美国电力公司

On Aug. 3, Texas Gov. Greg Abbott directed state utilities regulators and the state's electric grid operator to pause data center approvals and audit all applications seeking interconnection to the Texas grid.

Why it matters: The audit aims to review data center tax breaks, power use, and environmental water use impacts. The announcement delays the current Batch Zero process, a centralized way of reviewing the roughly 474 gigawatts of Texas interconnection requests, the majority of which are data centers. American Electric Power's Texas transmission and distribution utility is well positioned to benefit from investments to connect data centers to the grid.

The bottom line: We are maintaining our $141 fair value estimate and Narrow Morningstar Economic Moat Rating for AEP. We don't expect the moratorium to have a material impact on AEP's near-term earnings. Management recently reaffirmed its 2026 outlook and 9%-plus annual earnings growth guidance through 2030, in line with our expectations.

Long view: Our early read is that the moratorium could create delays for speculative data center projects, not projects with firm financial commitments. AEP identified 45 GW of generation in Batch Zero for 2027-32. These all comply with Senate Bill 6. SB6 requires data centers to show upfront construction funding as part of a letter of agreement, provide proof of site control, and disclose intended sources of generation to meet the load. We suspect the moratorium and subsequent audits will focus on projects that haven't met these requirements.

Coming up: With a closely contested gubernatorial election in Texas in November, we expect data centers to continue to be one of the key political debates. This could create headline risk for AEP. We expect to have better insight into possible project delays or other impacts from the audits when AEP rolls forward its capital investment plan in November.

Our fair value estimate is $136 per share after incorporating recent financial and regulatory updates.

We estimate AEP will invest $78 billion in 2026-30, in line with management's forecast. Primary growth investments at the regulated utilities include transmission, distribution, natural gas generation, and renewable energy to support electricity demand growth.

We forecast 9% average annual earnings growth through 2030. This is line with management's expectation of 7%-9% guidance range from 2026-30. Management recently said it expects growth to be at least 9% through the period.

A gradual narrowing of the gap between earned and allowed returns and additional capital investment growth opportunities are the main reasons we think AEP's management will achieve the high end of its earnings growth target.

In our discounted cash flow valuation, we use a 5.9% cost of capital based on a 7.5% cost of equity. This is lower than the 9% rate of return we expect investors will demand for a diversified equity portfolio, reflecting AEP's lower sensitivity to the economic cycle and lower degree of operating leverage.

We assign American Electric Power a Morningstar Economic Moat Rating of narrow.

Service territory monopolies and efficient scale advantages are the primary moat sources for regulated utilities such as American Electric Power. State and federal regulators typically grant regulated utilities exclusive rights to charge customers rates that allow the utilities to earn a fair return on the capital they invest in building, operating, and maintaining their distribution networks. In exchange for regulated utilities’ service territory monopolies, state and federal regulators set returns to minimize customer costs while providing fair returns to capital providers.

This implicit contract between regulators and capital providers should, on balance, allow regulated utilities to earn more than their costs of capital in the long run, though observable returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing.

Intuitively, utilities should have an economic moat based on efficient scale, but in some cases, regulation offsets this advantage, preventing excess returns on capital. The risk of adverse regulatory decisions precludes regulated utilities from earning wide economic moat ratings. However, the threat of material value destruction is low, and normalized returns exceed costs of capital in most cases, leaving us comfortable assigning narrow moats to many regulated utilities.

Investments in transmission, distribution, and generation during the next several years should support earnings growth above the sector average.

AEP earns regulated returns across many state jurisdictions, helping protect its earnings from the impact of a single adverse regulatory ruling.

AEP benefits from being the largest transmission and distribution company in the US, positioning it well to capitalize on investment needs to support accelerating electricity demand growth.

AEP has struggled to earn its regulatory allowed returns at some of its regulated utilities.

AEP's regulatory jurisdictions have been less constructive than those of many of its peers' recently.

AEP has experienced an unusually high level of executive turnover recently, following uncharacteristic regulatory setbacks under previous management.