American Electric Power (AEP) - Get Report said Wednesday it agreed to sell four power plants to a newly formed joint venture of Blackstone (BX) and ArcLight Capital Partners LLC for $2.17 billion, continuing its drive to become a fully regulated utility and reduce business risks.

Together the plants generate 5,200 megawatts in a region served by the PJM Interconnection. They include the 1,186-megawatt Lawrenceburg natural gas plant in Lawrenceburg, Ind., the 840-megawatt Waterford natural gas plant in Waterford, Ohio, the 507-megawatt Darby natural gas plant in Mount Sterling, Ohio, and the 2,665-megawatt Gen. James M. Gavin coal plant in Cheshire, Ohio.

The deal works out to only around $400 per kilowatt but is probably heavily skewed to the Lawrenceburg and Waterford combined cycle plants, analysts at Tudor, Pickering, Holt & Co. said in a note. "This is yet another PJM transaction that puts a marker on CCGT [combined cycle gas turbine] valuation at around $800 per kilowatt," they said, versus around $400 per kilowatt for peer Calpine (CPN) .

Columbus, Ohio-based AEP said in January of last year it was exploring strategic alternatives for the plants, including a possible sale. It said it's continuing a strategic evaluation of an additional 2,677 megawatts of power generation it owns in Ohio while working on the restructuring of state regulations to allow the assets to be acquired by AEP Ohio for the benefit of its customers. It's also continuing a separate strategic review of its 48 megawatt hydroelectric Racine Plant in Racine, Ohio.

"AEP's long-term strategy has been to become a fully regulated, premium energy company focused on investment in infrastructure and the energy innovations that our customers want and need," AEP chairman, CEO and president Nicholas Akins said. "This transaction advances that strategy and reduces some of the business risks associated with operating competitive generating assets."

The sale has to clear regulators, including the Federal Energy Regulatory Commission, the Indiana Utility Regulatory Commission and Hart-Scott-Rodino but is expected to close in the first quarter of next year.

AEP expects to net about $1.2 billion in cash after taxes, repayment of debt associated with the assets and transaction fees. The company is evaluating options for how to invest the proceeds but is considering transmission, renewable projects, additional debt retirement and share buybacks. It plans to share details about its plans at its analyst day Nov. 1.

AEP expects to record an after-tax gain of around $140 million from the sale subject to inventory true-ups, income tax and other adjustments.

Utilities have been shedding their deregulated power plants to de-risk their portfolios at a time of low wholesale prices and to generate capital to reinvest in more stable, higher growth businesses.

A year ago Entergy Corp. (ETR) sold its 583-megawatt Rhode Island State Energy Center in Johnston, R.I., to Carlyle Power Partners for $495 million, or around $840 per kilowatt. And this past February, France's Engie SA shed its U.S.-based fossil portfolio to Houston-based Dynegy (DYN) and private equity firm Energy Capital Partners for $3.3 billion and its hydropower assets in Massachusetts and Connecticut to Canada's Public Sector Pension Investment Board for $1.2 billion.

Like Carlyle and Energy Capital Partners, Blackstone and ArcLight are making the investment with the hope that power prices recover in the future. Both private equity firms have experience in the power business: Together they have owned and operated more than 38,000 megawatts of power generation globally, AEP said.

Goldman, Sachs' (GS) - Get Report Jeff Pollard, Joel Mossberg, Matt Gibson and Stephan Feldgoise were AEP's lead financial advisers for the strategic evaluation and Citigroup Global Markets Inc.'s Jugjeev Duggal and Todd Guenther also worked on the deal through the process. Simpson Thacher & Bartlett Mario Ponce and Brian Chisling provided AEP with outside legal counsel.

Latham & Watkins  and Kirkland & Ellis advised the buyers on the purchase with Latham assisting ArcLight and Kirkland assisting Blackstone on the joint venture formation.

Latham's team included David Allinson, David Owen, Edmond Parhami, Christopher DePizzo, Warren Lilien, Veronica Relea, Naim Culhaci, Timothy Doherty, Lisa Watts, Alan Kimball, David Della Rocca, Matthew Conway, Nikhil Kumar, Michael Gergen, Kelly Walters, Jean-Philippe Brisson, Stacey VanBelleghem, Andrew Westgate and Carrie Girgenti.

Kirkland's team included Andrew Calder, Rhett Van Syoc, Melissa Hutson, Andy Veit, Allan Kirk, Raj Krishnan, Lauren Swadley, Chad Nichols, Paul Tanaka, Alexandra Farmer, Michael Saretsky, Michael Mahoney, Alexandra Mihalas, Melissa Grim, Roberto Miceli, Kristin Czubkowski, Michael Thorpe,Ellen Jakovic, Marin Boney, Edward Holzwanger, Michael Schulman, Dean Shulman, Russell Light, David Mannion and Matthew Lovell.