Amazon agrees to fund and buy power from 12 small reactors at AEP's retired Indiana coal plant
AEP, X-energy and Amazon signed agreements on October 19 to study twelve small reactors at a retired Indiana coal plant, with Amazon paying the development bills and, if it is built, buying the output under a contract meant to cover the plant's full costs. AEP reports the morning of October 28; the thing to listen for on the call is how much of the build customers like Amazon are paying for.
Richard Tang · 3 min read
American Electric Power−0.22% — American Electric Power, down 0.22 percent today, one of the largest US electric utilities 2, signed agreements on October 19 with the reactor developer X-energy$1B — X-energy, private, latest valuation $1B and Amazon+1.86% — Amazon, up 1.86 percent today to study a nuclear plant at the retired Breed coal station in Sullivan County, Indiana: twelve Xe-100 small modular reactors, 960 megawatts if every unit is built 1.
Amazon funds the development work now, milestone by milestone, and if the plant runs, it buys the power under a long-term contract priced to cover the facility's full costs 1. New nuclear projects in the US have a history of cost overruns, which utilities have been wary of passing to their customers 1. Amazon has offered to carry that risk on its own balance sheet, and that is the news.
Amazon's contract moves the construction risk off Indiana ratepayers
AEP chief executive Bill Fehrman says the agreements "will provide all necessary capital protections and financial safeguards" for customers of Indiana Michigan Power, the AEP utility that once ran Breed; Amazon vice president Josh Weissman says the companies will "pay our full costs without passing them to others" 1.
Amazon signed the White House Ratepayer Protection Pledge this year, and AEP plans to cut Indiana residential rates by $100 from 2027 on revenue from large customers 3. The demand behind it is real: Indiana Michigan Power expects the state's peak load to more than double by 2030 as large customers connect 1.
AEP cannot fund this build from its own cash flow
Amazon's money aside, AEP cannot fund this build from its own cash. Capital spending has outrun operating cash in nine of the last twelve quarters, a gap the company has filled by borrowing and selling shares 45.
Capex has outrun operating cash in nine of the last twelve quarters
- Capital expenditure
- Operating cash flow
Data
| Capital expenditure | Operating cash flow | |
|---|---|---|
| Q3 '23 | $1.73B | $1.79B |
| Q4 '23 | $1.61B | $1.34B |
| Q1 '24 | $1.76B | $1.44B |
| Q2 '24 | $1.56B | $1.46B |
| Q3 '24 | $1.85B | $2.17B |
| Q4 '24 | $2.86B | $1.73B |
| Q1 '25 | $2.1B | $1.45B |
| Q2 '25 | $3.28B | $1.22B |
| Q3 '25 | $2.28B | $2.46B |
| Q4 '25 | $4.25B | $1.81B |
| Q1 '26 | $3.8B | $1.52B |
| Q2 '26 | $3.13B | $1.9B |
That gap is what the analysts are disagreeing about. BTIG, a brokerage, upgraded AEP to Buy on October 20 with a $147 target, its bull case built on 24 gigawatts of new load secured by 2030 6. Even the bear case BTIG summarizes has the company's ratio of funds from operations to debt, a standard gauge of credit strength, at 13.2% against a 14–15% target range 6. Jefferies+1.72% — Jefferies, up 1.72 percent today, another brokerage, trimmed its target to $146 on October 22 7.
Both camps assume the demand arrives. They differ on whether AEP can pay for the capacity to serve it without stretching its credit. This is also the second deal in a week in which a hyperscaler, a data-center operator such as Amazon or Google, has put its balance sheet behind AEP capacity: on October 14 the utility outlined a $4 billion fuel-cell project backed by Google 27.
The bottleneck has moved from financing to delivery
Nothing at Breed is committed: no final investment decision, no cost estimate, no schedule, and no small modular reactor has entered commercial operation in the United States 1. What decides the Indiana study is whether the first Xe-100 units get built on time elsewhere, at the chemicals company Dow's Texas project, now in the final phases of the Nuclear Regulatory Commission's construction permit review, and at the Amazon-backed Cascade facility planned in Washington state 13. Amazon and X-energy are aiming at more than 5 gigawatts of new nuclear by 2039 1.
AEP reports third-quarter results before the open on October 28, with consensus near $2.04 a share after a miss last quarter 8. Earnings will not settle the funding question. The figure to listen for is how much of the capital plan the chief financial officer attributes to customers like Amazon and Google+1.43% — Google, up 1.43 percent today. That structure, a hyperscaler's balance sheet standing behind a utility's site, license and operator, is the part other utilities can copy, and tomorrow's call is the first evidence of whether it is spreading.
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