EUR 850.00 For Business Accounts Only

Morningstar | AEP Cancels Wind Catcher After Texas Regulators Reject Project

We are reaffirming our $69 per share fair value estimate, narrow moat and stable moat trend ratings after American Electric Power canceled the proposed Wind Catcher Energy Connection project. The Public Utility Commission of Texas rejected the project on July 26.

We were hopeful AEP's proposed 2,000 MW Wind Catcher project would receive regulatory support, but that was swiftly brought to an end after regulators in Texas denied approval for the project. Texas regulators noted the insufficient consumer benefits in the rationale for their decision. The company had received orders affirming the project in Arkansas and Louisiana, and was still awaiting approval in Oklahoma.

While we think shareholders should be disappointed the project wasn't approved, we like that management wasn't willing to make additional concessions that might have lowered returns or put shareholders at risk for cost overages.

Approval of the $4.5 billion project would have added approximately $1 to $2 per share to our fair value estimate, but we excluded the project from our model because of the regulatory uncertainty that remained in Oklahoma and Texas. Our 6.4% growth rate between 2018 to 2022 remains unchanged. We continue to believe that AEP has a long pipeline of growth opportunities to continue to drive long-term growth beyond the potential Wind Catcher opportunity.