AEP's Challenging Regulatory Environment and Management Turnover Cloud Outlook

Strategist

Andrew Bischof

Revenue segments as reported by the company.

Vertically Integrated Utilities

Transmission & Distribution Utilities

AEP Transmission Holdco

Generation & Marketing

Corporate and Other

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Establishment of 2017-2019 Virginia Triennial Review Regulatory Asset

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American Electric Power operates numerous utilities, providing investors protection from any one adverse regulatory ruling. Nearly all of the company’s $43 billion capital investment plan from 2024-28 focuses on regulated investments.

To fund this plan, AEP expects to issue more than $3 billion of equity, among the highest of its peers. The equity need is in part driven by the company's underearning at its subsidiaries. AEP's trailing 12-month regulated return on equity is 8.8% for 2023, below the 9.4% allowed ROE granted by regulators. We expect it to take years to eliminate the gap between earned and allowed returns. This will require constructive regulatory outcomes across its subsidiaries, which could prove to be challenging.

AEP's plan focuses on transmission investments, which we think are the most attractive long-term growth opportunities, given federal incentives to improve the efficiency of the U.S. power grid. Moaty transmission and distribution investments account for two thirds of AEP's five-year capital investment plan. We think environmental regulations, aging infrastructure, and renewable energy growth support a long runway of transmission growth at the unit.

AEP plans to invest in renewable energy across the company's subsidiaries, potentially providing growth opportunities beyond our five-year forecast. AEP expects nearly 50% of generation will come from wind, solar and battery storage by 2033, up from roughly 21% today. AEP expects to retire over 5 GW of coal generation capacity during this time period. Management has proposed some additional new natural gas generation in part to ensure grid reliability from the growth of intermittent renewable energy resources.

AEP is managing numerous strategic initiatives. AEP announced that it had entered into an agreement to sell its commercial renewable energy portfolio. New initiatives include the announced sale of two noncore transmission joint ventures and plans to sell AEP's retail and distributed resources business. The company's strategic review of the Transource Energy transmission joint venture remains ongoing.

Business Strategy & Outlook

Service territory monopolies and efficient scale advantages are the primary sources of economic moat for regulated utilities such as American Electric Power. State and federal regulators typically grant regulated utilities exclusive rights to charge customers rates that allow the utilities to earn a fair return on and return of the capital they invest to build, operate, and maintain their distribution networks. In exchange for regulated utilities’ service territory monopolies, state and federal regulators set returns at levels that aim to minimize customer costs while offering fair returns for capital providers.

This implicit contract between regulators and capital providers should, on balance, allow regulated utilities to earn more than their costs of capital in the long run, though observable returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing.

Intuitively, utilities should have an economic moat based on efficient scale, but in some cases regulation offsets this advantage, preventing excess returns on capital. The risk of adverse regulatory decisions precludes regulated utilities from earning wide economic moat ratings. However, the threat of material value destruction is low, and normalized returns exceed costs of capital in most cases, leaving us comfortable assigning narrow moats to many regulated utilities.

Narrow

Economic Moat

American Electric Power Company

American Electric Power Co., Inc. engages in the generation, transmission, and distribution of electricity. It operates through the following segments: Vertically Integrated Utilities, Transmission and Distribution Utilities, AEP Transmission Holdco, and Generation and Marketing. The Vertically Integrated Utilities segment covers the generation, transmission, and distribution of electricity for sale to retail and wholesale customers. The Transmission and Distribution Utilities segment represents the transmission and distribution of electricity for sale to retail and wholesale customers. The AEP Transmission Holdco segment comprised of the development, construction, and operation of transmission facilities through investments in its wholly-owned transmission subsidiaries and joint ventures. The Generation and Marketing segment consists of the non-regulated generation and marketing, risk management, and retail activities. The company was founded on December 20, 1906 and is headquartered in Columbus, OH.

Earnings data Q2 2021

Earnings data Q3 2021

Earnings data Q4 2021

Earnings data Q1 2022

Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

American Electric Power (AEP) reports strong earnings and strategic shifts

American Electric Power (AEP) delivered strong financial performance in Q4 2022, reaffirming 2023 guidance and showcasing operational resilience amidst industry challenges.
The company's strategic focus on clean energy transition, regulatory wins, and asset optimization positions it for sustainable growth and shareholder value creation.
Challenges related to deferred fuel balances and regulatory uncertainties require proactive management, while opportunities in portfolio optimization and financial strategy offer avenues for future growth.
AEP's commitment to financial stability, dividend growth, and environmental responsibility underscores its position as a leading utility company driving towards a sustainable energy future.

American Electric Power reports solid Q1 earnings amidst operational focus

AEP's Q1 2023 performance showed resilience despite weather challenges, with a focus on managing the portfolio and enhancing financial metrics. While facing challenges in closing the ROE gap and improving Kentucky operations, opportunities exist in seeking approvals for renewable sales and streamlining operations. The company remains committed to maintaining a healthy balance sheet and pursuing strategic divestments.

AEP meets Q2 earnings target, focuses on asset sales and ROE improvement

AEP's Q2 performance aligned with guidance, emphasizing strategic asset sales and renewables execution
Challenges include low ROE, weather impacts on ROE improvement, and regulatory monitoring
Opportunities lie in asset sales, debt ratio targets, and reinvestment of securitization proceeds
Overall, AEP remains focused on financial strength, stakeholder engagement, and regulatory alignment

American Electric Power reports strong Q3 earnings and growth opportunities

AEP's Q3 performance was strong, with narrowed full-year guidance and an increased dividend aligned with earnings growth.
The company is focusing on simplifying its business profile through asset sales and investing in regulated renewables projects.
Challenges include managing FFO to debt fluctuations, resolving fuel cost recovery paths, and optimizing O&M costs for customer benefit.

American Electric Power (AEP) reports robust earnings and growth outlook

AEP's Q4 2023 Earnings Call highlighted strong financial performance, reaffirmed earnings guidance, and emphasized strategic priorities and regulatory wins. The company faces challenges in regulatory changes but sees opportunities in data center expansion and transmission assets.

AEP reports robust Q1 earnings, focuses on growth and regulatory challenges

AEP's strong financial performance and strategic focus on growth and regulatory engagement position the company well for future opportunities. Challenges in grid modernization and regulatory compliance require proactive measures, while cost management remains a key priority.

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LOS ANGELES--(BUSINESS WIRE)---- $AEP #AEP--INVESTIGATION REMINDER: The Schall Law Firm Announces it is Investigating Claims Against American Electric Power Company, Inc.

INVESTIGATION REMINDER: The Schall Law Firm Announces It Is Investigating Claims Against American Electric Power Company, Inc. and Encourages Investors With Losses of $100,000 to Contact the Firm

LOS ANGELES--(BUSINESS WIRE)---- $AEP #AEP--INVESTIGATION ALERT: The Schall Law Firm Announces it is Investigating Claims Against American Electric Power Company, Inc.

INVESTIGATION ALERT: The Schall Law Firm Announces it is Investigating Claims Against American Electric Power Company, Inc. and Encourages Investors with Losses of $100,000 to Contact the Firm

NEW YORK--(BUSINESS WIRE)--Rosen Law Firm, a global investor rights law firm, announces investigation of potential securities claims on behalf of shareholders of American Electric Power Company, Inc. (NYSE: AEP) resulting from allegations that AEP may have issued materially misleading business information to the investing public.

ROSEN, A TOP RANKED LAW FIRM, Announces Investigation of Securities Claims Against American Electric Power Company, Inc. – AEP

BENSALEM, Pa.--(BUSINESS WIRE)---- $AEP #fraud--INVESTOR ALERT: Law Offices of Howard G.

INVESTOR ALERT: Law Offices of Howard G. Smith Announces Investigation of American Electric Power Company, Inc.

LOS ANGELES--(BUSINESS WIRE)---- $AEP #fraud--Glancy Prongay & Murray LLP Announces Investigation of American Electric Power Company, Inc. (AEP) on Behalf of Investors

Glancy Prongay & Murray LLP, a Leading Securities Fraud Law Firm, Announces Investigation of American Electric Power Company, Inc. (AEP) on Behalf of Investors

NEW YORK, July 27, 2020 /PRNewswire/ -- Pomerantz LLP is investigating claims on behalf of investors of American Electric Power Company Inc. ("American Electric" or the "Company") (NYSE: AEP).

SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims On Behalf of Investors of American Electric Power Company Inc. - AEP

COLUMBUS, Ohio, July 27, 2020 /PRNewswire/ -- Nicholas K. Akins, American Electric Power (NYSE: AEP) Chairman, President and Chief Executive Officer, issued the following statement today regarding the investigation surrounding Ohio House Bill 6.

Statement From AEP About Investigation Of Ohio H.B. 6

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