CDPQ Takes Minority Stake in AES Ohio with US$546M Investment
Canadian global investment group CDPQ will take a stake in Dayton-area electric utility AES Ohio with a $546 million investment, with the closing of the deal expected in the first half of 2025, AES said Tuesday.
The proposal gives CDPQ a 30% indirect equity interest in AES Ohio, the company said.
The move has no impact in terms of customer electric rates or Dayton-area (or service-area) employment, AES Ohio spokeswoman Mary Ann Kabel told the Dayton Daily News.
“This is a plus for our company in terms of growth plans, and that benefits customers,” Kabel said Tuesday.
Virginia’s AES Corp. acquired DPL Inc. for $4.7 billion in 2011.
This agreement expands on AES’ existing partnership with CDPQ at AES Indiana and creates a similar ownership structure for the two utilities, with no change in management of AES Ohio, the company’s release said.
Kabel said the company is not struggling financially.
“It’s a partnership with a longtime partner that we’ve had with AES,” she said.
Andrew Bischof, a utilities strategist with Morningstar, said the move is not a signal that AES Ohio is in trouble. He sees the investment as part of AES’ broader plans to invest in infrastructure and reliability.
“There has been a trend in the past couple of years of utilities selling minority interests to ... firms as an attractive valuation to support utilities’ broader investment plans,” Bischof said.
“We have a successful track record of incorporating strategic partners into our businesses in support of our growth initiatives. CDPQ has been a long-term partner to AES and this transaction marks another strong step forward for AES Ohio, enabling the increased capital investments needed to support our customers’ growing needs,” Andrés Gluski, AES president and chief executive, said in a statement.
AES Ohio plans to invest more than $1.5 billion through 2027 to improve system reliability, through investment in transmission infrastructure and grid modernization, the utility said.
This agreement is subject to regulatory approvals, including from the Public Utilities Commission of Ohio, the Federal Energy Regulatory Commission and the Committee on Foreign Investments in the United States.
CDPQ manages funds for public pension and insurance plans. It reported a 4.2% return on depositors’ funds, slightly below the benchmark portfolio’s 4.6%, for the first half of the year, an insurance news web site, insurancebusinessmag.com, reported last month.
In July, CDPQ said it had $197 billion invested in U.S. interests or companies, or 38% of its global portfolio, a share that has almost doubled in the last decade.
A spokesman for the Office of the Ohio Consumers Counsel declined comment.
AES Ohio serves more than 20 counties in Western Ohio.
Reuters also reports AES Corp to sell interest in Ohio unit for $546 million:
U.S. utility firm AES Corp said on Tuesday it would sell a 30% indirect equity interest in its Ohio subsidiary to Canada's second-largest pension fund CDPQ for $546 million, which will be used to support infrastructure investments.
AES Ohio said it would invest more than $1.5 billion from 2024 through 2027 to improve reliability by upgrading transmission infrastructure and modernizing the grid.
Utilities are expected to benefit from a surge in demand for power driven by AI and data centers, prompting companies and investors across the board to strike deals with them.
"(Deal with CDPQ) will support AES Ohio's $1.5 billion investment program to strengthen our system and support the growing demand from data centers, which has the potential to increase our peak load by more than 50% by the end of the decade," AES said in a statement.
The sale, expected to close in the first half of 2025, expands on AES' existing partnership with CDPQ at its Indiana unit.
The Virginia-based company has a long-term asset sale target of $3.5 billion through 2027.
Earlier this year, AES sold its operations in Brazil to power company Auren, in a deal expected to generate $640 million in proceeds for the U.S. company.
And Iris Dorbian of PE Hub reports CDPQ to acquire a minority stake in AES Ohio from utility and power generation firm AES Corp:
- Based in Arlington, Virginia, AES Corp is a utility and power generation company
- As part of the agreement, CDPQ will fund its pro rata share of AES Ohio’s near‑term capital requirements to support AES Ohio’s growth plans
- CDPQ’s net assets totaled C$452 billion as of June 30, 2024
Caisse de dépôt et placement du Québec has agreed to acquire a 30 percent equity interest in AES Ohio from The AES Corp.
The deal, which reflects a total consideration of about $546 million, is expected to close in the first half of 2025.
“AES has been an excellent partner of CDPQ for the last 10 years, and we’ve supported the company in the modernization and decarbonization of its operations at AES Indiana since then,” said Emmanuel Jaclot, executive vice president and head of infrastructure at CDPQ in a statement. “We now embark on a new chapter in our relationship to support the growth plans of AES Ohio.”
As part of the agreement, CDPQ will fund its pro rata share of AES Ohio’s near‑term capital requirements to support AES Ohio’s growth plans, including incremental growth opportunities stemming from new data centers in the service territory.
Based in Arlington, Virginia, AES Corp is a utility and power generation company. The agreement expands upon AES’ existing partnership with CDPQ at AES Indiana and creates a similar ownership structure for the two utilities, with no change in management or operational control of AES Ohio.
CDPQ’s net assets totaled C$452 billion as of June 30, 2024.
Earlier today, CDPQ issued a press release announcing a strategic partnership with AES to support AES Ohio’s robust growth plans:
The AES Corporation (NYSE: AES) today announced that it reached an agreement to sell a 30% indirect equity interest in AES Ohio to CDPQ, a global investment group, for approximately US$546 million, with closing expected in the first half of 2025.
This agreement expands upon AES’ existing partnership with CDPQ at AES Indiana and creates a similar ownership structure for the two utilities, with no change in management or operational control of AES Ohio. CDPQ’s partnership with AES, now in both US utilities, will bring continued funding to support the high growth ahead.
“We have a successful track record of incorporating strategic partners into our businesses in support of our growth initiatives. CDPQ has been a long-term partner to AES and this transaction marks another strong step forward for AES Ohio, enabling the increased capital investments needed to support our customers’ growing needs,” said Andrés Gluski, AES President and CEO.
AES Ohio plans to invest more than US$1.5 billion from 2024 through 2027 to improve system reliability, through extensive investment in transmission infrastructure and grid modernization improvements (AES Ohio’s 2023 rate base was US$1,564 million). AES Ohio recently reached a settlement agreement for Phase 2 of its Smart Grid program, which, if approved by the Public Utilities Commission of Ohio (PUCO), will enable investment of more than US$240 million over a four-year period to deploy smart technology that will support impactful system improvements. As a result of these needed investments, AES Ohio anticipates compound annual rate base growth in the mid-teens through 2027.
Additionally, AES Ohio sees potential for incremental investment to support growing data center demand, which could increase peak load on the system by more than 50% by the end of the decade. This growth will be transformational for the utility and demonstrates the value of AES’ broader portfolio in serving important technology customers.
As part of this agreement, CDPQ is committed to funding its pro rata share of AES Ohio’s near term capital requirements to support AES Ohio’s extensive growth plans, including incremental growth opportunities stemming from new data centers in the service territory.
“AES has been an excellent partner of CDPQ for the last 10 years, and we’ve supported the company in the modernization and decarbonization of its operations at AES Indiana since then,” said Emmanuel Jaclot, Executive Vice President and Head of Infrastructure at CDPQ. “We now embark on a new chapter in our relationship to support the growth plans of AES Ohio. This is a unique opportunity to invest alongside a trusted partner in regulated assets that play an important role meeting the electricity demands for over half a million customers.”
“AES Ohio is committed to delivering reliable energy to enable economic growth and job creation," said Ken Zagzebski, President of AES’ Utilities business. “Our partnership with CDPQ will support AES Ohio’s US$1.5 billion investment program to strengthen our system and support the growing demand from data centers, which has the potential to increase our peak load by more than 50% by the end of the decade.”
This transaction is expected to close in the first half of 2025. With this sale, AES will have achieved over US$2.7 billion of its US$3.5 billion asset sale target for 2023 through 2027.
This agreement is subject to customary regulatory approvals, including from the Public Utilities Commission of Ohio, the Federal Energy Regulatory Commission and the Committee on Foreign Investments in the United States.
AES Safe Harbor Disclosure
This news release contains forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those related to the completion of the transactions contemplated by the agreement with CDPQ, the execution of our future investment plans and future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES’ current expectations based on reasonable assumptions. These assumptions include, but are not limited to, our expectations regarding (a) the completion of the transactions contemplated by the agreement with CDPQ on the anticipated terms and timing or at all, including the receipt of regulatory approvals and (b) accurate projections of future interest rates, commodity price and foreign currency pricing, continued normal levels of operating performance and electricity volume at our distribution companies and operational performance at our generation businesses consistent with historical levels, as well as the execution of PPAs, conversion of our backlog and growth investments at normalized investment levels, and rates of return consistent with prior experience.
Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES' filings with the Securities and Exchange Commission (the "SEC"), including, but not limited to, the risks discussed under Item 1A: "Risk Factors" and Item 7: "Management's Discussion & Analysis" in AES' 2023 Annual Report on Form 10-K and in subsequent reports filed with the SEC. Readers are encouraged to read AES' filings to learn more about the risk factors associated with AES' business. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except where required by law.
Any Stockholder who desires a copy of AES’ 2023 Annual Report on Form 10-K filed February 26, 2024 with the SEC may obtain a copy (excluding the exhibits thereto) without charge by addressing a request to the Office of the Corporate Secretary, The AES Corporation, 4300 Wilson Boulevard, Arlington, Virginia 22203. Exhibits also may be requested, but a charge equal to the reproduction cost thereof will be made. A copy of the Annual Report on Form 10-K may be obtained by visiting AES’ website at www.aes.com.
AES Website Disclosure
AES uses its website, including its quarterly updates, as channels of distribution of AES information. The information AES posts through these channels may be deemed material. Accordingly, investors should monitor our website, in addition to following AES' press releases, quarterly SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about AES when you enroll your e-mail address by visiting the "Subscribe to Alerts" page of AES' Investors website. The contents of AES' website, including its quarterly updates, are not, however, incorporated by reference into this release.
About AES
The AES Corporation (NYSE: AES) is a Fortune 500 global energy company accelerating the future of energy. Together with our many stakeholders, we’re improving lives by delivering the greener, smarter energy solutions the world needs. Our diverse workforce is committed to continuous innovation and operational excellence, while partnering with our customers on their strategic energy transitions and continuing to meet their energy needs today.
About CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, CDPQ works alongside its partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2024, CDPQ’s net assets totalled CAD 452 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.
CDPQ is a registered trademark owned by Caisse de dépôt et placement du Québec and licensed for use by its subsidiaries.
This is another big deal between AES and CDPQ with the first one being back at the end of 2014 when AES announced an agreement to sell a minority interest in IPALCO Enterprises, Inc. to CDPQ:
The AES Corporation (NYSE: AES) announced today that it has entered into an agreement with La Caisse de dépôt et placement du Québec (CDPQ), a long-term institutional investor headquartered in Quebec, Canada. Pursuant to the agreement, CDPQ will purchase 15% of AES US Investments, Inc. (AES US Investments), a wholly-owned subsidiary of AES that owns 100% of IPALCO Enterprises, Inc. (IPALCO), for US$244 million. In addition, CDPQ will invest approximately US$349 million in IPALCO through 2016, in exchange for a 17.65% equity stake, funding existing growth and environmental projects at Indianapolis Power & Light Company (IPL).
After completion of these transactions, CDPQ’s direct and indirect interests in IPALCO will total 30%, AES will own 85% of AES US Investments, and AES US Investments will own 82.35% of IPALCO. There will be no change in management or operational control of AES US Investments or IPALCO as a result of these transactions.
“We are pleased to announce this strategic partnership with CDPQ, which will support IPL’s strong investment program in gas-fired generation and environmental upgrades,” said Andrés Gluski, AES President and Chief Executive Officer. “These transactions are in line with our demonstrated ability to incorporate financial partners at the business- and project-level. We look forward to working with CDPQ on additional partnering opportunities in the United States and other select countries in the Americas.”
“This investment perfectly fits our profile as a long-term investor in the infrastructure sector,” said Macky Tall, CDPQ Senior Vice President, Private Equity and Infrastructure. “Moreover, this partnership opens new opportunities with AES across the Americas. AES is well established in markets such as Mexico, Colombia, Chile and Brazil and we look forward to working with AES on other key projects.”
AES expects these transactions to be modestly accretive to Adjusted EPS based on reduced equity commitments from AES to fund existing growth and environmental projects at IPL and the initial cash investment by CDPQ, which AES will invest in line with its stated capital allocation framework.
IPL is in the process of completing a US$1.4 billion capital expenditure program to comply with environmental regulations and meet the future needs of its customers. This capital expenditure program will be funded with IPL’s existing capital structure of approximately 45% equity and 55% debt. As of September 30, 2014, AES has already funded US$156 million of the equity commitment. The first US$349 million of the remaining equity amount will be funded entirely by CDPQ, an additional US$62 million is expected to be invested by AES and CDPQ proportionally and the remainder is expected to be funded by cash from operations at IPL. This program includes the previously approved projects to comply with Mercury and Air Toxics Standards (MATS), construct the 671 MW Eagle Valley combined cycle gas turbine plant, and convert 200 MW from coal to natural gas. It also includes projects to comply with wastewater treatment requirements and convert an additional 410 MW from coal to natural gas, which are pending regulatory approval. After completion of this capital expenditure program, IPL’s coal capacity will decrease to approximately 44% in 2017, from 74% today.
Subject to customary regulatory approvals, including from the Federal Energy Regulatory Commission and the Committee on Foreign Investments in the United States, these transactions are expected to close in first half 2015.
With this new deal, CDPQ takes a 30% minority stake is AES Ohio's operations allowing the company to continue to modernize, decarbonize and prepare for the structural changes that will come as AI revolution explodes and data centers figure more prominently in Ohio and elsewhere.
In fact, the Reuters article states:
Utilities are expected to benefit from a surge in demand for power driven by AI and data centers, prompting companies and investors across the board to strike deals with them.
"(Deal with CDPQ) will support AES Ohio's $1.5 billion investment program to strengthen our system and support the growing demand from data centers, which has the potential to increase our peak load by more than 50% by the end of the decade," AES said in a statement.
AES is also signing a ton of PPAs with tech companies as it pivots into renewables.
In fact, AES is the biggest seller of renewable energy to corporations and data centres as well as demand for renewables ramps up (see interview below with their CEO).
Now, you might be wondering why AES, a publicly-traded utility, is selling a minority stake instead of just issuing more debt to fund these operations and the answer is it cost less over the long run, they don't suffer from a potential credit downgrade and they have a trusted partner with stable and significant cash flows that allows them to tap into them to fund their expansion.
For CDPQ, they own another significant equity stake in an important utility which is in a regulated space allowing them to receive stable dividends and also benefit from an equity participation should they decide to sell in the future.
And remember what I keep telling you, the name of the game for CDPQ, CPP Investments and Canada's large pension funds is "SCALE".
These type of deals allows them to invest significant sums in a trusted utility and reap long-term gains.
It's a win-win for all parties involved, especially CDPQ's depositors.
I don't know who started this relationship with AES but it's a great one and I expect to see more deals down the road where CDPQ takes another minority stake in one of AES's businesses.
Below, AES CEO Andrés Gluski speaks with Alix Steel about his companies strategy for energy creation using renewable methods for data centers.
Listen carefully as he explains how they sign long-term agreements to cope with inflation:
"When we sign a 20-year power purchase agreement, at that point in time, we've locked in interest rates, we've locked in equipment and we've actually even locked in EPC contracts for the building of it, so we're really not taking any naked risks at those points. Now inflation has affected us all in the sense that input prices went up. That has been reflected in power purchase price agreements. But we have been able to control these costs, pass on these costs, pass on the highest interest rates so if you lok at it, 2023 was out best year ever and 2024 is looking even better".
Great interview, he explains how they hedge all these risks and know thei return in advance by locking in power prices.
I also embedded a clip where ABC News’ Martha Raddatz interviews Gov. Mike DeWine, R-Ohio, on “This Week” where he dispells myths about "legal" Haitian immigrants in Springfield, Ohio who are needed to fill important jobs at local companies and the nonsense about them eating the dogs and cats there.
That was a low point of the debate but it did provide some great entertainment on X and YouTube! :)
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