Electric Utility Consultants, Inc. (EUCI)

AEP to refocus investments on regulated operations, renewables

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After taking a $2.3 billion charge to reflect declining values of its coal-fired power plants, American Electric Power (AEP) has announced it will be focusing investments on regulated operations and renewable energy.

AEP says it will invest approximately $17.3 billion over the period 2017 to 2019 in its core regulated operations and contracted renewables.  Most of the new spending will be in interstate power-line projects, which are regulated by the government and have consistent profits. AEP management discussed the company’s financial outlook and earnings with analysts during a meeting in New York last week.

“AEP has successfully refocused our business with 97 percent of our forecast earnings coming from our regulated operations. We are in a unique position because we have the ability to fuel solid earnings growth through organic investment in our regulated businesses. That organic growth will provide enhanced reliability for our customers along with stable, positive returns for our shareholders,” said Nicholas K. Akins, AEP chairman, president and chief executive officer.

With the one-time charge, the company posted a third-quarter loss of $765.8 million, compared to a $518.3 million profit during the third-quarter 2015.  The charge reflects decreasing value at four coal-fired plants in Ohio which AEP says it will continue to own.  The company will be selling at least four coal-fired plants in Ohio and Indiana, including the Gavin plant in Cheshire, the largest coal-fired power plant in Ohio.

Using funds from the sale of its coal-fired plants, AEP says it will spend at least $1 billion on renewable energy projects and businesses.  It has formed two subsidiaries in the renewable energy sector, with one company focusing on small-scale wind and solar projects and the other focusing on larger, utility-scale projects.

AEP Onsite Partners will act as a “behind the meter” company, contracting with large public and private sector customers like grocery stores, schools, and hospitals to set up rooftop solar panels.  Its target market will be solar projects which emit one to five megawatts of energy, costing between $2 million and  $15 million. AEP Renewables will create wind and solar projects whose power output is sold via long-term power purchase agreements to other utilities, cities, and large industrial consumers.

The company called the investment program a “10-year runway of low-risk investment opportunities.”  It expects AEP Transmission Holding Co. to become one of the largest subsidiaries by 2019, contributing 90 cents per share to AEP’s total regulated earnings.

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