BX Blackstone Inc

American Electric Power Co. agreed to sell four Midwest power plants for $2.17 billion to a venture formed by Blackstone Group LP and ArcLight Capital Partners LLC.

Under the deal, which was previously reported by The Wall Street Journal, the private-equity firms plan to acquire the coal-fired Gavin Power Plant in Cheshire, Ohio, and three natural-gas plants in Indiana and Ohio, the people said.

The deal comes amid a slump in wholesale electricity rates, sparked by a slide in natural-gas prices and tepid demand for electricity. The slump has put pressure on independent power generators like the ones AEP, of Columbus, Ohio, is selling. Unlike plants that generate power for customers of regulated utilities, independent plants sell to other utilities, at market rates.

Wholesale power prices have averaged about $34.10 a megawatt-hour so far this year in 13 mid-Atlantic and Midwestern states, 21% below last year's average price, according to a Wall Street Journal analysis of data from the Energy Department.

AEP is selling the plants as part of a move away from wholesale power markets and toward its regulated utilities. AEP had announced in January 2015 that the company was exploring strategic alternatives for these power plants, including a potential sale.

The sale is expected to close in the first quarter of 2017, subject to regulatory approval. AEP expects to net about $1.2 billion in cash after taxes, repayment of debt associated with these assets and transaction fees.

AEP said it is evaluating options and will provide details about its plans for the proceeds at an analyst day on Nov. 1. The company said it may use the money to reinvest in its regulated businesses, retire additional debt and buy back stock.

The company expects to record an after-tax gain of approximately $140 million from the sale.

The Columbus, Ohio, company owns or operates more than 60 power plants across the U.S. About 60% of them are fueled with coal and 23% with natural gas, while 5% are run with nuclear reactors and the rest with wind and hydro power, according to the company.

The private-equity firms' multiyear investment horizon gives them an opportunity to bet on a rebound in the wholesale power market. New York-based Blackstone, the largest private-equity manager by assets, raised one of the world's largest energy funds in early 2014 and has ramped up spending on oil-and-gas deals in recent months.

Boston-based ArcLight, an energy-focused private-equity firm founded in 2001, has invested about $16.8 billion since then, according to its website.

George Stahl contributed to this article.

Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com and Cassandra Sweet at cassandra.sweet@wsj.com

(END) Dow Jones Newswires

September 14, 2016 08:55 ET (12:55 GMT)

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