Tuesday, May 23, 2017

AEP’s Akins Optimistic over Regulated Future

By Tom Kleckner

Calling 2016 “very successful” and predicting 2017 will be “another transformational year,” American Electric Power CEO Nick Akins paid tribute to the late television icon Mary Tyler Moore during a Thursday conference call with financial analysts.

“In respect to the passing of Mary Tyler Moore, I will just say, we are going to make it after all,” Akins said during the company’s fourth-quarter and year-end report. “This has been a year of repositioning and de-risking the company. … We have come through with flying colors, but as a premium energy regulated company, our work is far from done.”

Akins’ optimism is fueled by the pending sale of four competitive power plants for $2.2 billion, the company’s hopes for restructuring Ohio’s electric market and possible corporate tax reform under the Trump administration.

The company reported fourth-quarter operating earnings of 67 cents/share, up almost 40% from a year earlier, which beat the Zacks consensus estimate of 55 cents/share. For the year, operating earnings were $3.94/share, up from $3.69/share a year ago. Its transmission segment contributed 54 cents to earnings for the year, an increase of more than 38%. AEP reaffirmed its 2017 operating earnings guidance range of $3.55 to $3.75/share.

Investors reacted to the news by driving AEP’s share price up 40 cents to $62.97 at Friday’s close.

Under Generally Accepted Accounting Principles (GAAP), the company reported 2016 earnings of almost $611 million, a $1.4 billion drop from 2015 that reflected its $2.3 billion write-down on its Ohio competitive generation assets in the third-quarter, as well as a federal tax audit settlement over the sale of its commercial barge operations and mark-to-market impact of hedging activities.

Akins said AEP expects to close its sale of three natural gas plants, with 2,533 MW of capacity, and the mammoth 2,665-MW Gen. James M. Gavin coal plant to Lightstone, a joint venture between The Blackstone Group and ArcLight Capital Partners, “sometime in 2017.”

AEP’s Gavin Power Plant. | AEP

Three of the gas plants are in Ohio, and the fourth, the 1,186-MW Lawrenceburg Generating Station, is just across the state line in Indiana. Akins said the company was continuing a “strategic review process” for the remaining merchant generation units.

“This was a year of reducing risk and volatility of earnings for the company in the future and reinforcing our balance sheet to provide a strong platform for future growth,” Akins said.

The CEO said the company is discussing with other utilities and stakeholders its proposed legislation to restructure Ohio’s competitive market and expects a bill to be introduced as early as the second quarter.

“AEP will not invest in new generation in Ohio unless we have a clear path to recovery of our investment, so enabling legislation is critical,” he said. “There’s already drafts of legislation that are circulating around, and we just need to make sure all the parties are comfortable with that.”

Though AEP saw signs of an improving economy in its service territory in the fourth quarter, Akins called the growth “minimal.” He said the company will continue to watch the economy closely under the new administration’s “pro-growth agenda.”

“President Trump’s focus of enhancing the ability for manufacturing industries to thrive and produce jobs … well that’s AEP’s service territory,” he said. “AEP should prosper, and we are very much looking forward to working with the Trump administration to bring prosperity and jobs back to this country.”

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