities with projects entering the construction phase beginning in 2023.
The Ontario-headquartered company recently completed its "Greening the Fleet" initiative in the Midwest with the acquisition of three wind farms by its Empire District Electric Co. utility in Missouri. The utility also retired the 200-MW Asbury coal plant in March 2020 as part of its clean energy transition.
Algonquin closed its acquisition of Empire District at the beginning of 2017, and management was asked whether the company would consider adding on another utility with coal exposure.
"I think besides what we do on the renewable energy side of the business, in terms of investing in renewable energy assets for the good of our customers and our shareholders, and the world at large, I think it's a similar profile on the regulated side of Greening the Fleet," Banskota said. "So, if there are similar kinds of opportunities where we can utilize our Greening the Fleet initiatives, we will take a hard look at that."
AEP in late April announced the strategic review of its Kentucky Power subsidiary as the Ohio investor-owned utility looks to offset financing needs for its robust renewable energy pipeline over the next decade.
Management also said it could sell assets to finance the $2 billion investment in the North Central Wind projects in Oklahoma.
Kentucky Power is a generation, transmission and distribution utility serving about 166,000 customers. The company owns and operates the 260-MW Big Sandy natural gas plant in Lawrence County, Ky., and a 50% interest in the 1,560-MW Mitchell coal-fired plant in Marshall County, W.Va. AEP subsidiary Wheeling Power Co. also owns a 50% interest in the Mitchell plant.
An acquisition of the Kentucky assets or any utility would have to "fit all of our strategic objectives," Algonquin's CEO said, adding that the company does not base deals solely on strategy.
"I mean, these transactions absolutely have to stand on their own," Banskota said. "We look at a lot of different metrics and we are extremely disciplined around those. And we obviously end up not doing many more transactions than we end up transacting on."
The CEO added that Algonquin "absolutely" evaluates EPS accretion in any transaction. "That is probably our most fundamental and most important metric we look at."
Algonquin CFO Arthur Kacprzak said there are "lots of tools in the shed" to source capital for any potential growth opportunities, with the company's strong balance sheet allowing it to assess opportunities "from a position of strength."
Algonquin on Aug. 13 reported second-quarter 2021 adjusted EBITDA of $244.9 million, an increase of 39% from $176.3 million in the second quarter of 2020.
The S&P Capital IQ consensus adjusted EBITDA estimate for the quarter was $253.9 million.
The company reported second-quarter 2021 adjusted net EPS of 15 cents, a 67% year-over-year increase from 9 cents per share in the same period of 2020.
