Executing Our Strategy
AEP’s disciplined approach to allocating capital, controlling costs and successfully working through regulatory proceedings has made the company’s financial position stronger. Investors have a much clearer picture of AEP’s plan for the future and have expressed confidence in our strategy and ability to deliver, based on our current performance.
As AEP’s future takes shape, the road ahead is not entirely smooth. Chief among the headwinds we face is a significant revenue shortfall in 2016 due to the drop in the level of capacity revenues from the PJM auction. It is a significant challenge, but our current forecasts show that we will be able to maintain our growth rate beyond 2016 as long as we stay the course. In 2013, through our repositioning effort and an employee-led gain-sharing program that identified sustainable savings and enhanced revenue sources, we have already begun to fill the gap.
Growth will be driven by our ability to invest capital in our regulated companies and earn a fair and timely return. The success of our competitive business will be driven by both the capacity and energy markets as well as our ability to react to those markets. We are projecting our competitive operations to be a positive cash flow business that will be positioned to take advantage of recovering energy and capacity prices as they occur.
AEP is at a pivotal moment in its 107-year history. We have capital to invest, and we are deploying it predominantly in our regulated business. Our projected 4 percent to 6 percent earnings growth rate is predicated on this strategy, as well as our commitment to continued focus on sustainable cost savings and expense discipline. We are giving our employees the tools and processes to advance continuous improvement, and our employees are showing us their ingenuity and know-how to get the job done. By fostering a culture of engagement, we are confident we will meet the challenges ahead of us.