AEP’s transmission business will quadruple earnings by 2015

Over the four-year period from 2012 to 2015, American Electric Power (NYSE:AEP) projects its transmission business to quadruple its contribution to earnings.

CEO Nick Akins on April 26 said the Columbus, Ohio-based company is on track for continued growth in earnings from transmission. AEP projects its transmission business to contribute 14 cents per share to earnings this year, up from 9 cents per share in 2012. In 2014 and 2015, the transmission business is projected to contribute 29 cents and 36 cents per share, respectively.

The upward swing derives directly from the company’s aggressive transmission growth platform, which it has been touting for over a year.

AEP’s focus on transmission is in part due to the company’s outlook for customer demand this year, Akins said.

“We continue to believe customer load will remain essentially flat for the year,” Akins said during the company’s 1Q13 earnings call. “This being the case, we are making advancements in other areas,” including transmission, he added.

AEP’s transmission companies (transcos) will invest $747m this year in transmission, a 48% increase over 2012’s investment of $505m, CFO Brian Tierney said during the company’s 4Q12 earnings call in February. Altogether, AEP’s transcos plan to spend $2.1bn on transmission over a three-year period.

AEP’s focus on transmission has not been deterred by recent FERC actions on Order 1000 compliance proposals, the CEO said.

“The recent FERC orders concerning Order 1000 compliance impacting such areas as the right of first refusal, cost allocation and other areas haven’t altered our strategy concerning transmission development, [nor] changed our reported investment forecast,” he said during the 1Q13 call. 

In fact, AEP has been a proponent of competitive transmission development, Akins said. In response to Order 1000, the company in April 2012 formed a joint venture with Great Plains Energy (NYSE:GXP), Transource Energy, which is developing three projects in Missouri and Nebraska: the Iatan to Nashua, Sibley to Maryville and Nebraska City to Maryville lines. 

“[W]e are positioned to be with Transource a strong competitive transmission provider in this country, so we continue with the joint ventures, we continue with the adjacent companies that we do business with,” Akins said. “There’s a lot of opportunity there.”

Transource filed a settlement proposal with the Missouri PSC requesting approval for public utility status, transfer of property and the ability to own and construct transmission projects, which is awaiting approval, Akins said. The company is also waiting on FERC approval for Transource’s rates and capital structure, for which an administrative law judge has recommended approval, he said.

AEP’s other transmission partnerships include Pioneer Transmission, with Duke Energy (NYSE:DUK), which is now proceeding with construction on the Pioneer project, Akins said. The Indiana Utility Regulatory Commission on April 17 approved the project. 

Akins also touched on another major issue, FERC-approved transmission incentives.

That issue intersects with proceedings underway at FERC regarding base returns on equity (ROEs), which certain consumer advocacies and state attorneys general have asked FERC to lower.

“We’re also very careful about what we ask for incentives for,” Akins said. “We ask for incentive structures relative to ROE based on the way we perceive the risk of those projects [to be].” He added that the more transmission providers are “very solid and factual about what they ask for,” the better their chances to get FERC approval.

 

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.