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AEP sees regulated capital plan fueling earnings growth

American Electric Power Co. Inc. executives provided a glimpse of the company's capital expenditure plan for 2020 during an Oct. 24 earnings call, telling analysts not to expect many surprises from its historical regulated spending trend.

While AEP is expected to provide an update on its capex plan at the Edison Electric Institute Financial Conference in November, Executive Vice President and CFO Brian Tierney acknowledged that the "preponderance" of spending will funnel to regulated properties and the wires portion of the business.

AEP has a $33 billion capital forecast for 2019 through 2033 with 75% of capital allocated to transmission and distribution spending.

The company also is expected to reaffirm its 5% to 7% EPS growth rate for 2020 at Edison Electric Institute.

"We stand committed to what we have said before and we fully expect to be in the upper range of that 5[%] to 7%," AEP Chairman, President and CEO Nicholas Akins said on the third-quarter 2019 earnings call.

Executives sought to assure investors that concerns about load growth have not impacted the company's earnings forecast.

On the second-quarter 2019 earnings call, AEP management said they have seen "areas of load decline, primarily tariff-related" in the industrial sector. Akins, at the time, pointed to the impact of the U.S. trade war with China as the "biggest economic headwind we have at this point."

The CEO sought to walk back those comments on the Oct. 24 call.

"I think probably last quarter, we probably talked almost too much about the load and the industrial side of things," Akins said. "And really, it was nothing compared to what we experienced back in 2009 and we did pretty well weathering that storm. In this case, I think you're seeing some resiliency there from an industrial and manufacturing standpoint."

Tierney said normalized retail sales in the company's service territories "were essentially flat for the [third] quarter compared to 2018."

"This represents a marked improvement from our last quarterly update," Tierney said.

Industrial sales were down 1.1% compared to the third quarter of 2018 after the industrial sector recorded a 2.7% decrease in sales for the second quarter of 2019 compared to the year-ago period.

"While industrial overall is still down but improved from last quarter, residential and commercial are both up more than expected," Akins said. "We have the lowest unemployment on record in our territory going back to 1990 and wages are growing faster than inflation. And even in the industrial sectors, which have improved overall from last quarter, the oil and gas sector growth was the strongest we've seen since 2016.

"All in all, I would say it's time for a return of optimism regarding the economy," he added.

Wind acquisitions

AEP executives also remain confident in the company's ability to close on its planned purchase of three wind farms in Oklahoma.

AEP announced in July plans to acquire three wind projects from developer Invenergy LLC about a year after pulling the plug on the 2,000-MW, $4.5 billion Wind Catcher Wind Farm. The nearly $2 billion deal involves the acquisition of about 1,485 MW of wind capacity from the planned 999-MW Traverse Wind Farm, the 199-MW Sundance Wind Project and the 287-MW Maverick Wind Project by AEP subsidiaries Public Service Co. of Oklahoma and Southwestern Electric Power Co.

"I think Wind Catcher was a unique situation," Akins said. "I mean, we obviously looked at it and thought it was a great opportunity for all of these jurisdictions but at the end of the day, it was a large project in one area with a large generation interconnect ... and [the project] got hung up on the risk associated with that.

"I still stand by it was a great project. There's no question about it but we learned from that," Akins added.

The new proposal involves three separate wind farms with a lot of flexibility and an existing transmission interconnection, with AEP thus far not experiencing the same backlash as its previous proposal.

"I would say that all in all it's been a much better and probably a much more pleasant experience than before," Akins said.

AEP is "on track to receive final decisions by the summer of 2020," he said, noting the wind projects are not in the company's current capital plan.