Our Strategy for Growth
AEP’s strategy for growth is focused on our approach to investing capital and a commitment to continuous improvement that benefits our customers and shareholders. In spite of lower demand for our product, we are investing and innovating to become the next-generation energy company that provides solutions customers want and long-term value creation for our shareholders. AEP is poised for success in a world where the electric industry and the power grid are becoming more complex. Our history of leading change and world-class engineering expertise are attributes that will lead us into the future.
We are focused on bringing our investments closer to what our customers value (even if it is not least cost) while advocating for policies that fairly value the power grid. Our intent is to operate a modern grid that is reliable, sustainable and adaptable with new and emerging technologies to efficiently meet customer demands.
AEP is building upon a solid foundation to shape the next generation energy company. We are deploying capital predominantly in our regulated business where it delivers shared value for customers and investors. Our projected annual 4 to 6 percent operating earnings growth rate is predicated on this strategy, as well as our commitment to continued focus on sustainable continuous improvement efforts and expense discipline.
Our transmission business is the major growth engine for AEP. The U.S. transmission system is in the midst of a major upgrade not seen in decades and AEP is among those making significant investments to modernize the grid. In addition to investments within our regulated footprint, we pursue projects and partnerships throughout North America that benefit communities in our traditional service areas and beyond.
Transmission is the great optimizer and, in fact, should be viewed as a resource. A robust transmission system is the key to ensuring the availability of a diverse generation mix (coal, wind, gas, etc.). It also facilitates interstate commerce and our national defense. To keep pace with our growing needs, aging transmission infrastructure will need to be replaced and the current system expanded to facilitate use of new technologies.
AEP Transmission is investing in the future by creating the infrastructure needed for electric reliability and economic growth. Upgrading and rebuilding existing infrastructure that is near the end of its useful life is equally important. High-capacity, extra-high voltage lines are more energy-efficient than lower voltage lines and offer part of the solution to a more reliable, flexible and resilient grid. In addition, new innovation and technology – such as AEP’s new BOLD™ transmission line design – is needed to ensure that our electrical grid continues to serve us well in the future.
Growing our business includes working with partners to modernize the power grid and pursuing projects competitively inside and outside of our traditional service territory. For example, Prairie Wind Transmission is a joint venture between Electric Transmission America, LLC (a 50/50 joint venture between subsidiaries of American Electric Power and Berkshire Hathaway Energy) and Westar Energy, which recently completed a $158 million transmission line that delivers energy from Kansas to customers in Kansas and Oklahoma. AEP’s competitive transmission affiliate, Transource Energy®, LLC (Transource) pursues competitive, regulated transmission projects within and beyond AEP’s service area under FERC Order 1000.
One project is being built by Electric Transmission Texas (ETT), a joint venture of subsidiaries of AEP and Berkshire Hathaway Energy Company. The other project is being jointly constructed by ETT and Sharyland Utilities. With the completion of these Valley projects, ETT is on track to have over $2.9 billion in transmission assets by the end of 2016. ETT has several projects with various completion dates scheduled through 2025.
Through 2018, AEP Transmission Holding Company (AEPTHCo) is expected to add a billion dollars annually to AEP's rate base. In 2015, AEPTHCo contributed 39 cents per share to earnings – a reflection of its accelerated growth and future potential.
In addition to reliability, our investments in the power grid help to ensure security of the grid. Grid Assurance is an example of how the industry – and AEP – is preparing to recover from an event by ensuring we have access to critical equipment that often has long lead times for production.
A Proven Strategy
Some investors and other stakeholders want to know more about the impact that greater adoption of local generation resources, energy efficiency and demand response programs will have on reducing demand for centrally-generated electricity, and the potential impact to revenues. While it is anticipated that increased adoption of private rooftop solar would reduce the energy and capacity requirements of our regulated electric utilities, we plan for this in our integrated resource planning process.
AEP has a proven strategy of investing in our regulated businesses to benefit customers and deliver solid earnings growth and strong shareholder value. We will continue to invest in infrastructure that improves reliability, gives customers the clean energy they want and enhances the overall customer experience. This strategy allows us to earn a return on those investments, which is good for investors and customers.
We have consistently stated that earnings growth will be achieved through a combination of capital investment, rate recovery, identified sustainable cost savings and spending discipline. Through this combination of tactics, we will be able to achieve our earnings guidance.