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American Electric Power (NYSE:AEP)
Q3 2017 Earnings Conference Call
Oct. 26, 2017 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Electric Power Q3 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press *, then 0. As a reminder, this conference is being recorded. At this time, I would now like to turn the conference over to our host, Ms. Bette Jo Rozsa. Please go ahead.

Bette Jo Rozsa -- Managing Director, Investor Relations

Thank you, Rich. Good morning, everyone, and welcome to the Q3 2017 earnings call for American Electric Power. Thank you for taking the time to join us today. Our earnings release, presentation slides, and related financial information are available on our website at aep.com.

Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Our presentation also includes references to non-GAAP financial information.

Please refer to the reconciliation of the applicable GAAP measures provided in the appendix of today's presentation. Joining me this morning for opening remarks are Nick Akins, our Chairman, President, and Chief Executive Officer, and Brian Tierney, our Chief Financial Officer. We'll take your questions following their remarks. I will now turn the call over to Nick.

Nick Akins

Thanks, Bette Jo. Good morning, everyone, and welcome once again to AEP's Q3 2017 earnings call. I know you all have probably seen the earnings release this morning. I just want to say from the outset, while primarily the weather has forced us to lower the midpoint of guidance for 2017 slightly, a deeper look at 2017 shows there is much to be positive about.

This is exactly why we continue to reaffirm our 2018 guidance range of $3.75 to $3.95 this year with a $3.85 midpoint still built around 5% to 7% growth from a 2017 $3.65 per share midpoint base. Additionally, our board recently approved a 3-cent-per-share dividend increase or 5.1% further, exhibiting the confidence in our ongoing business plan. So let me accentuate the positives here so that you can see what I see about this company and its prospects. First, despite having the mildest weather in the last 25 years that affected our normalized growth forecast by 16 cents per share, we adjusted our midpoint of the 2017 guidance by only 3 cents per share, which is about the same as normalized weather was off in the 3rd quarter.

I remember watching Game of Thrones over the summer thinking that Khaleesi's dragons need to bring some heat to heat the place up but that never happened. Now, don't go add 13 cents per share year-on-year models for next year to recognize our employees can do what they can do to adjust it in real time when necessary as headwinds persist. We will make up lost ground by driving efficiency, eliminating expenses where practical and with negligible movement of expenses to 2018. Additionally, we are seeing continued improvement in economy, which Brian will talk about later, that gives us further confidence of a rebound in the future of all sections of our load.

That means the robustness of 2018 and beyond is still intact and 2017 while challenging, has been remarkably preserved in large part. So, looking at the numbers for the quarter, APE reported 3rd quarter 2017 GAAP and operating or non-GAAP earnings as we call it now of $1.11 per share and $1.10 per share respectively versus 3rd quarter 2016 GAAP and operating earnings of a loss of $1.56 per share and positive $1.30 per share respectively. This brings 2017 year to date GAAP and operating earnings to $3.07 per share and $2.82 per share respectively versus the 2016 year to date GAAP and operating earnings of 48 cents per share and $3.25 per share respectively. we have narrowed the guidance range for 2017 to $3.55 to $3.68 per share to further refine our guidance as we close out the year and, as I mentioned earlier, our board raised the dividend to 62 cents per share to 5..1% increase that puts us solidly in our targeted 60% to 70% payout range.Beyond the numbers, I know there are several areas you probably want to hear about.

First would be Wind Catcher Energy Connection. This project continues to move forward. As previously discussed, we filed for state regulatory approvals at the end of July and we now have procedural schedules in all four state jurisdictions that lead to hearings in the first quarter of 2018. January, Oklahoma, and Texas, February in Louisiana and March in Arkansas.

Wind Catcher represents a clear winner for customers, investors, economic development and the environment. At this point, I should figuratively drop the microphone but we'll look at the facts. 4.5 billion invested, 7.6 billion in customer savings, substantial infrastructure development and great use of wind resources speak for themselves. So, I'm pleased with the progress of Wind Catcher so far.

Moving on to our several rate cases to discuss, obviously we're in a year of several rate cases. We got a summary on page 33 but at a high level in Indiana, we follow the to 263 million rate case of which 89 million is depreciation and amortization. A procedural schedule has been set with hearings in January. In Michigan, we follow the 51.7 rate case with 23.4 million being depreciation and a procedural schedule has been set up for those hearings this November and an order is expected in April 2018.

The Kentucky rate case that was filed in June requested a 65.4 million increase in and is now in settlement discussions with the parties. Hearings are set for December of this year. So, we expect the results in this case. The Oklahoma rate case was filed in June for approximately 170 million inclusive of about 14 million of AMI and reliability that we were already recovering through riders.

In September staff recommended a 132-million increase and the hearings are scheduled in late October, early November with an ALJ report expected in December.

As I mentioned last quarter, this case is extremely important with the outcome impacting future investment decisions in Oklahoma including Wind Catcher. We are hopeful the Oklahoma commission will send a positive message in this regard. At SWEPCO last December we filed a base rate case in Texas requesting 105.9 million offset by 36.9 million of reductions and TCRF, Transmission Cost Recovery Factor and DCRF, Distribution Cost Recovery Factor revenues netting to 69 million. This case include environmental retrofits and remaining net plant investments in the retired Welsh 2 unit.

ALJ in the case issued a decision in September proposing a base rate increase of 51 million with a 9.6% ROE. We expected PUCT decision by the end of the year on this case. In Ohio in late August, we filed a joint stipulation settlement agreement among the parties in the ESP 3 extension case. The agreement covered distribution investment and enhanced reliability rider related issues as well as smart city investments in technology, continued [inaudible] recovery and other matters.

It allows a 10% ROE for rider related capital and commits the company to file a rate case in June 2020, hearings commence this next week. Proposals are also due to APE Ohio in December for 400 megawatts of solar. So, we're looking forward to further investment in this area as well.

Now moving forward with the equalizer chart, overall ROEs have come down from the previous quarter due primarily weather but also the pending rate case activity I just spoke about. With 6 different major rate cases along with other regulatory activities, it's been quite a busy year. As I mentioned earlier, many of these cases do not get resolved until 1st quarter 2018. So, we expect a gradual increase with ROEs there for the 4th quarter and then in 2018 ROEs once again should be tracking approximately in the 10% overall range.

So, as I go across looking at each one of the jurisdictions, I'll refer you to page 5 of the equalizer chart. Obviously, we have our two bubbles for AEP Ohio and that really talks about the difference between those legacy issues that are accounted for in the 12.6% versus what we're truly experiencing 11.1% that would be involved with the seed test. So, the ROE for AEP Ohio at the end of the 3rd quarter 2017 was 12.6% and reflects rate relief associated with our distribution investment program, shared savings attributed to our energy efficiency programs and the annual transmission formula rate true up in lowering financing costs. The 12.6% ROE, as I said earlier, includes those legacy issues and the 11.1% does not and that's the one that's evaluated for seed-related activities.

APCO, it has come down a little bit. At the end of the 3rd quarter it was 8.4%, in the 2nd quarter it was 8.9% and that really was driven primarily by weather and usage during that period and many of these you'll see that as sort of a cross-cutting issue across the board is the weather-related activities associated with each one of these. Kentucky, the ROE at the end of the 3rd quarter was 4.5% and, as you know, we filed the rate case there back in July of 2017. So, our new rate should be effective around the January timeframe in 2018 but that being said, the long-term strategy around Kentucky is also centered around economic development.

We had a large aluminum company that had been housed in location within the company's territory and we believe that's going to be a foundational part of some ancillary additions in load that can help from economic development standpoint. So, that's really a two-pronged effort there and Matt Satterwhite, our President down there is doing a great job turning that around.

And achieving ROE of 8.4% at the end of the Q3 2017, [inaudible] ROE's been impacted by weather again and the formula based rate true-ups. [Inaudible] has filed base rate cases in both Indiana and Michigan, as I mentioned earlier, and those new rates are expected to be in place in both states in mid-year 2018. PSO, we've talked about. The ROE at the end of Q3 was 6.1% and it's primarily driven by regulatory lag from the last rate case.

Hopefully, it will make some ground on that and unfavorable weather. So, we expect that the new rates of PSO to be in effect by January of 2018.

SWEPCO, the ROE for SWEPCO at the end of the Q3 was 5.9% and Q3 results are unavailable because of weather again but benefited from some lower O&M expense. SWEPCO also took a 6.3-million unfavorable adjustment due to the prior period income tax adjustment affecting the Dolet Hills Lignite Company subsidiary. And of course, we've had the formal base rate that was approved by the Louisiana commission kick in during that period as well. And then, of course, we have the Texas case that I talked about earlier that we're expecting outcome soon on this well.

So, moving on to AP Texas. There the 10.3%, they have a stated ROE primarily attributable to increased revenues from the T Cost filings that was effective in late June and then there was distribution cost recovery factor filing that was effective in September. So, all is good in AEP Texas. AEP transmission Holdco, the ROE for AEP Transmission Holdco in Q3 has been 12.7%, primarily driven by 206 Reserve which offsets most of the year-over-year rate based increase.

The other driving factor is a decrease in ETT ROE as a result of the settlement filed with the PUCT in January 2017 but, all in all, going very well from a Transmission standpoint.

So, with that discussion, obviously whether impacted just about every part of the system and also we had hurricanes [inaudible] and I wanted to give a shout out to our employees and also the industry in terms of its support relative to hurricane Harvey, Irma and others. This has been an interesting year from a weather perspective. So, this quarter once again, because of weather, we've been treading water, no pun intended, but again, I'm very proud of the employees who have been involved with not only eliminating most of the deficit that's occurred because of whether reductions but also the work they did relative to really recovering our nation from some pretty substantial storms.

So, being a music buff, I can't help but recall the lyrics of a song by the group to Dream Theater which has one of my favorite drummers Michael Portnoy. Probably no one knows who they are but the song's called 'Another Day' and the lyrics go "Live another day. Climb a little higher. Find another reason to stay." Well, in 2017 because of our efforts to overcome the weather and other obstacles, we will finish out the year 2017, we will live for 2018 and continue on our path of reaffirming guidance centered on $3.85 per share and our 5% to 7% growth rate.

The fundamentals of our business plan remain secure and we're confident going into 2018. Brian?

Brian Tierney -- Chief Financial Officer and Executive Vice President

Thank you, Nick and good morning, everyone. I'll take us through the Q3 and year to date financial results, provide some insight on load on the economy, review our balance sheet liquidity and finish with a discussion of what will present at the EEI conference.

Let's begin on slide 6 which shows that operating earnings for the Q3 were $1.10 per share or 543 million dollars compared to $1.30 per share or 640 million dollars in 2016. This difference can be permanently attributed to the sale of competitive generation assets and mild weather. Let's look at the earnings drivers by segment.

Earnings for the Vertically Integrated Utilities segment were 58 cents per share, down 13 cents. Primary driver for this difference was cooler than normal weather this year compared to warmer weather last year. Other drivers in the segment include lower O&M and higher normalized retail margins which were offset by higher depreciation and higher effective tax rate. The transmission and distribution utility segment earned 29 cents per share for the quarter, down 3 cents from last year.

Unfavorable drivers in this segment included a higher effective tax rate, weather in Texas, lower sales in Ohio and increased depreciation. Partially offsetting these items was recovery of incremental investment to serve our customers.

Our AEP Transmission Holdco segment continued to grow, contributing 15 cents per share for the quarter, an improvement of a penny over last year, reflecting a return on incremental investment. Net plant less deferred taxes grew by $1.1 billion, an increase of 30% since last September. The generation of marketing segment produced earnings of 7 cents per share, down 9 cents from last year. This segment realized lower earnings due to the sale of the competitive generating assets.

Partially offsetting this impact were lower depreciation on the remaining assets, higher marketing revenues, and lower overall expenses. Corporate and other was up 4 cents per share from last year primarily due to an investment gain and lower O&M.

Let's turn to slide 7 and review our year to date results. Operating earnings through September were $2.82 per share or 1.4 billion dollars compared to $3.27 per share or 1.6 billion dollars in 2016. Similar to the quarter, this difference can primarily be attributed to unfavorable weather, the sale of the competitive generation assets and positive items that occurred last year that were not repeated this year. Offsetting these were transmission earnings and recovery of criminal investment.

Looking at the drivers by segment, earnings for the vertically integrated utilities were $1.27 per share, down 43 cents with the single largest driver being weather which negatively impacted earnings by 22 cents. Favorable prior year items contributed to this difference including formula rate true-ups, recognition of deferred billing in West Virginia and positive tax adjustments. Another rate relief was favorable due to the recovery of incremental investment across multiple jurisdictions. Additional variances in this segment include higher depreciation, lower AFUDC and lower retail margins, particularly in the east.

Through September the transmission and distribution utility segment earned 76 cents per share, down 3 cents. Favorable drivers in this segment included rate changes and higher [inaudible] transmission revenue. These were offset by several items including lower normalized load, the reversal of a regulatory provision in 2016 and a higher effective tax rates, depreciation and O&M.

AEP Transmission Holdco Segment earnings through September were 56 cents per share, up 14 cents over last year. The growth in earnings included the implementation of deferred 205 forecasted transmission rates. This allowed for a one-time increase on historical expense true-ups to future-looking estimated expenses to be trued up in the subsequent period. This one-time adjustment will not be repeated in future periods.

We experienced a slight decline in our joint venture earnings due to an ETT settlement earlier this year. The growth in earnings over the last year also reflects our return on incremental investment. The generation of marketing segment produced earnings of 25 cents per share, down 15 cents from last year. This segment realized lower earnings due to the sale of the competitive generating assets as expected.

Partially offsetting this impact were lower depreciation on the remaining assets, positive impacts from solar projects going into service and lower overall costs.

Finally, corporate and other was up 2 cents per share from last year due to investment gains in tax adjustments. For the year to date period, certain unfavorable comparisons to 2016 were anticipated like the sale of the competitive generating assets and other favorable 2016 items. In response to the earnings impact from very mild weather which continued into the Q3, we have reduced O&M expenses compared to last year for the Q4 of this year. Because of the continued impact of weather and the fact that we have one quarter remaining in the year, as Nick said, we are narrowing our 2017 guidance range to $3.55 per share to $3.68 per share.

Also as Nick said earlier, we anticipate growing at 5% to 7% off of our original 2017 guidance range and are reaffirming our 2018 operating earnings guidance range of $3.75 to $3.95 per share in 2018.

Now let's look at slide 8 to review normalized load performance. Starting with the lower right chart, our normalized retail sales decreased by three-tenths of a percent this quarter and were down two-tenths of a percent for the year. For both comparisons, the growth in the industrial sector was offset by declining residential and commercial sales. Had it not been for the outages caused by hurricane Harvey, our normalized sales would be flat for both the quarter in year to date periods.

Moving clockwise, industrial sales increased by 1.9% for both the Q3 and year to date comparisons. We saw strong industrial sales growth across most of our operating companies and industries this quarter. Positive industrial performance these past two quarters are good indicators of future growth in our residential and commercial classes as the economic recovery works its way through our service territory.

In the upper left chart, normalized residential sales were down 1.4% for the quarter and down 1.5% year to date. The story here differs by geography. Residential sales were up half a percent in our western footprint where customer counts increased by seven-tenths of a percent in the Q3. In the east however residential sales declined by 3% where customer accounts were essentially flat.

Finally, in the upper right chart, commercial sales for the quarter decreased by 1.3%, bringing the year to date normalized contraction to seven-tenths a percent.

Turning to slide 9, let's take a deeper look at some of the indicators that were responsible for the stronger industrial load performance this year. The chart at the top illustrates why we are confident with the trend for this class. Since 2013, the majority of 18 industrial sales has been concentrated in the oil and gas sectors in AP shale regions. While it's good to have growth from the energy sector, there was a concern that the industrial mix was becoming unbalanced as non-energy related sales struggle.

This concern was evident last year when energy prices fell and the majority of our service territory fell into recession. As of the Q3, all of our operating companies are now out of recession in recovery mode for the first time since 2011. In addition, over the past 2 quarters, there is no longer a distinction between growth in the oil and gas and the rest of our industrial sectors. This balance is indicative of a healthier base from which AEP's economy can grow.

The bottom left chart helps explain why we experienced recent improvement in the non-oil and gas sectors. The chart shows the strength of the US dollar compared to the broad index of other currencies. In 2016 the strong dollar and weak global demand were significant headwinds for manufacturing in AEP service territory. Fortunately, the global economy is in a much better position in 2017 and the dollar started to soften over the past two quarters, which coincides with the growth in industrial sales shown above.

The current dollar index is the lowest it's been since 2015.

The table in the bottom right corner show some of the major export industries located in AEP's footprint that are benefiting from the weaker dollar. In total, these sectors represent nearly half of AEP's industrial sales.

With that, let's review the status of our regional economies on slide 10. As shown in the upper left chart, our eastern territory grew by 3.2% this quarter, which was 1.1% faster than the US. Our western territory grew at 1.9% which was a significant improvement from previous quarters. Looking at the growth in our east Vertically Integrated Utilities in the upper right chart, Kentucky Power remains the fastest growing territory in terms of GDP growth, notching an increase of 3.1% for the quarter.

As you know, Kentucky Power's territory has a higher concentration of coal mining which is growing for the first time in years. Appalachian Power's territory also has a high concentration of mining and is experiencing a similar trend growing at 2.5%. Despite its GDP growth of 2.5%, Indiana and Michigan Power has actually experienced sales declines in all 3 retail classes. Exposure to the automotive industry which had a record-setting year in 2016 has moderated somewhat this year.

The bottom left chart shows our West Vertically Integrated Utilities where SWEPCO service territory saw 1.6% growth for the quarter. As expected, PSO came out of recession this quarter experiencing GDP growth of six-tenths of a percent driven by improvement in the oil and gas activity.

Finally, the bottom right chart shows that both of our transmission and distribution utilities continue to improve in the Q3 with the growth in Ohio of approximately 1% above that in Texas. The Ohio service territory is more diversified with growth coming from many sectors such as manufacturing, construction and education and health services. Overall, we are encouraged by the momentum of these economic trends in our service territory.

Now let's move to slide 11 and review the company's capitalization and liquidity. Our debt to total capital ratio increased one-tenth of a percent during the quarter to 54.6%. Our apropos to debt ratio is solidly in the triple B plus and BAA1 range at 17.4% and our net liquidity stands at about 3 billion dollars supported by our revolving credit facility. Our qualified pension funding improved approximately 1 percentage point to 100%.

Plan assets increased due to strong returns and plan liabilities were essentially flat due to relatively stable interest rates.

Our OPAB funding improved 2% points during the quarter to 112% with investment gains pacing plan benefit payments and expenses. The estimated after-tax O&M expense for both plans for 2017 is expected to be unchanged from last year at about 15 million dollars.

Finally, our treasury group continues to take advantage of robust low-cost debt capital markets to fund our spending program. In back to back weeks this quarter we issued 700 million dollars in senior notes for AEP Texas and 625 million dollars in senior notes for AEP Transco. The 30-year spread on the Transcos deal of T plus 100 basis points with the lowest issuance spread for an AEP company since before the financial crisis and equal to the lowest for any utility senior unsecured 30-year notes since the start of 2015.

Let's try to wrap this up on slide 12 and get to your questions. Despite the significant impact of mild weather on this year's earnings, we were able to find offsetting expense reductions that allow us to narrow operating earnings guidance within the original range to between $3.55 to $3.68 per share. A significant portion of those O&M savings will occur in the Q4. Given our ability to put capital to work serving our customers, we are also confident in reaffirming our 2018 operating earnings guidance range of $3.75 to $3.95 per share.

We're also confident that there is significant runway in our capital programs to reaffirm our 5% to 7% operating earnings growth rate.

As we always do, we will provide specifics with our presentation at the fall EEI Financial Conference. We will detail the drivers behind next year's earnings guidance. We will also provide detail around our capital expenditure plans, rate activity, cash flow and a more specific annual financing plan than we have provided in prior years. We look forward to seeing many of you in Orlando in about 10 days.

With that, I will turn the call over to the operator for your questions.

Questions and Answers:

Operator

Thank you, ladies and gentlemen. If you wish to ask a question, please press *, then 1 on your telephone. You'll hear a tone indicating you've placed in the queue. You may remove yourself from that queue at any time by pressing the pound key.

If you're using a speakerphone, we ask that you please pick up the handset before pressing the numbers. Once again, if you have a question, please press *, then 1 at this time and we will start with the line of Julien Dumoulin Smith with the Bank of America. Please go ahead.

Brian Tierney -- Chief Financial Officer and Executive Vice President

Hey Julien.

Julien Dumoulin Smith -- Bank of America -- Analyst

Hey, good morning. Congratulations on holding the line here on costs. Let me ask you real quickly. Let's just start with the weather real quickly.

You talk about not exactly adding back 13 cents year over year. How would you think about it? Obviously, you didn't change the 2017 numbers much. Just to hit that directly out of the gate here.

Nick Akins -- Chief Executive Officer

Yeah. So, when we look at the 13 cents, we look at this year like it is an anomaly. We're not doing anything stupid from reducing in O&M perspective. We're doing the tree trimming and doing all the things we need to do but there's one-time things that we can whether it's travel, whether it's all those types of things that employees can do to reduce costs or any efficiencies that we've seen from all the previous year's activities continue to [inaudible] to the benefit of O&M as well.

So, there's some opportunities for us to really respond to the weather-related activity but keep in mind we were very careful. We didn't want to move a bunch of stuff from 2017 and 2018 because there's things we need to do in 2017 and we want to keep the plant secure for 2018. So, we really looked at it in that fashion. When you look at the weather and if it's weather-adjusted 13 cents, not all of it.

So, I think you do have some opportunity next year. I think it just makes us more confident about the midpoint for next year particularly and see we'll be getting any kind of normal weather. It'd be great if we had a good winter before we had a bad summer or a good summer after we had a bad winter but we had neither. So, all the plants aligned negatively this year but to come out of it the way that we have, I think, really does show the ability to change our O&M for the fall to respond to it.

I don't know, Brian, do you have anything to add to that.

Brian Tierney -- Chief Financial Officer and Executive Vice President

We've kept O&M that's not been tracked flat essentially for the last 7 years and it's been lien activity, procurement activity, continuous Improvement activity and we are advancing that activity and when we have the weather gap that we had this year, this management team knows what levers to pull to fill in that gap and we're not going to resort to gimmicks like factoring weather out. We know we're responsible for responding to what the weather is and trying to come in within our guidance range and that's exactly what this team has done.

Nick Akins -- Chief Executive Officer

Today it's a different company that we had 2 or 3 years ago with the unregulated generation. Today, I think it's much more transparent and the levers that you have to pull are still there in some regards but weather will be more of an impact on the company than in previous years because then you had the market conditions that you could look at and sometimes it saved you and sometimes it went against you but that's all part of the process. So, making sure that we're consistent as we can be regardless of the situation.

Julien Dumoulin Smith -- Bank of America -- Analyst

Excellent. Thanks for the detail. A quick follow-up on that. Clean-up item here.

We've seen some headlines run on Oakley Union here. Can you comment just on them? I presume that's fairly negligible in terms of earnings contribution, 6 cents, which you were to transact on that and presumably if you were, that would be all of it. That would not be any kind of specific portion of it. And then perhaps in tandem with that any thoughts here on [inaudible] given that the transfer has been completed for a little bit here.

Brian Tierney -- Chief Financial Officer and Executive Vice President

Yeah, obviously we're still looking at the unregulated generation from a strategic cents and Oakley Union has been a drag particularly on the unregulated side and the Conesville portion of Texas and just like any other base load generation, I don't think it gets the values that it deserves for what it provides to the market but, that being said, yeah, any kind of result that we get out of Oakley Union, I wouldn't expect not too much of a financial change as a result. And then as far as the Conesville is concerned, we continue to look at that. We consolidated some interest in some of the units but we continue to look at our options from that perspective as well. And really I didn't talk about those [inaudible] in any of the areas but just know that we continue to work with [inaudible] and Cardinal then, of course, seeing what the disposition of those units can be in relation to all the other opportunities that we have but there's no doubt we continue our process of that strategic review.

Julien Dumoulin Smith -- Bank of America -- Analyst

Got it. And just to clarify, would this all mesh together for your 2019, if you think about it if you roll forward a few years that that dime of, call it non-core utility earnings, the composition that is largely renewable by that point in time. How would you think about that given where you are in the plan on both the deployment of capital on the new generation assets as well as obviously getting [inaudible] the legacy stuff.

Nick Akins -- Chief Executive Officer

Oh yeah, absolutely. Brian, do you want to ...

Brian Tierney -- Chief Financial Officer and Executive Vice President

So, hedges that we have associated with our competitive generation and capacity revenues decline over time and earnings from the renewable portion increases over time. Overall, we don't expect that business to be changing much from about the dime contribution of earnings that it has in the near term.

Nick Akins -- Chief Executive Officer

So, if you look at 2018, 2019, 2020, you're seeing minimization of the contributions of the old legacy units but we're maximizing the contribution of the renewable's efforts, particularly renewable area, the contracted renewables but also very much so the regulated renewables and, as I mentioned earlier, we have an RFP out in AEP Ohio for solar and then, of course, Wind Catcher. You're going to see other projects like that that are going to be drivers for those future years and we're very much looking forward to it.

Julien Dumoulin Smith -- Bank of America -- Analyst

Excellent. Thank you all very much.

Nick Akins -- Chief Executive Officer

Yeah.

Operator

Well, now the line of Jonathan Arnold with Deutsche Bank. Please go ahead.

Nick Akins -- Chief Executive Officer

Good morning, Jonathan.

Jonathan Arnold -- Deutsche Bank -- Analyst

Hi. Good morning, guys.

Nick Akins -- Chief Executive Officer

Good morning.

Jonathan Arnold -- Deutsche Bank -- Analyst

It's a question about the transmission segment and the overseas provides for the quarter much breakdown of the penny of growth but it seems to be a little slower than you've generally been seeing on investment growth. So, I was curious did you take any additional reserve against 206 or anything like that this quarter or just what's behind that penny.

Brian Tierney -- Chief Financial Officer and Executive Vice President

Yeah, we did take reserve against the 206 for the quarter. For the year contributing to that 14 cents improvement is what we're able to do for 205 as we're able to look at the forward-looking O&M test years rather than truing up past years and that contributed to the growth but we're pretty much on track with where we expected to be for the Transmission Holdco segment.

Nick Akins -- Chief Executive Officer

[Inaudible] seen an anomaly with the credit of the 205. That's really some of what you're seeing through the true-up associated with it.

Jonathan Arnold -- Deutsche Bank -- Analyst

Is that the 9 cents that you're talking about on a year to date basis?

Nick Akins -- Chief Executive Officer

Yeah.

Jonathan Arnold -- Deutsche Bank -- Analyst

And you're now reserved at a level that you think is a reasonable outcome for the 206 beyond the reserve you took earlier in the year I guess.

Brian Tierney -- Chief Financial Officer and Executive Vice President

We are, John.

Nick Akins -- Chief Executive Officer

That's right.

Brian Tierney -- Chief Financial Officer and Executive Vice President

And we think that issue is going to play out over a fairly long period of time with what's going on with the New England Transmission owner's case and the three men man back to fork. We think we'll be over a long period of having to reserve before that issue gets resolved.

Jonathan Arnold -- Deutsche Bank -- Analyst

Yeah, and what drove the decision to up the reserve right now?

Brian Tierney -- Chief Financial Officer and Executive Vice President

Yeah, I don't think there's been an increase in the reserve. I think we've been steady about where it's been and held it at that level. I think there are positive things to come out of the New Brooke makeup and we're just going to hold steady until it gets resolved.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay, but I thought you said you did increase the reserve and that's why you didn't have growth this quarter but now it seems like maybe you didn't?

Nick Akins -- Chief Executive Officer

We did not increase the reserve. It's been steady and constant.

Brian Tierney -- Chief Financial Officer and Executive Vice President

No, we didn't increase with the true-up hits in July. That's what happened.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. And then just went Wind Catcher, we noticed earlier this week that Excel proposed some sort of different terms to how they might look to get recovery in Texas and I don't know if you have any comment on that as a base or framework or if you think that could end up being a template for how things might play for you?

Nick Akins -- Chief Executive Officer

No, I don't see it that way because these projects are pretty unique in the way you look at them and ours has a 350-mile, 365 generation interconnection associated with it but is also massively larger. So, you can look at risk being taken and the economics of the projects themselves. They stand on Own merit. So, we followed our plan.

I know that Excel had to change theirs a little bit but that's sort of their business and our projects are our business and we will continue with all four jurisdictions in the same manner in which we filed and we'll see where it goes.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. I think that's it. Thank you, guys.

Nick Akins -- Chief Executive Officer

Thank you.

Operator

And once again, if you'd like that ask a question, please press *, then 1 at this time. We will now go to the line of Praful Mehta with Citigroup. Please go ahead.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi.

Nick Akins -- Chief Executive Officer

Hi Praful. Good to see you.

Praful Mehta -- Citigroup -- Analyst

All right, same here. So, just following up on Wind Catcher. Wanted to understand of the 2.5-billion benefit that you highlighted for the first 10 years, how important is that PTC and do you see any risk to that PTC flowing through to the project itself?

Nick Akins -- Chief Executive Officer

PTC is really important and that's why the brevity in which we're asking for approvals of this project are instrumental and the numbers stand for themselves. The numbers are just, like I said earlier, slam dunk but when you look at the 2.5 billion PTC, that's a huge part of the economics associated with making sure our customers can benefit from that and timing is critical.

Praful Mehta -- Citigroup -- Analyst

Okay. So, I guess, when do we get color on like the [inaudible] the timing what [inaudible] does it bring to the approvals, I guess?

Nick Akins -- Chief Executive Officer

Yeah. So, you obviously followed, I'm really actually happy that the procedural schedules have been set up by pretty consistent since and constructive of getting a solution in place. I mean, all for jurisdictions have procedural schedules but to match up to sort of our power April timeframe that we're looking at so that we can really take a hard look at what the risks are, what the rewards will be, what the result of the commission's orders will be. That will give us some real insight in terms of this project but, like I said before, I'm pleased with the progress that's been made.

Praful Mehta -- Citigroup -- Analyst

Fair enough. Fair enough.

Nick Akins -- Chief Executive Officer

We probably may not have gotten to it yet but on slide 32 of our presentation we kind of lay out the timeline at each of the jurisdictions and when we expect hearings to begin and you can anticipate orders shortly after those hearings take place.

Praful Mehta -- Citigroup -- Analyst

Gotcha. Thanks. And in terms of the pending rate cases, obviously, you have a pretty big regulatory schedule. Just wanted to understand you are not in leads for all these rate cases in the 10 to 10.5 range.

Is there any risk given current interest rate environment on those ROEs or do you see those authorized ROEs to be pretty stable?

Nick Akins -- Chief Executive Officer

I think we're pretty consistent, as we talked earlier, about 2018 being in that approximately 10% range and of course it's going to result from negotiations or from the outcomes of these cases. So, as we look at it, the aggregation of those cases will be in that approximate 10% range. That's what you should look for. And of course, you file in the normal course of rate cases.

I mean, you file based upon what we really believe the ROE should be and then, of course, you have to deal with other parties and the commission itself will make the decision what the alternate ROE is and like I said earlier, we expect our aggregated to be around that 10% range.

Praful Mehta -- Citigroup -- Analyst

Gotcha. Thanks so much, guys.

Nick Akins -- Chief Executive Officer

Yup.

Operator

We'll now go to the line of John Barta with KeyBanc. Please go ahead.

Nick Akins -- Chief Executive Officer

Good morning, John.

John Barta -- Keybanc -- Analyst

Good morning. Thanks for taking my question. I was trying to better understand how interrelated the wind plant and the Gen-Tie for Wind Catcher are, where hypothetically is the capital associated with the wind side were reduced a little bit? Is the need still there for the 765-kilovolt Gen-Tie?

Brian Tierney -- Chief Financial Officer and Executive Vice President

Oh yeah, they go hand in hand. I mean, obviously, you'd be building a huge wind farm nowhere if you don't have the generation interconnection there. and with 2000 megawatts of wind capacity at that location, that draws a pretty large substantial generation interconnection. And even if, in this case, you won't reduce the size but the size of the wind farm is really the big drop on the capacity side associated with the size of the generation interconnect.

So, they go hand in hand. One doesn't occur without the other and that's why it's all being viewed as a single project and that's what we're working really hard to lock in the arrangements associated with construction on both sides so that we can eliminate as much risk as possible.

John Barta -- Keybanc -- Analyst

Okay, thank you. That's it.

Operator

And we have exhausted all questions in queue at this time. Please continue.

Bette Jo Rozsa -- Managing Director, Investor Relations

Okay. Well, thank you, everyone, for joining us on today's call. As always, the IR team will be available to answer any additional questions you may have. If you do, please give them the replay information.

Operator

Certainly. Ladies and gentlemen, this conference will be available for replay after 11:15 a.m. Eastern today through November 4 at midnight. You may access the AT&T Teleconference Replay System at any time by dialing 1-800-475-6701 and entering the access code of 431431.

International participants may dial 1-320-365-3844. Those numbers again are 1-800-475-6701 or 1-320-365-3844 with an access of 431431. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference.

You may now disconnect.

Duration: 58 minutes

Call Participants:

Bette Jo Rozsa -- Managing Director, Investor Relations

Nick Akins -- Chief Executive Officer

Brian Tierney -- Chief Financial Officer and Executive Vice President

Julien Dumoulin Smith -- Bank of America -- Analyst

Jonathan Arnold -- Deutsche Bank -- Analyst

Praful Mehta -- Citigroup -- Analyst

John Barta -- Keybanc -- Analyst

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