The decision by Texas regulators to reject cost recovery for the acquisition and construction of the 2,000-MW Wind Catcher Wind Farm may have been the death knell for what was hyped as the largest wind project in the U.S.

The Public Utility Commission of Texas on July 26 denied American Electric Power Co. Inc. subsidiary Southwestern Electric Power Co.'s application for a certificate of public convenience and necessity and related relief, reversing an administrative law judge's proposal for decision. The ruling means the utility, known as SWEPCO, can not reflect the costs of the project's construction and its portion of the planned acquisition in rates in the Lone Star State.

"I don't believe that the benefits are there for the ratepayers," PUCT Chairman DeAnn Walker said in asking for a motion to amend the proposal for decision and reject the application. "We know what the costs are ... but the benefits are based on a lot of assumptions that are questionable." (PUCT Control No. 47461)

AEP spokeswoman Melissa McHenry said the company is "extremely disappointed" in the decision and is evaluating options for the massive wind energy project.

AEP Chairman, President and CEO Nicholas Akins told analysts and investors on a July 25 earnings call that the company is unlikely to downsize the 800-turbine project if it does not receive regulatory approvals in all jurisdictions.

"You may see smaller projects develop in some fashion," Akins said. "They could be renewables, may not be renewables. But you won't see another Wind Catcher-like project because that one is very unique in scope and scale, and the benefits provided."

Under a plan announced in late July 2017, the $4.5 billion wind farm being developed in the Oklahoma panhandle by Invenergy LLC would be acquired by AEP subsidiaries Public Service Co. of Oklahoma, or PSO, and SWEPCO. The project also involves the construction of a 765-kV transmission line that will run at least 350 miles to interconnect the facility with the electric grid near Tulsa, Okla.

SWEPCO is on the hook for 70% of the project's costs, which are about $3.2 billion, with the Texas retail cost estimated at $1.1 billion. SWEPCO said Texas ratepayers would receive about $1.5 billion in net benefits under its base case scenario.

PUCT spokesman Andrew Barlow said the commission rejected Wind Catcher based on "concerns about the need for the project, the uncertain nature of benefits, and inadequate protections for Texas consumers.”

Guggenheim Securities LLC analyst Shahriar Pourreza said the PUCT's decision "is not entirely surprising."

The firm said it "had given the project 30% likelihood" of approval following recent contentious hearings before the commission.

"We believe that the market had largely priced in this possibility given the muted reaction following the decision, and we note that AEP's growth outlook remains at [5% to 7%] regardless of Wind Catcher," Pourreza wrote in a July 26 research report. AEP stock closed up 2.39% on July 26 at $71.04.

Since Wind Catcher is not physically located in Texas and would not serve those customers under the PUCT ruling, AEP could still move forward. However, Akins said the company needed approvals by regulators in both Texas and Oklahoma "by the end of August" to continue construction and capture the full benefits for production tax credits. Oklahoma regulators have looked at the proposal skeptically as well.

Akins told investors the company is prepared to move forward without Wind Catcher and remains confident in its capital growth plan.

"We're about to take this to a closing one way or another because we've got to get on with other decisions to be made relative to enhancing our shareholders' value and that's what we're going to do," Akins said.

Guggenheim said AEP may not be so quick to pull the plug.

"The prospects for Wind Catcher are dim, but we do not think [management] will walk from the project until they get an answer from Oklahoma and up until this point, their response is unknown," Pourreza wrote.

Wind Catcher has been approved by Arkansas and Louisiana regulators, as well as the Federal Energy Regulatory Commission.