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Investing.com -- S&P Global Ratings revised the outlook for American Electric Power Co. Inc. (NYSE:NASDAQ:AEP) and its subsidiaries to stable from negative, while affirming their credit ratings.
The rating agency cited AEP’s improving consolidated financial performance in 2025 despite its $54 billion five-year capital spending plan. S&P expects funds from operations (FFO) to debt will average 14% through 2027, up from 13.1% in 2024 and 12.3% in 2023.
This improvement incorporates a $120 million constructive rate order in Oklahoma and approximately $5.6 billion in equity proceeds. These proceeds include a $2.82 billion minority interest sale in AEP Ohio Transmission Co. Inc. and AEP Indiana Michigan Transmission Co., along with a $2.3 billion common equity forward sale agreement expected to settle before December 31, 2026.
Additionally, Kentucky Power Co.’s $475 million securitization financing contributed to the improved outlook. S&P expects AEP to maintain this financial performance over the next few years, approximately 100 basis points above its downgrade threshold.
Recently enacted legislation in Ohio is expected to further support AEP’s financial performance. Ohio House Bill 15 authorizes electric distribution utilities to file triennial rate plans based on forward-looking test periods before December 31, 2029, which should reduce regulatory lag and provide greater clarity on rate recovery.
S&P’s base case assumes reasonable outcomes in AEP’s pending rate cases in Arkansas, Ohio, Tennessee, and West Virginia, where utility subsidiaries have requested rate increases totaling almost $800 million.
The rating agency noted that the recently enacted U.S. federal budget bill is likely credit neutral for AEP. The company will qualify for tax credits if it begins solar or wind projects by June 2026 and places them into service within four years.
Indiana Michigan Power Co.’s funds from operations to debt ratio is expected to remain above 23%, despite increasing capital spending. The company’s capital spending will more than double starting in 2026 as it constructs 4 gigawatts of new generation capacity to support an $11 billion data center in New Carlisle, Indiana.
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