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AEP on 'precipice' of green transformation despite pandemic, policy uncertainty from SNL Power Daily with Market Report AEP on 'precipice' of green transformation despite pandemic, policy uncertaintyByline: Darren Sweeney American Electric Power Co. Inc. plans to continue investing in clean energy resources to build on its planned acquisition of wind projects in Oklahoma, despite lingering uncertainty from the coronavirus pandemic and the upcoming U.S. elections. "The way I see it is we are just on the precipice of a massive transformation to renewable resources," AEP Chairman, President and CEO Nicholas Akins said Oct. 22 on the company's third-quarter 2020 earnings call. "And AEP, if you look at the runway, it's pretty substantial." AEP in July reaffirmed its $2 billion commitment to acquiring the North Central wind projects in Oklahoma, which represent nearly 1,500 MW of capacity, despite Texas regulators' rejection of the plan. AEP announced in July 2019 plans to acquire three wind projects under development in Oklahoma from Invenergy LLC. The 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. In February, AEP management said the company will likely issue equity and could sell assets to fund the North Central Wind projects. "We don't get the projects until commercial completion is done," AEP Executive Vice President and CFO Brian Tierney said on the call. The $300 million Sundance project is expected online in the first quarter of 2021, followed by the $400 million Maverick project at the end of 2021. "And then the last one is Traverse, which is about $1.3 billion, and we talked about that being late 2021, early 2022," Tierney said. "We believe that whether it's an at-the-market program, a follow-on issuance or asset rotation, we're going to be able to time those very, very closely with when those discrete projects come online." Akins declined to discuss specifics around potential asset sales. "So, I'm not going to say specifically what we're looking at or anything like that at this point," the CEO said. "But what I will say is that it's incumbent on us to be looking at everything from a source perspective and then focusing on how we deploy capital in the best way and transfer that into ... projects like North Central and be able to fund it in the best way to ensure our shareholder value." 2020 Elections AEP management said the company will continue along its clean energy path no matter who wins the presidential election in November. "Really, the only difference I see is maybe the pace at which the change will occur, if there's a Biden administration versus Trump," Akins said. "But nevertheless, it doesn't change that much for us because we're focused on moving to that clean energy economy as quickly as we can to ensure that we are making that transition into the future that we know is going to happen." If Biden wins the election, it is likely that he will try to partially reverse the 2017 tax reforms, which lowered the corporate income tax rate to 21% from 35% beginning in the 2018 tax year. The former vice president has proposed raising the top corporate income tax rate to 28%. "In any event, we wouldn't expect it to be a significant driver to earnings or cash for the company going forward," Tierney said. Akins acknowledged "there will be rate increases associated with the implementation of new taxes." "I think it's unavoidable, but certainly it's incumbent on us to make sure we mitigate that as much as possible with our Achieving Excellence [cost savings program] and other measures," Akins said. "We'll have discussions with the commissions, just like we had discussions when tax reform occurred," Akins said, adding "it's unfortunate" regulators did not allow the company to implement the change in tax rates over a longer period of time. "And if we continue vacillating back and forth like this, that's going to be a continual issue for our industry that our regulators need to recognize," Akins said. Sales AEP reported that weather-normalized electricity sales were down 3% through the end of the third quarter, with declines in commercial and industrial load partially offset by an increase in residential sales. "We saw significant increases in our residential load at the beginning of the [COVID-19] pandemic," AEP Executive Vice President and CFO Brian Tierney said on the call. "The growth in residential sales has moderated as people returned to work over the summer." AEP reported a 2.6% increase in year-to-date residential sales, with a 4.9% decrease in commercial sales and a 7% decrease in industrial sales through the first nine months of the year. "Overall, load growth across the service territory followed the pattern we anticipated earlier in the year," Tierney said. "During the second quarter, residential sales peaked and commercial and industrial sales hit their lows. Since then, our service territory has been working its way back to more normalized levels." The CFO noted that AEP's retail sales growth has been better than anticipated in the third quarter with the company reporting a 2.6% decline after previously anticipating a 4.1% decline. "We now expect 2020 normalized sales to come in 2.7% below last year, which is 0.6% better than the load forecast from the first quarter," Tierney said. "While the outlook has improved, it is still below the pre-recession forecast used for our original guidance. The favorable sales mix in 2020 has helped to mitigate the impact on earnings." AEP reaffirmed its full-year 2020 operating earnings guidance range of $4.25 per share to $4.45 per share. |
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