American Electric Unit Files Plea For Extending Security Plan

AEP Ohio, an affiliate of American Electric Power Company, Inc. (NYSE:AEP) , has submitted a plea with the Public Utilities Commission of Ohio (PUCO) for extending the current Electric Security Plan (ESP), including some modifications, through May 2024, which would otherwise expire in May 2018.

Rationale of the Proposal

The ESP is intended to support AEP Ohio’s systematic investment program for the purpose of improving customer service and enhancing operating efficiency of its electric system. This can be achieved through the deployment of smart energy technologies like microgrids to supply uninterrupted power service to critical public safety infrastructure, electric vehicle charging stations and smart street lighting systems.

In order to curb and effectively manage outages, the ESP aims to engage in the proactive replacement of aging equipment, aggressive tree trimming and vegetation management programs, deployment of a new communications system to ensure timely dispatch of crew and rapid restoration of service in the event of an outage, and the use of security features to protect distribution stations from vandalism and physical attacks.

The modified proposal further includes a mechanism to facilitate the recovery of renewable investments going ahead. AEP Ohio has committed to develop 900 megawatts of new renewable generation in Ohio, subject to the PUCO’s approval.

The PUCO’s decision on this proposal is anticipated in Apr 2017. On approval, although the plan would increase average electricity bills by $1.58 per month in the near term, reduction in other charges over the eight-year span of the plan will lead to lower customer utility expenditure.

Price Movement

American Electric has largely outperformed the Zacks Categorized Utility-Electric Power industry. The company’s current rate of return is 8.7%, compared to the industry average of 4.8% over the last twelve months.

With focus on augmenting the bottom line, American Electric has directed capital expenditure toward regulated businesses. In doing so, the company increased its capital investment budget in core operations for the next three years. This has encouraged management to raise the long-term EPS growth rate to 5–7% from the earlier projection of 4–6%.

To boost earnings, American Electric plans to invest approximately $17.3 billion over the 2017–2019 period in its core regulated operations and contracted renewables. This capital investment plan also includes the reinvestment of $2.2 billion in levered proceeds after the completion of the sale of a portion of its competitive generation portfolio.

Zacks Rank & Key Picks

American Electric Power carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space include Avista Corp. (NYSE:AVA) , Ameren Corporation (NYSE:AEE) and DTE Energy Company (NYSE:DTE) .

Avista has seen one upward estimate revision for 2016 over the last 60 days. The stock carries a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameren Corp., another Zacks Rank #2 stock, has seen four upward estimate revisions for 2016 over the last 60 days.

DTE Energy has seen two upward estimate revisions for 2016 over the last 60 days. DTE Energy carries a Zacks Rank #2 as well.

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