KKR, Pension Fund Acquire $2.8B Stake In Utility Giant To Fuel Data Center Push
KKR and Canada’s Public Sector Pension Investment Board are acquiring a 19.9% stake in a trio of power transmission companies in Ohio, Indiana and Michigan owned and operated by utility giant American Electric Power.
The $2.82B deal will help fund the buildout of new infrastructure needed to meet surging electricity demand, much of it from data centers, and to address resulting concerns around grid reliability.
AEP serves 5.6 million retail and wholesale customers across 11 states, but Ohio, Indiana and Michigan — all home to rapidly expanding data center markets — are among its fastest-growing service territories due to what the firms described in a joint statement as “digitalization and reshoring of critical manufacturing.”
“This transaction allows AEP to efficiently finance a growing segment of our business and enhances our ability to serve growing customer demand and provide reliable service to our customers,” AEP President and CEO Bill Fehrman said in a press release Thursday.
The deal comes as utilities across the U.S. are contending with a massive, unanticipated surge in electricity consumption from data centers. Data center lease deals signed in 2023 alone had an impact equivalent to adding a second New York City to the power grid, while the industry’s share of U.S. power consumption is expected to leap from 2.3% in 2023 to 6.6% in 2028.
Electricity demand in the U.S. is expected to outstrip supply as soon as next year, with data centers accounting for the largest share of new energy consumption at 44%. Utilities will need to increase their annual power generation by as much as 26% by 2028, according to Bain & Co.
Many utilities have struggled to adjust to this sudden flood of data center demand and are now scrambling to figure out how to build billions of dollars of new infrastructure quickly to meet the needs of an industry with which they previously had little familiarity.
This skyrocketing demand has emerged as a point of tension between the data center sector and some utilities, which have argued that the billions of dollars in infrastructure improvements needed to fulfill data center power requests could lead to higher electricity costs for its existing customers.
AEP has played a central role in these disputes. Earlier this year, AEP Ohio proposed new rate structures specifically targeting data centers that requires firms to pay a significant percentage of the power the utility makes available to them whether they use it or not.
Data center developers and tech giants like Amazon and Microsoft have fought back aggressively against AEP Ohio’s plan, urging the state’s utility regulator to reject the measures. A tentative settlement was reached in late October, although it remains unclear if the plan will be contested further as it awaits approval by state regulators.
Neither KKR nor PSP, who control an equal stake in the strategic partnership behind the AEP deal, are making their first forays into the digital infrastructure space.
PSP Investments, which manages and invests funds from the Canadian government for the pension plans of agencies like the federal public service and the Royal Canadian Mounted Police, is a long-time player in the data center sector. The pension fund was part of consortiums that were the principal owners of both Vantage Data Centers and AirTrunk. Over the past year, PSP completed the sale of its stake in Vantage and began the sales process to unload its stake in AirTrunk.
KKR Global Infrastructure, the subsidiary funding the acquisition, has deployed $29B across 22 investments in data center and fiber, according to the firm, with a data center footprint that includes four platforms and more than 100 facilities globally. The company owns data center developer CyrusOne, which it acquired in 2021 with Global Infrastructure Partners in a $15B take-private deal that was the largest M&A transaction in the history of the data center sector.
In October, KKR and Energy Capital Partners announced a $50B strategic partnership to invest in data centers and power generation.
"KKR’s infrastructure business has a long track record of investing behind the energy transition and electrification opportunities, and this investment in AEP sits squarely at the intersection of these two trends," KKR Managing Director Kathleen Lawler said in the release. "The simplicity and stability of the assets, coupled with the robust demand for electricity, make AEP’s transmission assets an ideal investment for KKR."
