Summary
This 8-K filing from American Electric Power Company, Inc. (AEP) and its subsidiary Southwestern Electric Power Company (SWEPCo) reports a material impairment charge related to the Turk Plant. The Public Utility Commission of Texas (PUCT) has finalized its decision regarding the recovery of capital costs for the Turk Plant, including an "Allowance for Funds Used During Construction" (AFUDC) within the established Texas Capital Cost Cap of $1.522 billion. As a consequence of this decision, SWEPCo anticipates recording a pre-tax impairment charge of approximately $110 million in the third quarter of 2013. This is in addition to a prior write-off of $62 million (pre-tax) excluding AFUDC, totaling a significant impact on SWEPCo's financial results. Investors should monitor the impact of this impairment on AEP's overall profitability and cash flows.
Key Highlights
- 1SWEPCo anticipates a pre-tax impairment charge of approximately $110 million for the Turk Plant in Q3 2013.
- 2The impairment is a result of the Public Utility Commission of Texas (PUCT) applying a capital cost cap that includes Allowance for Funds Used During Construction (AFUDC).
- 3This charge is in addition to a previously recorded $62 million pre-tax write-off related to the Turk Plant's capital cost cap (excluding AFUDC).
- 4The PUCT's final order in the 2012 Texas Base Rate Case confirmed the application of the Texas Capital Cost Cap, which limits the recovery of certain costs.
- 5The total impact from these impairment charges related to the Turk Plant is substantial and will affect SWEPCo's third-quarter financial performance.
- 6Investors should assess the financial impact of these impairment charges on AEP's reported earnings and future outlook.