‘Terrific Year’ for NextEra

American Electric Power beat Wall Street’s expectations with a positive yearend earnings report last week, but CEO Nick Akins spent much of a conference call with analysts focused on its Public Service Company of Oklahoma (PSO) subsidiary and its rate case before state regulators.

Akins referred to “disappointing” outcomes in its previous and current rate cases, which have left PSO with a regulated operating return on equity of 6.2% — the second-lowest among AEP’s operating companies and below an authorized ROE of 9.5%. He said AEP may invest its money elsewhere without improved returns, noting the company pulled “several hundred million dollars” of investment out of Oklahoma after PSO’s previous rate case.

“We have plenty of places to put our capital, and so Oklahoma would wind up being sort of in the red area,” Akins said during the Jan. 25 call. “That’s something we take very seriously because we want to make investment in Oklahoma.”

An administrative law judge has recommended a 5% ROE in PSO’s current rate case before the Oklahoma Corporation Commission, a “negative trend” Akins is hopeful will be reversed. If the OCC approves the ALJ’s recommendation, “That’s just another really bad message about investment in Oklahoma.”

Moody’s Investors Service recently downgraded PSO’s rating outlook from stable to negative, saying its “limited cushion … for deterioration in financial performance” would be “incrementally impacted” by the recent changes in federal tax law. “We now expect key credit metrics to be lower for longer,” Moody’s said.

“Now that PSO is on negative credit outlook by Moody’s, a positive result is even more important,” Akins said. “[PSO] doesn’t deserve the ROE recommendation and it doesn’t deserve the outcomes that we’re getting in Oklahoma. We’re going to let the commission speak on this. I really believe that the commission will be responsive, so let’s just wait and see what that order looks like.”

Also key to AEP’s future success in the Sooner State is its $4.5 billion Wind Catcher project, a 2-GW wind farm in the Panhandle that will deliver energy to PSO and its sister company, Southwestern Electric Power Co. AEP is seeking regulatory approvals in Oklahoma, Arkansas, Louisiana and Texas, while PSO is gathering community input on proposed transmission siting.

“We are in a very critical time in the life of this project,” Akins said. “In my mind, it would be an absolute travesty to let this unique hedge against the market pass, and I remain confident that it will get done.”

The Columbus, Ohio-based company reported fourth-quarter operating earnings of 85 cents/share, beating Zacks Consensus Estimate of 81 cents/share. AEP recorded a profit of $1.9 billion in 2017, triple the $611 million the year before, although sales were $15.4 billion, down from $16.4 billion.

Year-end earnings were $3.68/share, down from $3.94 from the year-ago period. AEP’s share price finished the week at $68.77, down almost 12% from its 52-week high of $78.07.

NextEra Reports $5.38B Profit in ‘Terrific Year’

NextEra Energy on Jan. 26 reported a 2017 profit of $5.38 billion, though that number was adjusted down to $3.17 billion after allowing for the effects of tax legislation and other unusual charges. Still, that was up from $2.88 billion in 2016.

The Florida-based company said its revenue increased to $17.2 billion, up from $16.2 billion in 2016.

“It was a terrific year,” said CEO Jim Robo.

However, the company’s adjusted fourth-quarter earnings came in at $1.25/share, falling short of the Zacks’ estimate of $1.31/share. The company reported fourth-quarter GAAP net income of $2.16 billion.

NextEra said its Florida Power & Light utility will reduce customer bills by using federal tax savings to forgo recovery of $1.3 billion in Hurricane Irma restoration costs. It said NextEra Energy Resources added a record 2.7 GW to its contracted renewables backlog.

NextEra stock gained $2.83 on Friday to close at $157.69/share, up 1.8% on the day. Its share price has gained almost 30% over the last 12 months.

— Tom Kleckner