Morningstar | Management Meeting: Beyond Wind Catcher, American Electric Power Has Numerous Capital Opportunities
We are reaffirming our $71 per share fair value estimate, narrow moat, and stable moat trend for American Electric Power after meeting with management at the Edison Electric Institute Financial Conference in San Francisco.With the disappointing 2,000 MW Wind Catcher Energy Connection decision behind them, management is now looking forward to executing its $33 billion capital investment plan from 2019 to 2023. More than 70% of this spend is recovered through trackers or forward mechanisms, significantly reducing regulatory lag between investment and cash recovery.
At the core of its capital plan, consistent with the past few years, are transmission investments, which account for half of its investments. As the largest transmission operator in the U.S., American Electric Power continues to identify capital projects among the numerous drivers supporting transmission investments. Reliability, cybersecurity, supply mix transition, economic growth, and grid improvement are just a few of the transmission investment drivers. Management expects earnings at the transmission holding company to grow to $1.19 per share to $1.22 in 2021, up from $0.31 in 2014.
American Electric Power has other attractive investment opportunities, particularly while it works to reduce the carbon footprint of its generation portfolio. Even though Texas regulators ultimately denied Wind Catcher, there appears to be strong appetite by regulators at its other subsidiaries for renewable energy investments in part to meet state requirements.
Management appears content with their portfolio of regulated utilities but appears to be more frustrated and impatient with the company's Oklahoma subsidiary. Oklahoma remains one of the toughest regulatory environments for utilities. We think the utility's upcoming rate case decision will be a important factor in determining management's strategic direction for the unit. Twelve-month average returns on equity at the unit were 7.7%.
American Electric Power Company is a public utility holding company. The public utility subsidiaries of the company provide electric service, consisting of generation, transmission and distribution, on an integrated basis to their retail customers. The service areas of the company's public utility subsidiaries cover portions of the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. Transmission networks are interconnected with distribution facilities in the territories served. The company's service company subsidiary provides accounting, administrative, information systems, engineering, financial, legal, maintenance and other services.
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