Dive Brief:
- Proposals to ease development and increase incentives for transmission projects will benefit the bottom line of a handful of utility companies, but none more so than American Electric Power, according to a Sept. 21 research update from Morgan Stanley.
- "Significant" expansion of the U.S. transmission system will be needed to meet the United States' long-term clean energy objectives, and the investment banking giant said AEP is "the best way to gain exposure to this theme" with its large transmission rate base and a geographic territory that is favorable to renewables development. Having a higher proportion of transmission in its rate base creates a potential for larger benefits from new transmission-related policies and investments, the firm wrote.
- The Federal Energy Regulatory Commission is considering updates to transmission policy, possibly including incentives and changes to cost allocation procedures, while Congress is discussing billions in new transmission funding and making changes to siting rules that can delay projects for years.
Dive Insight:
AEP is not the only utility company that stands to benefit from a grid buildout, but Morgan Stanley said the Columbus, Ohio-based company "stands out as the largest beneficiary."
According to the report, AEP is planning $3.2 billion in transmission investments in 2022, the most of any company covered by Morgan Stanley. And, the company has the second largest proportion of transmission in its rate base, among companies covered by the investment banking firm.
| Utilities identified by Morgan Stanley | Electric transmission within rate base | 2022 Transmission investment |
|---|---|---|
| Eversource Energy | 41% | $915,000,000 |
| American Electric Power | 33% | $3,200,000,000 |
| Public Service Enterprise Group | 30% | $890,000,000 |
| Avangrid | 29% | $700,000,000 |
| Edison International | 29% | $847,435,965 |
| FirstEnergy | 28% | $1,325,000,000 |
| MGE Energy | 28% | Not Disclosed |
Of those, Edison, FirstEnergy and MGE "have the best exposure to renewables growth," said Morgan Stanley.
"Utilities with the biggest proportion of transmission in their asset base and that are located in areas with strong renewables growth are optimally exposed to this favorable long-term growth opportunity," the report said.
In an email, AEP said that as the U.S. transitions to more clean energy, "we need to make significant investments in the grid to deliver the power efficiently to where it's needed. ... The infrastructure bill could create additional opportunities to support the clean energy transformation."
AEP said it plans to invest $31 billion over the next five years to expand and modernize its transmission and distribution systems and build new renewable generation.
In a July 22 second quarter earnings call with analysts, AEP CEO Nick Akins said the company's transmission investments "continue to be strong." AEP's transmission holding company contributed $0.34 per share to earnings in the second quarter, up $0.15 from the same period last year.
"We remain engaged in the various processes at RTOs and FERC, as we advocate the need for transmission and more robust comprehensive planning methodologies to ensure that our path to a clean energy economy is as smooth as possible," Akins told analysts.
Transmission reform is considered a key to accelerating renewable energy penetration and achieving President Joe Biden's goal of bringing the U.S. power grid to 100% clean electricity by 2035.
Of the measures being considered by Congress to accelerate transmission development, Morgan Stanley analysts say the draft infrastructure bill includes a number of funding provisions for transmission assets, while the House version of the budget reconciliation bill contains a new investment tax credit for transmission lines.
Meanwhile, FERC is considering changes to regional transmission planning, cost allocation and how to streamline lengthy interconnection processes. The commission has also been mulling a shared-savings approach to transmission incentives.
"We need new rules to debottleneck our inter-regional transmission system to deliver clean, cheap and reliable energy to all Americans," Rep. Sean Casten, D-Ill., said on the House floor on Wednesday.
That call was echoed from the Senate side. “We need FERC to greatly improve its interregional planning processes for new transmission lines and clean energy projects if we want to move quickly enough to decarbonize our electricity sector," Sen. Martin Heinrich, D-N.M., said in a statement.
