American Electric Power’s Regulatory Missteps: A Bumpy Road Ahead
American Electric Power’s Regulatory Missteps: A Bumpy Road Ahead

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High Voltage Electric Power Lines At Sunset

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American Electric Power (NASDAQ:AEP) experienced a 2.1% decline in Thursday’s trading following Mizuho’s downgrade of the utility to Neutral from Buy, accompanied by a lowered price target of $83 from $87. This shift comes hot on the heels of a challenging rate decision in West Virginia – the second time in recent months that an AEP subsidiary’s non-unanimous settlement has been modified by the state commission.

Anthony Crowdell and the team at Mizuho highlighted the West Virginia ruling as the most recent in a streak of regulatory challenges for AEP, spanning over a year. These challenges include the unsuccessful sale of Kentucky Power to Algonquin, an adverse decision in Texas regarding plans for renewable generation construction, and a difficult rate decision in Oklahoma.

Mizuho’s analysis pinpointed AEP’s inability to meet its allowed return at several subsidiaries, casting doubt on the company’s capability to rectify this through beneficial regulatory outcomes. The analysts noted that AEP’s current trading position, carrying a ~7% P/E discount to the group, reflects the company’s struggles in executing its regulatory strategy.

While grappling with these setbacks, AEP reiterated its guidance for FY 2024 operating earnings in new presentation slides, forecasting a range of $5.53-$5.73 per share.

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