American Electric Power has set its operating earnings guidance ranges and capital expenditure budgets for 2014 through 2016. AEP management will discuss the company’s financial outlook and earnings growth strategy at the annual Edison Electric Institute Financial Conference that begins today in Orlando, Fla.
AEP narrowed its operating earnings guidance range (earnings excluding special items) for 2014 to $3.20 to $3.40 per share from its original guidance range set in February 2013. Confirming the company’s previously announced growth rate of 4 to 6 percent off of its original 2013 guidance of $3.05 to $3.25 per share, AEP’s operating earnings guidance range is estimated at $3.30 to $3.60 per share for 2015 and at $3.45 to $3.85 per share for 2016. Operating earnings guidance for 2013 was narrowed in October to $3.15 to $3.25 per share.
AEP reaffirmed its previously announced 2014 and 2015 capital budgets of $3.8 billion per year. The company also forecasted its 2016 capital investment budget at $3.8 billion.
In providing operating earnings guidance, there could be differences between operating earnings and Generally Accepted Accounting Principles (GAAP) earnings for matters such as impairments, divestitures or changes in accounting principles. AEP management is not able to estimate the impact, if any, on GAAP earnings of these items, and therefore is not able to provide a corresponding GAAP equivalent for earnings guidance.
“Our operating earnings projections for the next three years are supported by continued successful execution of the earnings growth strategy that we established early this year. That strategy is based on what we’ve proven we do well – growing our rate base through investment in our regulated operations and achieving cost savings through sustainable process improvements,” said Nicholas K. Akins, AEP’s president and chief executive officer.
“Investment in our regulated utilities will be focused on infrastructure that enhances reliability and improves the customer experience. We will continue to allocate additional capital to our transmission business, and we expect the earnings contribution of AEP Transmission Holding Co. to nearly double in 2014,” Akins said.
AEP plans to invest nearly $5 billion in transmission between 2014 and 2016 in AEP Transmission Holding Co. and through its regulated utility operating companies.
AEP expects to complete separation of its Ohio generation assets from its Ohio wires business at the end of 2013 and begin operating its Ohio generation as a competitive business in 2014.
“Our earnings growth projections are based on results from our core regulated businesses. In addition, our unregulated operations are well-positioned to compete successfully. The cost and operational profile of our unregulated generation fleet are very competitive, and we will manage this business to be cash-flow positive through at least 2016,” Akins said.
AEP has a strong balance sheet and a stable credit outlook. The company’s capital plan is supported by cash flows and financial discipline without an anticipated need for equity financing beyond the company’s existing dividend reinvestment plan and employee purchases of company stock through the 401K plans. AEP expects to hold operations and maintenance expenses essentially flat at $2.8 billion, net of earnings offsets, through 2016.
“We remain focused on cost discipline and continued improvement in how we do business,” Akins said. “We are expanding our focus on process improvement and lean performance over the next two years to achieve sustainable savings and to support earnings growth in a time of flat demand and low market prices for electricity.”
As a utility company, AEP has outlined how it intends to grow – by investing in transmission resources and also to remain cost focused while improving the operations of the business. While this may look like a way forward, it has to think broader on how it can bring in greater revenue by expanding horizontally, looking beyond just providing a utility service. The fundamental service offering can only bring the company a certain distance still restricted by a great deal of factors. If it is able to think in terms of providing extra consultancy services on helping companies go green in saving electricity, it may well play the environmental corporate social responsibility card well. Something for AEP’s management to chew on.
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