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AEP drops Wind Catcher project after Texas rejection

American Electric Power Co. Inc. announced July 27 that it is canceling the $4.5 billion Wind Catcher Wind Farm based on the decision by Texas regulators to reject cost recovery for the acquisition and construction of the 2,000-MW project.

The Public Utility Commission of Texas on July 26 denied an application by AEP subsidiary Southwestern Electric Power Co., or SWEPCO, for a certificate of public convenience and necessity and related relief for Wind Catcher, reversing an administrative law judge's proposal for decision. (PUCT Control No. 47461)

AEP still had the option to move forward with Wind Catcher, but AEP Chairman, President and CEO Nicholas Akins told analysts and investors on a July 25 earnings call that the company did not plan to downsize what was hyped as the largest wind project in the U.S.

"We are disappointed that we will not be able to move forward with Wind Catcher, which was a great opportunity to provide more clean energy, lower electricity costs and a more diverse energy resource mix for our customers in Arkansas, Louisiana, Oklahoma and Texas," Akins said in a July 27 news release. "To realize the full benefits of Wind Catcher for customers, timely approvals were required from all jurisdictions so we could complete the project by the end of 2020 and be eligible for 100 percent of the federal production tax credit."

The 800-turbine wind farm, announced in late July 2017, was in the early stages of being developed in the Oklahoma panhandle by Invenergy LLC and would have been acquired by AEP subsidiaries SWEPCO and Public Service Co. of Oklahoma, or PSO. The project also involved the construction of a 765-kV transmission line that would run at least 350 miles to interconnect the facility with the electric grid near Tulsa, Okla. Invenergy representatives did not immediately respond to a request for comment July 27.

SWEPCO would be on the hook for 70% of the project's costs, or about $3.2 billion, while PSO estimated its share of the costs at about $1.36 billion.

The PUCT rejected Wind Catcher based on "concerns about the need for the project, the uncertain nature of benefits, and inadequate protections for Texas consumers."

"We know what the costs are ... but the benefits are based on a lot of assumptions that are questionable," PUCT Chairwoman DeAnn Walker said.

Oklahoma regulators have looked at the proposal skeptically as well. Arkansas and Louisiana regulators, as well as the Federal Energy Regulatory Commission, signed off on the massive wind energy project.

AEP said it remains confident in its 5% to 7% long-term growth rate without Wind Catcher.

"We are investing in a cleaner, smarter energy system for our customers and will continue to pursue opportunities to provide the new energy resources and technology solutions that bring value to our customers," Akins said.

The company plans to invest $24 billion from 2018 through 2021 in its regulated businesses and contracted renewables, with 75% of its capital plan allocated to grid and electric infrastructure investments.

"We believe the final decision denying the Wind Catcher project removes a large overhang on AEP that has contributed to recent underperformance relative to its peers," Mizuho Securities USA LLC analyst Paul Fremont wrote in a July 27 report.

Mizuho maintained its "buy" rating on AEP and raised the stock's price target to $74.50 from $71.

Analysts at Wells Fargo Securities reiterated an "Outperform" rating on AEP, saying that even without Wind Catcher, they expect the company to achieve a 6% compound annual growth rate in the 2019-2022 period "due to a highly transparent capex forecast, manageable financing needs (modest new equity) and a strong track record of delivering on financial guidance."