Operator:

Thank you for standing by. My name is JL and I'll be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power's Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would like to turn the conference over to Darcy Reese, President of Investor Relations. You may begin.

Ben Fowke:

Good morning, and welcome to American Electric Power's second quarter 2024 earnings call. Shortly, Peggy will provide a regulatory update, followed by Chuck, who will review our financial results in more detail. A summary of our second quarter 2024 business highlights can be found on slide 6 of today's presentation. Before I dive into our results, I would like to start by welcoming Bill Furman to AEP as our new President and CEO, effective August 1st. Bill brings decades of utility operational leadership experience and in-depth knowledge of the energy industry, most recently serving as President and CEO of Century Holdings, and prior to that, President and CEO of Berkshire Hathaway Energy. With Bill's expertise and diverse background, you can anticipate a smooth transition and continuity of strategic direction. Expect more focus on execution, and Bill has the background to do just that, including capturing growth, listening and responding to our regulators and investors, and using innovation to mitigate inflationary pressures. While I will be serving as Senior Advisor for several months to ensure a smooth transition, it's been an honor to lead AEP as Interim President and CEO, and I'm proud of what the team has accomplished so far this year. Now, turning to AEP's financial results. Today, we announced second quarter 2024 operating earnings of $1.25 per share, a $0.12 increase over one year ago. Our operational execution through the first half of the year, combined with our efforts to efficiently manage the business, have put us well on track to achieve our targets. Today, we reaffirm our 2024 full-year operating earnings guidance range from $5.53 to $5.73, and our long-term earnings growth rate of 6% to 7%. Regarding data center load, we have commitments from customers for more than 15 gigawatts of incremental load by the end of this decade, mostly driven by large load opportunities. To put this in perspective, AEP's system-wide peak load at the end of last year was 35 gigawatts. We continue to work with data center customers to meet their increased demand, while ensuring contracts and new initiatives are fair and beneficial for all of our customers. In the fall, we will provide an update on what this large load opportunity means for our capital spend, including generation and transmission investment, and on our plan to responsibly finance this growth initiative. While we certainly encourage innovation when it comes to meeting the energy needs of our customers, data centers included, I want to emphasize that it is critically important that costs associated with these large loads are allocated fairly, and the right investments are made for the long-term success of our grid. For this reason, we filed new data center tariffs in Ohio and large load tariff modifications in Indiana and West Virginia, and it's the reason why we filed a complaint with FERC related to a co-located load agreement. We will know soon what FERC decides, but this is the rationale we used. Given the co-located load agreement is an active case before FERC, I don't plan on making any further comments. I'd also like to note that large load impacts are already being felt here in AEP's service territories, primarily Ohio and Texas, as our commercial load grew an impressive 12.4% over the second quarter of last year. Looking ahead, we expect the incremental load I just mentioned to move forward in these states and others, including Indiana. Moving to another example of capital opportunities, PSO announced an agreement at the end of June to purchase a 795-megawatt natural gas generation facility conditioned on regulatory approval. The facility, known as Green Country, is located in Jenks [ph] Oklahoma, and will ensure PSO customers continue to benefit from reliable and affordable resources. For this resource adequacy-driven capital, PSO plans to seek regulatory approval this fall, at which time the economics of this acquisition will be made public. As you know, maintaining a strong balance is critical to fund increased capital spend to support our growth initiatives. We will sensibly finance our capital needs, and we're open to incremental growth equity and equity-like tools, in addition to portfolio optimization. On a similar portfolio note, the sale of AEP on-site partners remains on track to close in the third quarter following FERC approval. Now let's move on to the Federal EPA's Coal Combustion Residual Rule, or CCR, which was finalized in the second quarter and expanded the scope of the rule to include inactive impoundments at existing and inactive facilities. We continue to evaluate the applicability of the rule to current and former plant sites, and have developed preliminary estimates of compliance costs. While we are working with others and looking at potential legal challenges to the revised rules, as appropriate, we do plan to seek cost recovery through new and or existing regulatory mechanisms. Chuck will have more information on this shortly. Before I turn it over to Peggy for additional updates, I'd like to thank all of you for your support during my time as AEP's interim CEO. I've been privileged to serve AEP over the past five months, and the board and I are confident that Bill is the right person to build on the momentum underway and to lead AEP into its next chapter. On a related note, we are planning an informal meet and greet in New York City soon, so analyst investors can say hello to Bill in person. We are targeting something in August, so stay tuned for more information coming your way in the next couple of days. Finally, I'm excited about what the future holds for AEP as we execute on our strategic priorities and enhance value for all of our stakeholders. Peggy?

Charles Zebula:

Thank you, Peggy, and good morning, everyone. Let's jump right into our second quarter results. Slide seven shows the comparison of GAAP to operating earnings for the quarter and year-to-date periods. GAAP earnings for the second quarter were $0.64 per share compared to $1.01 per share in 2023. Year-to-date GAAP earnings are $2.55 per share for this year versus $1.78 per share last year. There's a detailed reconciliation of GAAP to operating earnings for the second quarter and year-to-date results on pages 13 and 14 respectively. Let's briefly highlight a few of the non-operating items for the quarter that mostly make up the difference between GAAP and operating earnings. First, as disclosed in an 8-K in May, an after-tax provision of $126 million for customer refunds was recorded based on recent developments in the remand proceeding related to the cost cap associated with the Turk plant that has been debated over the last decade. Secondly, we incurred a $94 million expense associated with a voluntary severance program that we completed in the second quarter. And finally, as Ben mentioned, the final revised EPA CCR rule became effective in May. We recorded a $111 million accrual for compliance costs largely related to our Ohio properties where generation is deregulated. We also updated our asset retirement obligations for sites in our regulated entities where we intend to seek cost recovery. Let's walk through our quarterly operating earnings performance by segment on slide eight. Operating earnings for the second quarter totaled $125 per share or $662 million compared to $113 per share or $582 million in 2023. This results in an increase of $80 million or $0.12 per share, which is a 10.6% increase over last year. Operating earnings for vertically integrated utilities were $0.46 per share, down $0.05. Positive drivers included favorable year-over-year weather and rate changes across multiple jurisdictions, with the 2022 PSO base case and the 2023 Virginia proceeding being the most significant. These items were offset by higher income taxes, which are largely a reversal of favorable income taxes in the first quarter, lower normalized retail sales, and higher depreciation. Note the year-to-date results in this segment consolidate the income tax loss that is shown in this quarter, resulting in an immaterial year-to-date income tax variance versus last year. The transmission and distribution utility segment earned $0.41 per share, up $0.11 compared to last year. Positive drivers in this segment included favorable weather, increased transmission revenue, rate changes primarily from the distribution cost recovery factor in Texas, and higher normalized retail sales. These items were partially offset by increased property taxes and depreciation. The AEP transmission Holdco segment contributed $0.39 per share, up a penny compared to last year, primarily driven by investment growth. Generation and marketing produced $0.12 per share, down a penny from last year. Recall that AEP renewables was sold in the third quarter last year, which has two impacts, a negative earnings variance due to the business being sold and removal of the interest costs for financing these assets. Additional drivers were lower retail margins offset by higher generation margins and lower taxes. Finally, corporate and other was up $0.06 compared to the prior year, primarily driven by lower income taxes and increased other operating income related to timing in the prior year. These items were partially offset by higher interest expense and lower interest income from the GNM segment. Let's turn to slide nine, which shows weather normalized retail sales of 4% in the quarter from a year ago, headlined by a double-digit 12.4% increase in commercial sales, which is where our data processing customers are classified. I'll note that in our T&D segment, the increase in commercial load was over 20% for the quarter. This is a trend that will continue over the coming years based on already signed customer commitments. Our operating footprint and robust transmission system position us perfectly to grow along AI and other technologies and industries in need of access to affordable and reliable power. Through the remainder of this year, data processing gains will remain mostly concentrated in Ohio and Texas. But beyond this year, we are seeing strong commitments from new customers looking to connect at some of our vertically integrated companies as well. Outside of data processors, our industrial sales have remained resilient in the face of a slowing economy. Industrial sales were strongest in Texas, driven by an influx of new customers, mainly in the energy industry. Thanks to our success over the past few years on the economic development front, we expect to see our industrial sales continue to be resilient in the next few years as several new large customers in steel, energy, renewable energy, and semiconductors come online across our footprint. In the residential segment, we continue to see growth in customer count and load in Texas, but residential load remains weak in most of our territories, likely due to the cumulative effects of inflation. Bottom line, the amount of demand from new large loads we're seeing across our system is unprecedented. We are excited, challenged, and poised to embrace this opportunity. Let's move on to slide 10. In the top left table, you can see the FFO to debt metric stands at 14.6% for the 12 months ended June 30th, which is a 40 basis point increase from the prior quarter. Our debt-to-cap decreased slightly from last quarter and was 62.6% at quarter end. We took credit-supportive financing actions in the second quarter by issuing $400 million of equity under our at-the-market program and by issuing $1 billion in junior subordinated notes at the parent, which qualified for 50% equity credit at all three rating agencies. In the lower left part of this slide, you can see our liquidity summary, which remains strong at $5.4 billion and is supported by $6 billion in credit facilities. Lastly, on the qualified pension front, our funding status is near 99%. In summary, our second quarter results provide additional momentum this year, bringing year-to-date earnings up to $2.52 per share, an increase of $0.28, or 12.5% compared to the same period last year. We reaffirm our operating earnings guidance range of $553 to $573 and remain committed to our long-term growth rate of 6% to 7%. And as we move through the balance of the year, our focus is on providing reliable and affordable service to our customers, executing our plan, and embracing the growth opportunities that we have ahead of us. Also, a quick update on the sale of AEP on-site partners. We expect the transaction to close in the third quarter and result in approximately $315 million in net proceeds to the company. I'd be remiss if I didn't acknowledge the skilled leadership of Ben Folk during this time of transition at AEP. Ben told you that this company would not be in neutral during the transition, and I can say that that is absolutely true. Ben, while I know you'll still be engaged as an advisor and board role going forward, I want you to know that the AEP team appreciates your engagement and contributions over the past five months. Finally, the AEP team looks forward to the arrival of our new CEO and President, Bill Furman. We all look forward to Bill bringing his accomplished leadership to AEP and working with him as we take on the exciting opportunities that we have before us. Thank you for your interest in American Electric Power. Operator, can you open the call so we can address your questions? Thank you.

Shar Pourezza:

Hey, guys. Good morning.

Shar Pourezza:

Just firstly, obviously, you guys highlighted in the deck, “the direction and strategy” kind of remain on track. I guess how much latitude will Bill have to make kind of strategic changes if need be to accrue value? Or is the plan kind of the plan and any kind of changes you expect will likely be more on the fringe, given your and the board's comfort level with the trajectory, with obviously the latter kind of being a similar situation to one of your other Ohio peers in the state when they had an incoming CEO? Thanks.

Shar Pourezza:

Okay, perfect. And then last time, obviously we've talked about higher CapEx coming, driven by customer growth, data centers, etcetera. As we're kind of thinking about that incremental CapEx, potentially with a 3Q update and a funding source, the balance sheet doesn't have a material amount of capacity. You touched on this a little bit on your preparedness, but maybe you can elaborate on how you're kind of thinking about incremental equity versus asset sales, and with asset sales, how you're thinking about distribution versus transmission. Thanks, guys.

Charles Zebula:

Ben, the only thing I would add is, right, it's so important as we are a regulated utility and have significant capital needs not only today, but going forward right, to maintain investment credit ratings, and we will defend that right in our plan.

Charles Zebula:

Thanks. You did mention, Shar asked the mix between distribution and transmission. So, it's going to, there's obviously going to be a lot of transmission that needs to be built, as well as distribution.

Jeremy Tonet:

Hi, good morning.

Jeremy Tonet:

Hey, I know you're not going to give us the full details here, but I was just wondering if there's any way you could help us think through size and shaping of this incremental CapEx, as you talked about, with the incremental wires needs here. It just seems like everything is materializing quicker than expected. And so, just wondering if you could comment, I guess, any shaping there that would be helpful.

Charles Zebula:

Jeremy, I would say you'll note, in our materials that we raised our CapEx this year already by $500 million. That largely is in T&D, right? It's for reliability spend, also customer hookups, and then storm-related capital. So the shape of it right, is going to be as these customer additions, come online. And again, as Ben mentioned, we'll be laying all that out in the fall.

Charles Zebula:

I think that that's true.

Peggy Simmons:

So, I would say, this is Peggy, and I would say with the increased reserve margins that we're seeing from the RTOs and the additional load that we're starting to see across our system, we are going to need some additional generation. And this was a very proactive approach that the team took as I mentioned in my comments earlier, to go out and find some affordable assets that we could bring onto the system. And we plan to make that filing at the Commission later this fall.

Jeremy Tonet:

Got it. Thank you for that.

Ben Fowke:

Hey, Steve.

Ben Fowke:

Yes, in T&D, Steve, normalized sales were up $0.02.

Ben Fowke:

Yes. So, let me comment on the negative $0.06 in vertically integrated. That's largely due to in vertically integrated, we had in the quarter, but a 4.9% decrease over last Q2 in residential sales. And that's largely what drove that number. In our SWEPCO territory, we had in kind of mid to late May into early June, we had a number of repeated storm activity, tornadic activity that took, large swaths of customers out for significant amounts of times that drove that number down. We've seen that start to normalize back in June and July. So I expect that to return to a more normal state.

Ben Fowke:

Yes. I mean, it basically means that we have a letter of agreement, and those letter of agreements, Steve, start the clock running, if you will, for us to do work that pretty quickly can go into the millions, which that customer who signed the letter of agreement is required to pay. So that's how we define it. As we look forward, we look at a number of filtering criteria, ownership of sites, etcetera, that we use. So these are far from just inquiries. These are, serious customers that want to get on the grid and are willing to financially commit to do what it takes to get on the grid.

Ben Fowke:

Yes. Those tariffs, as you know they haven't been approved yet, but they will need depends where they are in the signing process as to whether or not they will be held to those tariffs or not. But going forward, customers, if approved, will all be required to step up to the tariffs.

Ben Fowke:

Which, as you know, I mean, well, as Steve was just going to say, it's just, it's really important. We're going to see more growth than we've seen in maybe generations. And it's going to be really important that that growth is beneficial for all customers and at the worst case, at least neutral. And that's exactly why we're trying to, that's exactly why we're so keenly focused on making sure that we have these tariffs and the modifications I mentioned in Indiana and West Virginia. And it's just, we got to get it right.

Ben Fowke:

Yes, Steve. So the way to think about it is, think of it as a 50-50 split between Texas and PJM. 50%, or of course, Texas, right, is our wires company and PJM, take that 50% and basically split it 50-50 between INM, which is vertically integrated and AEP Ohio, right, which is wires only.

Ben Fowke:

Okay. I think I've, yes. But we are seeing additional interest amongst other vertically integrated utilities, but that interest is not as firm yet.

Ben Fowke:

Yes, that's correct.

Ben Fowke:

Thanks, Steve.

Unidentified Analyst:

Nick Campanella at Barclays here. Thanks for the time.

Unidentified Analyst:

I never got the call. I never got the call, but thanks for the time. A lot of my questions have been answered, but I just, curious as we kind of try to think about the magnitude of capital that the plan can handle here. I know that there's financing considerations, but there's also kind of bill growth considerations. Just how high do you think your rate-based growth can get before you have to start thinking about customer bill impact, especially as some of this load should be able to supplement that, but just trying to see, where this rate-based CAGR could go at the end of the day. Thank you.

Unidentified Analyst:

Okay. Thanks. And then I guess, since you've kind of taken over, you have kind of pulled some strings on this involuntary, this voluntary severance program, just where are there other opportunities in the plan to cut costs today, or just things that maybe we're not thinking about that could be incremental to the positive?

Unidentified Analyst:

Thank you.

Operator:

Your next question comes from the line of Carly Davenport of Goldman Sachs. Your line is open.

Ben Fowke:

Yes, the 15 gigawatts refers to all data centers, and we're not announcing the cadence of that at this time. But it's already, as you can see, it's already showing up in our numbers. So we are hooking up, folks, and you'll see continued increases, over the next several years.

Peggy Simmons:

Oh, we're looking forward to be at 9.1% for this year. As I mentioned, over the past 12 months, I mean, on a rolling average right now, we’re at 8.9% [ph] which is flat to where we were last quarter, but continuing to make progress on that front.

Ben Fowke:

Thank you.

Ben Fowke:

Good morning.

Ben Fowke:

Okay. Well, I will go back after my time as advisor, I'll go back to being a board member, and I will keep my independence. Bill obviously will be on the board. He'll be a non-independent director. Sara Martinez Tucker, or Sara Martinez Tucker will be the chair, and she will remain chair, and she's independent. Size of the board, we are basically at full size, and so there won't be any change to the size of the board. I don't know. Did I get all those questions?

Ben Fowke:

So, Andrew, first question. You also note in 2024, we had a $500 million increase in CapEx, and versus our plan for the year, we had additional asset sales that were part of the original plan that ended up changing through the year. So, in our financing, in our cash, we received less proceeds because of that change in plan. So, those two things basically drove the opportunity for the increase in equity, and just being opportunistic in the market as well. You're right, going forward, we have not updated those cash flows yet for our annual update, which we'll do at EEI.

Ben Fowke:

Yes, that refers to the notes that we issued in June. But we would look at various forms of equity alternatives and be holistic in our approach.

Operator:

Your next question comes from the line of Durgesh Chopra of Evercore ISI. Your line is open.

Charles Zebula:

Yes, our plan is to be in the 14% to 15% range. I'll just note, right, that we're well above the 13% downgrade threshold. So, yes, we plan to be in that range.

Operator:

Your next question comes from the line of Sophie Karp of KeyBanc Capital Markets. Your line is open.

Peggy Simmons:

Right now, none of that can be connected at this point in time, but as we look at our LOA process, that's why we are looking at any initial upgrades that are needed as we prepare to plan the system to connect this load over that period of time.

Peggy Simmons:

So, our RFPs are all-source RFPs, so we're evaluating all technologies that come in. And we do believe the dispatchable resources are needed to be added to the grid as well, and they will be part of the plan.

Peggy Simmons:

You're welcome.

William Appicelli:

Hi. Good morning. Thanks for taking my questions. Just want to dig into a little bit more on the sales growth trends. So, on the residential side, you commented that Texas looks strong, but that more broadly, the cumulative effects of inflation have been weighing on it. So, any more color there? Are you expecting an improvement in the second half of the year?

William Appicelli:

Okay. I mean, I guess we think about the EPA activities here, right, because you've got the, tremendous growth in the commercial side, right, tracking well above plan, but that's going to be lower margin volumes. And then maybe on the residential side, going back sort of four of the last five quarters, sort of as a negative, and that's obviously a bit of a higher margin, but, smaller overall change. What, we sort of reconcile that a little bit as we think about the EPA's impact.

William Appicelli:

Right. Okay. And then I guess the other question is, it's come up a little bit, but on the episode of debt, under, I guess, the Moody's methodology, do you know what that number would be?

William Appicelli:

Oh, it's under Moody's. Okay. All right. Thank you very much.

Julian Smith:

Hey, good morning, team. Thank you guys very much for the time. I appreciate it. Going back. Thank you very much. Appreciate it. Maybe going back to some of the conversation on the layoffs and severance bit. I just want to understand the extent to which this process is finalized, right? You've given very specific jurisdictional level details. And given that, how are you thinking about rebuilding and devolving some decision-making power and some of the roles to the local OpCo’s? Can you speak to perhaps what seems like perhaps a strategic shift in looking at local level decision-making and really what level or what quantity of the roles in terms of overall layoffs will actually be ultimately recreated, if you will, at the local level here? So both the financial question in terms of what's the sort of ongoing net savings and B, how do you think about this fitting within the strategic question of devolvement?

Peggy Simmons:

Yes, Ben. So yes, that's exactly, Julian, what we're looking to do. We are, some of those positions were leadership positions that report to some of our Presidents. We are making sure that we are getting those filled and we're adding additional resources in the regulatory and legislative space, because we know that as dynamic as our industry is and as much change as is occurring, we want to make sure that we have that enhanced engagement at those levels. So you'll see more of that.

Ben Fowke:

Well, I mean, I think that would take legislation clearly in Ohio. I guess it would take it in Texas, too, but I don't see that happening. I think it's probably a long shot in Ohio as well. So, we are going to have to rely on the market, but our vertically integrated utilities are all going to need generation and in different timeframes. But I think Peggy mentioned, we've got, we do have more with the changes in the reserve margin requirements, for example, in SPP. It creates a resource need, and we're developing our plans to fill that, which will require increased CapEx, which I think is a good thing. And we're really, again, excited about Green Country. The load is tremendous, and it's primarily data centers, but of course we'd be remiss if we didn't mention we've seen industrial load in Texas as well. And I think when we think about economic development, we're going to continue to look for opportunities to bring industry back on shore. And I'm right here in Columbus today, and the Intel has just been an enormous success, and we're going to keep looking for opportunities for our communities, and, again, all customers benefit from that.

Ben Fowke:

Thank you.

Paul Patterson:

Good morning. How are you doing?

Paul Patterson:

Great. So I asked this question some time ago about Chevron, and we now have a Supreme Court decision. And I'm just wondering how you guys see it potentially impacting either EPA or FERC regulation or anything else you might, if you think it has any potential impact on AEP, I guess.

Paul Patterson:

Okay, great. And then just on FERC, do you see anything happening there maybe?

Paul Patterson:

Okay. The rest of my questions have been answered. Thanks so much. Have a great one.

Darcy Reese:

That concludes it. Thank you for joining us on today's call. As always, the IR team will be available to answer any additional questions you may have. JL, would you please give the replay information?

Operator:

Good morning, ladies and gentlemen, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time I like to welcome everyone to the American Electric Power First Quarter 2024 Earnings Conference Call. [Operator Instructions]

Darcy Reese:

Thank you, Abby. Good morning, everyone, and welcome to the First Quarter 2024 Earnings Call for American Electric Power. We appreciate you taking time today to join us. Our earnings release, presentation slides and related financial information are available on our website at aep.com.

Peggy Simmons:

Thanks, Ben, and good morning, everyone. Now let's go to an update on several of AEP's ongoing regulatory initiatives. We are currently focused on investing more in people resources at the local level, particularly in regulatory and legislative areas.

Charles Zebula:

Thanks, Peggy, and good morning, everyone. Today, I'll review our financial results for the first quarter, build on Ben's comments about our service territory load and finish with commentary on our financial metrics and portfolio management activities.

Operator:

[Operator Instructions] And your first question comes from Jeremy Tonet with JPMorgan.

Jeremy Tonet:

Got it. That's helpful. And maybe just to dive in a little bit more as we think about data center load sensitivity. Should we be thinking that more along the lines of commercial sensitivity or industrial sensitivity, as provided in your guidance if you think about demand outstripping the forecast?

Charles Zebula:

Yes. So I would think of it, Jeremy, more like an industrial customer and that sensitivity there.

Benjamin Gwynn Fowke:

Well, I can just tell you that the attributes and the qualities we're looking for remain unchanged from what I described on the fourth quarter call. We are well underway now. We've got some really good candidates, impressive candidates. It takes time to sort it all out. And there's other obviously, things that we need to look at.

Jeremy Tonet:

Got it. And actually, if I could just sneak 1 last in. Just wondering on overall corporate strategy, could you talk more about where things stand for AEP decentralization efforts. And looking to kind of more closely align P&L to the end decision maker at the local levels. Just wondering how that's progressing?

Steven Fleishman:

So just in Ohio and Texas, your wires company, but in Indiana, where these last 2 announcements, I think you've got generation too. And are you -- so in some of these recent deals that announced -- the past week, are you supplying the generation as well? And is there going to be a generation need in Indiana related to those?

Peggy Simmons:

Yes. We do have RFPs outstanding in I&M. But to answer your question, yes, and are vertically integrated like Indiana, we will have to serve the generation component, and we are working with those large loads that are coming to us on what that would look like. And we are also focused on, as Ben mentioned earlier, redefining and looking at our tariffs as well. So that will be part of our strategy.

Charles Zebula:

No, Steve, there'll be more capital needed, but I don't think it will be those massive 765 lines, it can take a long time to get built. We believe the team has done a lot of work on how we could accommodate that load within our footprint, working with PJM and others. And so yes, there'll be more spend, but it will be manageable and doable to the point.

Charles Zebula:

We were in the range. We expect to be in that range now. Our forecast that we review internally and with the agencies show us being in that range. So that's the plan, and we plan to defend that.

Jamieson Ward:

It's actually Jamieson Ward on for Shar. He's on the road and regrets that he's not able to join you today, but we have a couple of questions for you here. The first was just on the annual customer bill increase, the pace there, you reduced it to 3% increases per year through 2028, which is great to see. Does that already take into account the anticipated infrastructure investment needed to support any future data center growth? Or could we see that number be revised as well?

Benjamin Gwynn Fowke:

I'm going to turn it over to Peggy in a second. But listen, it's got to be fair to all customers now, okay? I mean this is a big deal. It's an exciting big deal. But growth needs to be as close to self-funded as possible. And that's what I think we'll get with these tariffs and some of the other analysis that we're looking at.

Benjamin Gwynn Fowke:

I mean I think the big update will come -- well, I understand EEI in the third quarter's earnings call right on the same, but it would either come on the third quarter or EEI unless there might be drips and drabs that get released before that, but that's what we're planning to do right now.

Benjamin Gwynn Fowke:

It would be on an opportunistic basis. We're going to look at -- we're always open to ideas. Chuck and I and the team have been around a while. We know that sometimes good ideas sound good on paper, but you can't execute on them. So we do filter that through the regulatory screening process, as you can imagine.

Carly Davenport:

Maybe just going back to the balance sheet. As you think about your financing needs for the remainder of the year, can you just give us an update there? And if you expect to see any impacts relative to your initial plan with the move that we've seen in rates year-to-date?

Charles Zebula:

Yes. Carly, it's just mainly the ramp rates of the customers that have hooked up, have come on more rapidly than we anticipated. And so that's why you're seeing those big bumps in commercial load, as we go through the quarters here.

Nicholas Campanella:

I'll try to keep it to 2. So I guess you talked about this need for growth equity. Can you just elaborate when you anticipate needing that? And what part of this 5-year plan would that be? And then I guess, just -- you do have $700 million to $800 million, I think, a year in your financing walk here of equity needs. Just why not do something sooner than later to kind of knock that out if the opportunity presents itself? I know you don't want to preannounce and go into a strategic review around 2, like you said, but maybe you can kind of give us some additional thoughts on how you're thinking about that.

Charles Zebula:

No, Nick, it's a good question. I mean, look, as we said earlier, right? We're formulating, right, the changes to our plan and how ultimately, right, how financing is going to affect that.

Charles Zebula:

Yes. So Jeremy, about half of that will normalize throughout the year and the other half is onetime. Things that happened in '23 that won't happen again in '24. So it's a true increase.

Durgesh Chopra:

I wanted to go back on your commentary, Ben, on portfolio optimization, new financing plan. Just to be clear, the financing plan, the CapEx update, the load board updates. Is that sort of -- should we think of that as a separate process and the CEO search? I'm just thinking about the 2 and are those 2 independent processes that we should think about? Or are they somehow tied? I'm thinking about the cadence of your updates, your new plan and then the parallel CEO search?

Durgesh Chopra:

That's right, Ben. Yes.

Durgesh Chopra:

You did. That's exactly what I wanted to ask you, a very clear response. And then second question then, again, like you mentioned challenging the EPA proposed ruling. Maybe can you share a little bit more color there? Is it the carbon capture technology that you are referring to? And then you mentioned the accelerated plant retirements? Was that directed towards coal? Just any color you can share there.

Andrew Weisel:

Two quick ones here, please. First, to elaborate on the commentary on load growth. Ben, I think, you mentioned that the incremental 10 to 15 gigawatts by the end of the decade. I assume that's across the entire portfolio. Can you talk a bit about the Vertically Integrated Utilities? You have about 20 gigawatts identified through the current IRPs. My question is, how soon might we see more filings to include the new expected load, which there is no doubt coming quickly.

Peggy Simmons:

We have -- so Indiana, we have an IRP that's coming up that's going to be later in November. But -- so that will be part of the process as we start to look at how we accommodate some of this load as we start to see it to come on as well. We'll be using those same types of process.

Andrew Weisel:

Okay. Great. That's very helpful. And one quick one on the voluntary separation program. Would there be any kind of meaningful onetime cash outflow associated with that? And if so, how would you finance it?

Operator:

And we will take our next question from Ryan Levine with Citi.

Peggy Simmons:

Yes. So I'll take that. Thank you for the question. I mean, generally, we need -- we'd have to be building long-term assets. So we need some commitments that are longer in nature. So I mean, we would think somewhere around the 10-plus, 15-plus year range, but we're working through that process now.

Charles Zebula:

Well, as Ben mentioned, we would consider everything. Everything is on the table. But I think the underlying tenet is that we will defend our BBB credit.

Paul Patterson:

I wanted to circle back on the onetime gain associated with the PLR ruling that you got -- or the letters that you got. What's the ongoing impact of that? And could you just elaborate a little bit more on -- I did read the 10-Q and that section of it, but I just wanted to make sure I fully understood it.

Charles Zebula:

Once we're able to go through our jurisdictions and get it into rates. Yes.

Benjamin Gwynn Fowke:

Yes, that's correct.

Peggy Simmons:

So we do use grid-enhancing technologies. And as it relates to the planning information at FERC. I mean, our team has been very involved in it. I mean, I think they're looking at longer planning horizons and things of that nature. So our team has been at the table the whole time working with FERC on those.

Operator:

Thank you. This call will be available for replay today approximately 2 hours after the conclusion of the call and will run through Tuesday, May 7, 2024 at 11:59 p.m. Eastern Time. The number to access the replay is 1 -800-770-2030 or 1 -609-800-9909. The conference ID to access the replay is 79-39-795#. Thank you, ladies and gentlemen. This concludes today's call. We appreciate your participation, and you may now disconnect.

Operator:

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Darcy Reese, Vice President of Investor Relations. Please go ahead.

Ben Fowke :

Well, thank you, Darcy. Good morning and welcome to American Electric Power’s fourth quarter 2023 earnings call. It's great to have a chance to reconnect with you, although I never thought it would be under these circumstances. As you know the AEP board of directors made a decision to remove Julie Sloat from her duties as Chair, President and CEO. Taking this action was not easy, but the board believes it was in the best interest of AEP and its stakeholders to do so. On behalf of the board and the entire AEP family. I would like to wish Julie well and thank her for all her contributions. I would also like to assure everyone that Julie's departure was not due to any unethical behavior, disagreements of financial policy or because of any violation of AEP’s code of conduct. Now, as many of you are aware after my retirement from Xcel Energy, I joined the AEP board in February of 2022. I was attracted to this board because I was impressed with AEP’s business model, its strong asset base and the quality of its leadership team and board. I'm even more impressed two years later. In my tenure here, I've seen the AEP team rise to meet multiple challenges. Let me give you some examples starting with earnings. For 14 years in a row, AEP has met or exceeded earnings guidance, and 2023 is no exception. Our operating earnings came in at $5.25, that's within our guidance range despite $0.37 of unfavorable weather and $.45 of increased interest cost over the prior year. As you know, controlling O&M expense has been a challenge for the industry. And AEP has met that challenge, essentially keeping O&M flat for the last 10 years, while at the same time doubling its asset base. This team's continuous focus on O&M efficiency is nothing short of excellent. You may also recall that in early 2023, the Texas Commission denying a petition to be part of SWEPCO is 999-megawatt renewables project for $2.2 billion. But the team didn't miss a beat and put the project back on track with Arkansas and Louisiana ultimately stepping up to move forward with the full project. As a result, and including SWEPCO. Today, we have commission approval of $6.6 billion of new renewable projects throughout AEP’s service territory, representing a 70% achievement of our current 5-year $9.4 billion new generation capital plan. I hope you would agree with me that that is really solid execution. Initiatives to simplify and de-risk our portfolio are squarely in the focus of the board and the management team. And we are pleased with the great progress made. Last year, we completed the sale of our unregulated renewables portfolio, bringing in $1.2 billion of cash proceeds. We should be closing on our New Mexico renewable development solar portfolio within the next day or two. This in combination with the expected conclusion of our retail and distributed resources sales process in the second quarter, keeps us on schedule to achieve our 2024 asset sales targets. Now as we move forward, AEP will continue to be a disciplined portfolio manager and we will be willing to take action when price and the ability to execute intersect. To that end, we've made the decision to retain our ownership interest in both our Prairie Wind and Pioneer Transmission joint ventures. We also completed the review of Transource and ultimately determined that owning this joint venture fits strategically within our portfolio. We'd like our remaining assets. And we'll focus going forward on doubling down on our efforts to achieve constructive regulatory outcomes that will allow us to provide the quality of service our customers need and expect. Regarding Icahn Capital, our recent agreement came about from a combination of a constructive dialogue between AEP and the Icahn teams. Like us, the Icahn team believes AEP shares are undervalued and there's meaningful upside potential for our investors. The addition to AEP’s board will bring fresh perspective as we continue to execute on strategic priorities and enhance value for our stakeholders. Looking ahead, today, we are reaffirming our 2024 full year operating earnings guidance range of $5.53 to $5.73, as well as our long-term earnings growth rate of 6% to 7%, which is underpinned by a $43 billion 5-year capital plan, in addition to 14% to 15% FFO to debt target, which Chuck will expand upon shortly. You should know that I am committed to my role as Interim President and CEO. And I believe I can add value while the board works to identify a permanent successor. So before I turn it over to Peggy for regulatory updates and Chuck for financial review, let me also acknowledge that 2023 has been at times a challenging year at AEP. There's certainly been some twists and turns and a few bumps in the road. But I would encourage all of you to focus on the key opportunities that lie ahead. I have tremendous confidence in our team's ability to achieve our objectives as we work every day to deliver safe, reliable and affordable energies to our customer. With that, I'll turn it over to Peggy.

Chuck Zebula :

Thanks, Peggy. And good morning to everyone on the call. I'll walk us through the fourth quarter and full year results for 2023, share some updates on our service territory load, our outlook for this year and finish with commentary on credit metrics and liquidity. Let's go to Slide 9, which shows the comparison of GAAP to operating earnings for the quarter and year-to-date periods. GAAP earnings for the fourth quarter were $0.64 per share compared to $0.75 per share in 2022. For the year, GAAP earnings were $4.26 compared to $4.51 in 2022. As we have highlighted throughout 2023, our year-to-date comparison of GAAP to operating earnings reflects the gain or loss related to the sale of certain businesses, regulatory outcomes as well as our typical mark-to-market adjustments as non-operating. Our team is committed to minimizing the variances between GAAP and operating earnings as we go forward. Detailed reconciliations of GAAP to operating earnings are shown on Slide 16 and 17 of the presentation today. Let's quickly cover the fourth quarter. Our fourth quarter earnings came in at $1.23 per share, which was a $0.18 improvement over the same period in 2022. Note that we had $0.25 of favorable O&M and strong performance in our Generation and Marketing segment, partially offset by $0.06 of unfavorable weather, $0.09 of higher interest costs and lower performance in Transmission Holdco. December weather, in particular, was the 28th warmest out of the last 30 years. For reference, the full details of our fourth quarter results are shown on Slide 15 of the presentation. Let's have a look at our full year results for 2023 on Slide 10. Operating earnings were $5.25 per share compared to $5.09 per share in 2022. Looking at the drivers by segment. Operating earnings for Vertically Integrated Utilities were $2.47 per share, down $0.09, mostly due to unfavorable weather, higher interest expense and higher income taxes. These items were partially offset by rate changes across various operating companies, increased transmission revenue, higher normalized retail load, favorable depreciation and lower O&M. Once again, depreciation is favorable at the Vertically Integrated segment, primarily due to the expiration of the Rockport Unit 2 lease in December 2022. The Transmission and Distribution Utility segment earned $1.30 per share, up $0.14 from last year. Positive drivers in this segment included increased transmission revenue, rate changes in Texas and Ohio and lower O&M. Partially offsetting these items were unfavorable weather, higher depreciation and higher interest expense. The AEP Transmission Holdco segment contributed $1.43 per share, up $0.11 from last year. Positive investment growth of $0.09 and favorable income taxes of $0.05 were the main drivers in this segment. As Peggy mentioned, we received the FERC NOLC order in January, resulting in an unfavorable net impact to consolidated earnings of $0.07 per share, with the majority of that impact occurring at the Transmission Holdco. The impact of this order to our 2024 plan is approximately $0.03 per share. Generation and Marketing produced $0.59 per share, up $0.09 from last year. The positive variance here is primarily due to improved retail and wholesale power margins, the sale of renewable development sites and favorable impacts associated with the contracted renewable sale in August. These items were partially offset by higher interest expense and unfavorable income taxes. Finally, Corporate and Other was down $0.09 per share, driven by higher interest expense, partially offset by a favorable year-over-year change in investment gains, largely due to investment losses that occurred in the fourth quarter of 2022. As we mentioned earlier, we are reaffirming our guidance range for 2024. For convenience, we've included an updated waterfall bridging our actual 2023 results to the midpoint of our guidance this year in Slide 24. While some variances changed due to last year's actual results, there is no change to our segments or overall guidance. Turning to Slide 11, I'll provide an update on weather normalized load performance. Overall retail load grew 2.5% in 2023. This was stronger than the 0.7% in our original guidance, thanks to an acceleration in data center growth and our commitment to economic development across our service territory. This is most apparent when looking at the incredible expansion in commercial load, shown in the upper right-hand quadrant of the slide. Commercial sales grew 7.8% for the year, and were again dominated by data centers. We are encouraged that the gains are becoming more geographically diverse. New projects have come online in Michigan, Kentucky and Oklahoma to supplement the development of what we see in Ohio and Texas. This is a trend we expect to continue over the next several years as the global demand for data storage and processing accelerates through the growth of AI and other technologies. We expect commercial load to continue to grow from its new higher base this year as projects work their way through the queue and commitments for 2025 are exceptionally robust. I believe that some of the 2025 load is going to accelerate and bleed into this year. Industrial sales grew at 1.6%, which you can see in the lower left-hand quadrant of the slide. This is mostly attributable to a number of large industrial loads we've recently added across our service territories, which are more than offsetting any economic challenges seen by our existing customers. We expect industrial load growth to continue to reflect the softness in manufacturing nationally, with only a modest increase this year. However, growth in industrial sales beyond this year should accelerate as borrowing costs moderate and several large loads currently under construction come online. In the upper left-hand corner of the slide, you'll see that residential load declined slightly in 2023. Usage per residential customer has declined for the past two years, as homes have become more energy efficient and workers spend more time in an office instead of at home. The negative impact of inflation on household budgets may be influencing usage as well. On a positive note, we've seen our residential customer base grow consistently in certain regions. In 2023, we added almost 31,000 net new residential customers across our footprint, resulting in a positive offset to this segment. Overall, we're optimistic about the positive trends in load over the next several years, especially from a commercial and industrial perspective. Our conservative approach to estimating large loads gives us a lot of confidence in the growth we forecasted. In our next update, however, I would expect to see some upside in this area. Let's move on to Slide 12 to discuss the company's capitalization and liquidity position. In the top left table, you can see the FFO to debt metric stands at 13.2% for 2023. Positive changes in FFO were as outlined on the third quarter call, and included favorable changes in cash collateral, fuel recovery and other various drivers. These positive changes were somewhat offset by an $830 million increase in debt during the quarter primarily due to the issuance of long-term debt to prefund our March 2024 AEP parent maturity. We are pleased that the team has overcome strong financial headwinds due to unfavorable weather and an unprecedented increase in interest rates to end the year above Moody's downgrade threshold of 13%. We expect our FFO to debt metric to continue to improve throughout 2024 as we progress towards our targeted range of 14% to 15%. This continued positive trend assumes normal weather for 2024 and continued growth in our cash flows through various regulatory activities, including recovery of our deferred fuel balances of approximately $425 million. Our debt to cap increased from the prior quarter by 60 basis points to 63%, and our parent debt to total debt is approximately 21.7%. In the lower left quadrant of this slide, you can see our liquidity summary, which remains strong at $3.4 billion, and is supported by our bank revolver and credit facility. Lastly, on the qualified pension front, our funding status remains unchanged from the prior quarter to end the year at just over 100%. While falling interest rates increased the liability during the quarter, this increase was offset by positive asset returns. Turning to Slide 13. I'll give a quick recap of today's message. We delivered on our commitments for 2023 despite the significant challenges we faced. Weather was one of the most mild years on record for the AEP system in the past 30 years, resulting in a negative $0.37 impact year-over-year and $0.21 versus normal weather. To put a little more context to those numbers, our heating degree days were down 36% compared to normal across the system. Also, interest expense was a $0.45 hurdle to overcome versus 2022 results. We work diligently throughout the year to reprioritize and balance our plan by adjusting the timing of discretionary spend while staying focused on meeting our core business needs. While admittedly facing some challenges on the regulatory front, we secured many rate outcomes that were critical in supporting our objectives to provide reliable service to our customers. Looking into this year, we are optimistic about the opportunities and prepared to face any challenges ahead of us. We reaffirm our guidance for 2024 of $5.53 to $5.73 per share, our long-term growth rate of 6% to 7% and an improved balance sheet while continuing to implement our capital program, taking care of the customer, earning our authorized return and executing on our strategic priorities. I would like to take a moment and thank Julie Sloat for her 23 years with AEP. Julie has made a positive impact on AEP and will be missed by many. Ben, we welcome you to the AEP management team. Your leadership in the industry is well respected, and you will be embraced by the employees of AEP. The entire management team looks forward to working with you and the board as we look to enhance value for all AEP stakeholders. Thank you for your time today. Operator, can you open up the call for questions.

Shar Pourreza :

Hey, guys. Good morning.

Ben Fowke :

Well, this is Ben. And I can tell you that I don't think I would use the word broken. I think there's areas where we can do better. I think -- and I think we showed you in the script, many of the accomplishments we made. We also recognize that we can do better on getting constructive regulatory outcomes. So strategically, our priorities remain the same. We have completed, as we mentioned, a review of Transource. We want to keep that asset. We think it's a great asset. And I think given the various changes that FERC is looking at, I think it gives us a lot of optionality. We'll continue to be very disciplined portfolio managers. I said it on my scripted remarks, but always willing to transact where price and the ability to execute intersect, and that's a key point. And finally, though, if you step back, I think one of the ways you add value in this industry long term is by placing CapEx at one times book, investing in CapEx at one times book and getting constructive recovery of that. And again, we've done pretty good on that, but we can do better. And we're going to look at the people, the process and the planning that goes into that. Those constructive outcomes, and we're going to do it through the lens of what's important to our local leaders and stakeholders. Extremely important that we keenly listen to what they want and what they need at a local level. And I think you can translate that then to a much better chance for success, and then you get into that virtuous circle where invested capital not only is good for customers and the communities, but good for shareholders as well. So that's the plan going forward.

Ben Fowke :

Well, I think there's areas where we have improvement, but I will turn it over to Peggy and/or Chuck to elaborate on that.

Shar Pourreza :

Okay. Perfect. And then just lastly for me, just -- Ben, as you and the board are sort of thinking about where AEP stands today, I guess, what are you looking for in the next CEO? Are you kind of looking for a prior CEO or President of an OpCo, someone with a finance background, regulatory background, internal, external? I guess, can you just maybe specify exactly what you're looking for in the next successor?

Shar Pourreza :

Got it. Terrific. Thank you, guys. I'll pass it to someone else, and good luck on Phase 2. I appreciate it.

Operator:

Your next question comes from the line of Jeremy Tonet with JPMorgan. Please go ahead.

Operator:

Jeremy, your line is on mute.

Ben Fowke :

Good morning.

Ben Fowke :

Yeah. I really just will probably just rehash what we've said in the press release and in our scripted remarks. I mean the Icahn -- additional board members came after discussions with the Icahn team and the AEP team. We actually welcome their perspective. They share the opinion as we do that AEP shares are undervalued, and we want to work together to unleash shareholder value. Regarding Julie's departure, I mean, I really can't go into any more details than what we've already said. It was a full board decision after discussions with Julie, and we decided that the best path forward is to transition to a new CEO. We're going to continue to work hard to deliver shareholder value. I think the Icahn board members will give us a fresh perspective as we pursue those goals.

Ben Fowke :

Well, we really like the assets we have, okay? We've completed the strategic reviews, but I mean, the price -- we're going to continue to look for opportunities to do the right thing for our shareholders. But I think we're in a -- an enviable position, that the assets we have can also achieve our strategic goals. And Chuck mentioned where we are with FFO to debt and those targets. So I think we're in a pretty good position, quite honestly. So again, as I said before, not to be redundant, but I guess it will be. We'll be good portfolio managers, and we'll continue to be open to transactions if the price is right and the ability to execute is viable. But in the meantime, we're going to do the blocking and tackling that in the long term, gets you the result that -- results that you're going to want to see.

Ben Fowke :

You’re welcome.

Nick Campanella :

Hey, good morning, everyone. Thanks for the prepared remarks and taking my questions. Good morning. So I guess, you acknowledged in your remarks, there's been some twists and turns and some regulatory volatility in '23. You had some headwinds that you highlighted from the FERC order on taxes, the Oklahoma rate order, among a few other items. But just the 6% to 7% has been pretty resilient and unchanged this entire time. So can you just maybe help us all understand just what's kind of allowing AEP to absorb these issues and where the offsets have been kind of in the 5-year plan that allows you to continue to reaffirm?

Chuck Zebula :

Yeah. No, Ben, as you said, it's underpinned by the $43 billion 5-year capital plan. I'd also point to what Ben made an observation as a board member and in his opening remarks about our O&M. There's a chart in our deck that you can refer to, right? We've doubled the rate base of this company while basically keeping O&M flat over that entire 10-year period. I think that's a remarkable accomplishment and that's our plan going forward as we continue to grow this company and basically repurpose and reallocate O&M. I also talked in my remarks about the load opportunities. I tend to kind of take a measured approach to this. But we really are optimistic about the opportunities that we're seeing there. As I said, the commercial load growth is just amazing. And we're seeing some good opportunities in economic development activities in industrial as well. And then lastly, of course, underpinning that plan is improved returns. Right? We are not earning where we need to earn, and we need to have the regulatory execution and prudency reviewed to make sure, right, that we are hitting the mark there. So I think all in all, that kind of underpins the plan going forward.

Chuck Zebula :

Yeah. So I'll take the first question. Our 5-year plan is really based off the midpoint of the current year's guidance. And our plan is to grow basically on that midpoint between the 6% to 7% range with no real kind of ups and downs identified through there. I'll let Ben answer the --

Nick Campanella :

Thanks a lot for answering the questions today. I appreciate it.

Operator:

Our next question will come from the line of Carly Davenport with Goldman Sachs. Please go ahead.

Ben Fowke :

Well, I mean -- and I'll let Chuck -- this is Ben. I'll let Chuck augment what I'm going to say, which is pretty much what I said before. Transmission is a great asset. And we are, obviously, the largest transmission provider in the United States, and we like that position. We will be open to things that make sense that would do even better for shareholders. But we don't feel compelled we have to do anything. So I think that puts us in a better position as we move forward. Chuck, I don't know if you want to add to that.

Carly Davenport :

That's helpful. Appreciate that. And then, Chuck, probably for you, just a little bit of a shift in tone around the FFO to debt metrics as well for '24. Can you just talk about what we should expect relative to that 14% to 15% range for 2024 on FFO to debt and what the moving pieces are that you're kind of watching that could move you outside of that range?

Carly Davenport :

Got it. Thanks very much for the time.

Ryan Levine :

Good morning.

Ryan Levine :

Given the focus on people and processes, how long do you view the company's review of its regulatory strategy to take? And in that context, how is the new review different from how AEP has reviewed its regulatory strategy historically?

Peggy Simmons :

Yeah. I would just add -- and looking forward to working with Ben and talking through the regulatory strategy. We've had positive regulatory outcomes in 2023. And when we shared some of those earlier, there were some disappointments that we highlighted. But I would bring forth the legislative work that we have done, and that's going to help to address lag. We've done work that's going to help to remove some of the lag in Virginia with our biannual rate review for Virginia, where it was three years before. We're going to also look at improving on -- we said with Kentucky that it was going to be a two-step process, and we very much view that we had a constructive outcome in the order that we received earlier in January with the securitization. So we're going to continue to build upon that. I agree, we do have a talented team, and we're just going to keep moving forward, and I look forward, again, as I said, to working with Ben on ways we can continue to improve there.

Ben Fowke :

The biggest opportunity so far have been in Ohio and Texas. And in our forecast, for our 5-year plan, we have included the capital needed to serve those customers. If there is incremental growth beyond that, it would be an opportunity that we'd have to evaluate and figure out how we would smartly finance it. And meet the generation needs that come with it. Yeah.

Anthony Crowdell :

Hey, good morning, Ben. Good morning, Chuck. Hopefully, two easy ones, one for you, Ben, one for Chuck. Just, Ben, I don't know what kind of insight you could provide. But just -- if I think about the -- excuse me, 1% position that Icahn has taken and it seems that there's been some major changes in the board. I don't think that would be a big position that yet, I think, two voting seats and then a non-advisory seat. Just thoughts on what change in the Board that maybe to expand the board?

Anthony Crowdell :

Great. And then, Chuck, two quick ones. It looks like the equity timing had moved. I understand your questions to Carly earlier on -- you are targeting to above the 13% threshold, but I think the equity may be slid off of the near term? And then lastly, on earned returns, what type of improvement could we expect each year? And I'll leave it there.

Peggy Simmons :

Yeah. As it relates to -- for 2024, our ROE, we're projecting at 9.1% is what we're -- for our regulated segments. And we're going to continue to work on closing the gap, a lot of what I've already said earlier, just kind of building off with some of those legislative successes that we were able to have, reducing some of the lag from that perspective.

Chuck Zebula :

Thank you.

Sophie Karp :

Hi, good morning. Thanks for taking my question.

Sophie Karp :

Hi. Just a quick one for me. I guess like when you think about your jurisdictions, right? And the ones we've got constructive outcomes, regulatory and the ones where you got non-constructive outcomes. And how should we think about you allocating this increase in capital across these jurisdictions? Like, is there a strategy there to proactively reduce capital allocations to jurisdictions where you earned ROE just don't make a hurdle for what's attractive?

Peggy Simmons :

I would just say, yeah, I echo Ben's comments there on -- there's a certain amount of capital we need to continue to be resilient and meet the reliability needs of our customers. And as well as from a safety perspective. Those where we have really constructive outcomes, clearly, we know in I&M, we have the forward-looking test years. We're able to continue to have that capital to allocate there to meet what those needs are. And we just continue to look at what our outcomes are by jurisdiction.

Chuck Zebula :

Yeah, in Ohio and Texas, right? We're -- those are deregulated states. In our Indiana, Michigan territory, clearly, there would be opportunities for generation there to serve those customers.

Ben Fowke :

Thank you.

Paul Fremont :

Thank you very much. I guess first question would be on the '24 guidance. Does that continue to include contribution from the retail and the distributed resources as was sort of outlined at EEI?

Paul Fremont :

And then Chuck mentioned that the FERC decision is expected to have a $0.03 negative impact on '24. Is that going to be treated as operating EPS? Or is that going to be excluded as non-recurring?

Paul Fremont :

And then I guess the last question I have is, currently, there's a proceeding in Kentucky where, I guess, there's recommendations for potential disallowance of fuel and purchased power costs. I think there's also a fuel review that could take place or may be taking place in Louisiana. Can you give us, I guess, an update on what your expectations are and what's happening in those proceedings?

Paul Fremont :

Yeah. I think as part of that settlement on the renewables, there was, I guess, the ability of staff to do a review of the fuel?

Paul Fremont :

No, that's it.

Paul Fremont :

And last question for me. In terms of the 9.1% that you're targeting for this year, I think what type of an improvement do you see as being necessary in order to hit the 6% to 8%? I think in the past, you've talked about needing to improve the earned ROE as part of hitting your targeted growth rate?

Operator:

[Operator Instructions] Your next question will come from the line of Paul Patterson with Glenrock. Please go ahead.

Ben Fowke :

Yeah, I think so. It's -- the strategy is great. We just have to execute, and that's what we're keenly focused on, Paul.

Ben Fowke :

Well, let me just say I'm committed to stay as long as it takes. So no shortcuts. But I can't see it being shorter than six months, and hopefully, it doesn't take more than a year. But again, it's going to -- the process will take the time it needs to take to get the absolute right candidate in place.

Ben Fowke :

Yeah. I mean I think -- I mean I'm going to turn it over to the team, Paul, but the amount of load growth that we see in our jurisdictions, I mean that's a great opportunity, economic development that we can be a big part of, either helping to drive it or certainly providing the infrastructure to allow it. Those are great opportunities. And that's -- everybody wants that in all jurisdictions. But again, we're going to be -- very carefully listen to what our jurisdictions want and need and respond accordingly. Peggy or Chuck?

Chuck Zebula :

Yeah. And Paul, clearly, the data center load that we're experiencing is going to create an opportunity, right, to spread fixed costs, right, along a bigger base and improve the headroom opportunity there as well.

Ben Fowke :

Thank you. Thank you, Paul. I appreciate that.

Operator:

Today's conference will be available for replay beginning approximately two hours after the conclusion of this call and will run through 11:59 p.m. Eastern Time on March 5, 2024. The number to dial to access the replay is 800-770-2030 and for international callers, 647-362-9199. The conference ID number for the replay is 9066570. This concludes today's conference call. Thank you all for joining. You may now disconnect.

Operator:

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power Third Quarter 2023 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Darcy Reese, Vice President of Investor Relations. Please go ahead.

Julia Sloat:

Thanks, Darcy. Welcome to American Electric Power's third quarter 2023 earnings call. It's good to be with everyone this morning. Before I discuss our third quarter performance, I would like to introduce our CFO, Chuck Zebula, who will walk us through the results today. Chuck has been with the company for 25 years and has a deep understanding of our business. He hit the ground running in his new role, and we're grateful for his leadership. Many of you are familiar with Chuck, and I'm confident that you enjoy working with him in the CFO role. I'm pleased to share that the execution of our strategy is on track. AEP is well positioned to deliver on a robust and flexible 5-year $40 billion capital plan with an emphasis on our generation fleet transformation and investments in our energy delivery infrastructure as we need our customer needs. While our industry continues to transform amid this dynamic environment characterized by more extreme weather, rising interest rates and supply chain constraints, AEP has continued to adapt and take thoughtful actions to stay our course. We're keeping the customer at the center of every decision we make, while also balancing and listening to our stakeholders who are critical to our success. This quarter, we made progress on our ongoing efforts to simplify and derisk our business profile through portfolio management, directing all proceeds of those efforts to the regulated business and to balance sheet management, which I'll speak to in more detail in a moment. We've also been working hard on the regulatory front. I'll provide insight into our success in the addition of renewable store portfolio and the many positive developments on regulatory and legislative initiatives. A summary of our third quarter 2023 business updates can be found on Slide 6 of today's presentation. AEP reported strong third quarter operating earnings of $1.77 per share or $924 million. We have a flexible business plan that allows us to deliver on our financial commitments while taking into account mild weather in the first half of the year and the higher for longer interest rate environment. As we actively manage the business today, we're narrowing our guidance for 2023 full year operating earnings to a range of $5.24 to $5.34 while reaffirming the $5.29 midpoint and our long-term earnings growth rate of 6% to 7%. Moreover, last week, we announced an increase in our dividend, which is consistent with our earnings growth rate and within our targeted payout ratio of 60% to 70%. In a few minutes, Chuck will talk about the support we have for our narrow 2023 earnings guidance range, which includes O&M management and positive load outlook as we drive economic development within our service territory. While our FFO to debt was 11.4% this quarter, we expect that this metric will improve materially by year-end and fall within the targeted rate of 14% to 15% in early 2024. Chuck will also touch on the short path to this balance sheet target. We continue to make progress in our efforts to simplify and derisk our portfolio. In August, we announced the completion of the sale of our 1,365 megawatt unregulated renewables portfolio to IRG acquisition Holdings, which resulted in after-tax proceeds totaling $1.2 billion. A summary of this sale can be seen on Slide 7. We've also made headway on some of our other asset sales that we previously discussed. A summary of this can be referenced on Slide 8. In May, we announced the sale of our New Mexico renewable development solar portfolio, also known as NMRD. The book value of AP's investment as of September 30 was $119 million. We're currently on track with our 550 joint venture partner, PNM Resources, as we target to close on this transaction in the late fourth quarter of this year or early first quarter of next. We expect to continue the noncore business sales processes we have underway as we enter 2024. The sales of our retail and distributed resources businesses were launched in August with book value of $244 million and $353 million, respectively, as of the end of the third quarter. We expect to reach a sale agreement in the first quarter of next year with an anticipated closing in the first half of 2024. In July, we announced the sales of Prairie Wind transmission and Pioneer Transmission, our noncore transmission joint ventures, as of the end of the third quarter, AEP's portion of rate base associated with these investments was $107 million. We expect to launch the sales process soon and close in 2024. Finally related to , while there are no new updates for now. We anticipate completing the strategic review by the end of this year. So please stay tuned. AEP portion of rate base for this particular investment joint venture was $348 million as of quarter end. Let me shift gears and provide you with an update on our regulated renewables investment plan. The teams remain focused and made solid progress. As you know, we have $8.6 billion of regulated renewables in our 5-year capital plan. We now have a total of $6 billion of the investment plan approved and an additional $800 million currently before commissions for approval with each of these projects providing valuable fuel savings for our customers. More detail on our renewable resource additions can be viewed in the appendix on Slides 32 through 34. As we've previously disclosed, both PSO's 995.5-megawatt renewable portfolio for $2.5 billion and SWEPCO's 999-megawatt renewable portfolio over $2.2 billion were approved earlier this year. At a collective $4.7 billion, these two portfolios alone comprise a large component of the approved $6 billion amount I just mentioned. Additionally, in APCo service territory, we're also pleased to report a positive development. In September, Virginia approved 143 megawatts of owned wind for more than $400 million, building upon APCo's existing 29 megawatts of wind and solar projects that were approved last year, which totaled approximately $500 million. Moving across our service territory to I&M, we filed to seek approval for recovery of two investment -- of investment in two owned solar projects totaling 469 megawatts, which represents $1 billion of total investment. We're making progress on this front as we received commission approval last month in Indiana for both the 224-megawatt May Apple and 245-megawatt Lake Trout solar projects. In Michigan the Commission approved May Apple back in August, and we'll decide on Lake Trout in the first quarter of next year. We also await a commission order expected any time now for the 154-megawatt rock balls wind farm at PSO for approximately $150 million. Importantly, our regulated renewables plants are aligned with and supported by our integrated resource plans. We have issued a request for proposals for additional owned resources at APCo and IM with more to come from other operating companies in the near future as we listen and learn and respond to state preferences. Now I'd like to turn to updates on our ongoing regulatory and legislative initiatives. We've been engaged in efforts across our service territory to close the authorized versus earned ROE gap. Our third quarter ROE came in at 8.7%, driven in part by the unfavorable weather in the first half of 2023 that I mentioned earlier, which depressed this measure by 40 basis points. While this is a modest improvement over the last quarter, we are aware that more can be done and more needs to be done on this front. Closing the gap will remain a primary focus into 2024 as we take federal state and customer preferences top of mind, along with meeting the needs of our communities. We remain focused on reducing the gap going into year-end, while still meeting our earnings guidance. To that end, I'm happy to confirm that we have settlement in place for APCo Virginia's 2020 to 2022 triennial and APO Ohio's ESP5, both cases which were filed earlier this year. we're awaiting commission decisions in these states and Virginia's orders expected in the fourth quarter of this year and Ohio will likely be issued in the first quarter of 2024. In addition, we filed new base cases in Indiana and Michigan in the third quarter. Both filings we requested -- in both on we requested a 10.5% ROE and taste drivers included distribution investment in technology, enhanced reliability and grid modernization using 2024 forecast and test years. We anticipate the new rates will be an effective next year. The team has been active on the legislative front in Texas -- with Texas legislation pass and June allowing utilities to file the distribution cost recovery factor mechanism or DCRF twice per year, sit of once per year. This legislation also allows the DCRF mechanism to be used by utility, even if it has a pending rate case for seating underway. Consequently, the legislation will help improve AEP's regulatory lag in Texas to the tune of approximately 50 basis points and earned ROE starting in 2024. In fact, our April 2023 DCRF filing was approved and rates went into effect in September. For Kentucky Power, our June 2023 based base application incorporated the comprehensive rate review, a 9.9% ROE and a request to allow for the securitization of $471 million of regulatory assets, ensuring Kentucky Power is best positioned to provide safe and reliable service while managing costs. Constructive intervener testimony was filed in October, including support for securitization. By statute, implementation of interim rates is permissible in January 2024. Moving to PSO, you'll recall that in May, we reached a settlement with the commission staff, the attorney general and other parties in Oklahoma's PSO base case, which included a 9.5% ROE and provided for approval for more efficient cost recovery mechanisms. We implemented interim rates in June while we await a commission order, which is expected any time now. As you know, the management of fuel cost recovery is a top priority with AP's deferred fuel balance across our vertically integrated utilities shrinking sequentially and totaling $1.2 billion as of the end of the third quarter of this year. We have worked with stakeholders to intentionally adapt our fuel cost recovery mechanisms across our jurisdictions with the objective being to balance cost recovery with customer impact. So West Virginia fuel proceeding is approaching resolution. Recall in our April 2023 fuel recovery application, we filed two options for consideration. One option amortizes the fuel balance over 3 years. In the second option, we have respectively set forth for the West Virginia Commission consideration, the use of the 2023 securitization legislation to manage our $553 million deferred fuel balance along with securitizing store cost balances and net plant balances of generation assets. The generation assets are currently embedded in rate and assume to operate through 2040 and securitizing those assets nearly fully offset the fuel cost recovery impacts to customers. We appreciate the engagement with all the stakeholder parties as we work toward a conclusion in this case by year-end and a constructive path for West Virginia. More detail on regulated activities can be found in the appendix on Slides 35 through 38. I'm pleased with the progress we've made this quarter and by the great work underway to actively manage the business, deliver on our commitments and create value for our investors, all while keeping affordability and reliability for our customers at the center of everything we do. We have a strong team in place, and I'm confident that we'll continue to execute on our strategic priorities and advance our capital investment plan to deliver reliable, affordable power to our customers. I look forward to seeing many of you in person at the EEI Conference in a couple of weeks. At the conference in Phoenix will provide some additional color on our business strategy, share our 2024 guidance and other financial details, including our 2024 through 2028 capital plan and related 5-year cash flows. Now with that, I'll hand it off to Chuck, we'll walk through performance drivers and details supporting our financial targets. Chuck?

Operator:

[Operator Instructions]. Your first question comes from the line of Nick Campanella with Barclays.

Charles Zebula:

Yes. No, thank you for the question. And look, I am absolutely embracing this opportunity that we have before us. It's very energizing to enter into a role like this. And although -- the AK did indicate that I'm committed to Julie and AEP to write this out as long as needed. And as long as I'm adding value right to the opportunity. So thank you for the question.

Charles Zebula:

Yes. Yes, thanks for both questions. So yes, our equity needs will be consistent, right, with what we have disclosed prior. I mean, clearly, we'll be updating, right, the years in the cash flow forecast, but expect no surprises there. . On to your second question, yes, we tried to highlight right, on the slide, the FFO slide, the major drivers that you can point to and see what is rolling out as outflow. But absolutely, right, in our financial models, right? It takes into account, right, the absence of that cash flow. So we do expect to be in those ranges.

Jeremy Tonet:

We've seen a bit of a regime change as it relates to interest rates out there, given the sharp moves recently. Just wondering if you could talk a bit more about that and how AP is able to affirm the 6% to 7% long-term CAGR there in what could be higher for longer interest rate environment? What impact do you see on EPS 2023? And kind of how do you think about offsetting those headwinds?

Jeremy Tonet:

Got it. That's very helpful there. Maybe kind of picking up on that last point there. I think on the last call, we discussed a bit -- or there's some questions regarding outreach to commissions and just building regulatory relationships across the jurisdictions. I'm just wondering if you can provide a bit more detail, I guess, on specific initiatives done so far, where do you see that going? How you see that kind of transpiring so far?

Jeremy Tonet:

Got it. And just to confirm, the plan is still for you to meet each of the commissions when you're able to do so?

Jeremy Tonet:

Got it. That's very helpful. And just the last one, if I could. The waterfall chart through 9 months in the presentation today, it was a bit different than, I guess, what we saw on EEI. Just wondering if you could walk us through some of the puts and takes, the drivers to this, and across the different segments and what do you see, I guess, in the fourth quarter that maybe narrows the gap or just kind of the different trends happening such as in vertically integrated with renewables as well?

Charles Zebula:

Yes. Sure, Julie. Look, the other thing is the O&M Management. As I mentioned during my comments, if you look at Slide 16, right, you'll see that O&M is a drag two through three quarters, right? We expect that to completely reverse itself for year-end and actually have a net positive on O&M year-over-year, meaning that the fourth quarter will have a substantial difference in O&M versus last year.

Jamieson Ward:

It's Jamieson Ward on for Shar. Looking at your new FFO to debt pass side, could you give us a sense on what if anything could cause any potential slippage like the deferred fuel recovery? And what might dictate you being at the bottom or the top end of that 14% to 15% in 2024? I know you talked previously about being at the midpoint by the end of the year. But since we've got an updated disclosure here, I just wanted to ask that again here.

Jamieson Ward:

Got it. And one more from us. On load growth, what's driving the large -- I know you mentioned data centers, but -- if you could just talk a bit more about what's driving the large increase for the guidance this year? And then more specifically, as we think about the updated capital plan, which you'll be providing, just directionally, should we expect this higher load growth to be a driver of capital growth opportunities?

Charles Zebula:

You mentioned that the drive your capital forecast. And of course, the new data centers, of course, require capital to hook those customers up. We do have what is known and customers that are coming into our capital forecast going forward. And there are lots of discussions otherwise, right, in our economic development activities. But everything that we know of and its firm is in our capital forecast.

Julia Sloat:

No, I appreciate the question so much. Yes. That trend, we expect that to continue. I mean you see the fluctuation a little bit in the commercial segment up in the upper right quadrant that slide I mentioned earlier. We have projects in the Q so you kind of see those ebb and flow, but you're right the infrastructure is in place today the pending or incoming request for additional capacity from our customers. So that customer touch point or our economic development team is incredibly important because that allows us to not only have confidence around what our forecast is, but it also drives what the CapEx program needs to be. yes, we think that, that's going to continue, and we will keep a keen eye on that in particular because the infrastructure gotten be there. We got to make sure that we're communicating with our customers that they know exactly what the appropriate and realistic time line is for them to enter into our service territory so that the infrastructure is there because it's not something that's done overnight. So I appreciate that question so much because it is a fine orchestration that absolutely has to happen. .

Carly Davenport:

Maybe to start, as we just think about the moving pieces on cash sources going forward, could you talk a little bit about how the asset sales processes are progressing in terms of interest that you're seeing but ask. And then on the timing side, it seems like a little bit of a narrowing of the time frame for NMRD. But anything else on the timing side that you highlight?

Charles Zebula:

Yes, you did ask a question, I do want to address, right, what's the data asking, of course, we're not going to reveal anything like that in a public forum, but we are pleased with the response we received in some of the early results. that are indicative of course, but the process kind of goes on. Greg Hall and his team are leading that effort. There are in the queue remaining this year the typical process of management meetings and moving on to final bids either late this year or early next year. So the reality is, right, that's going to take some time to progress. I expect to complete that in the first half of next year. and the other sales processes are just shortly behind that.

Charles Zebula:

Yes. So that's a good question. I can tell you what the discussion amongst the executive leadership team here are really focused on prioritizing O&M spend and spending both capital and O&M dollars that benefit and provide value to our customers. So we're really targeting the prioritization. We'll be giving guidance on O&M for next year in our waterfall at EEI, but expect us to be conservative, right? We're going to manage O&M to the levels, right, that are needed to run our business, right, but begin to eliminate things that are what we may consider to be discretionary going forward. .

David Arcaro:

I think thanks again for the disclosure around the [indiscernible] into the first quarter of 2021, and you've touched on this a little bit, but I was just wondering how you see that metric track after that point from getting to the range as a stable to rising from there and kind of staying within the target range going forward when you look at the core business outlook?

Operator:

Your next question comes from the line of Anthony Crowdell with Mizuho.

Charles Zebula:

Yes. So Anthony, I talked to all three rating agencies since it's coming in and as well as our treasury team obviously talks to them all the time. I don't think the S&P move to negative outlook was a particular surprise, given the downgrade threshold and are rating a split, right? They're at a higher rating, right, than Moody's and Fitch currently. So it wasn't a surprise. We continue to work with the agencies to explain our business risk because we think as we continue to execute on exiting the unregulated businesses, our business makes sure to improve. And they should begin to reflect that in their evaluations. So not a surprise. If and when it is downgraded, their ratings would be on par with Moody's and Fitch. .

Julia Sloat:

Yes, I appreciate that question. And let me just clarify the question as well right out of the gate here. To the extent that we've included securitization as an option, that does not assume an acceleration of coal plant closures, just to be very clear on that. We have those embedded in rates today going through 2040. So that is the current plan of thinking. So the idea of using securitization was entirely driven by how do we minimize the impact on customer rates. Period. And so that was the spirit of why we even contemplated the utilization of the securitization. And that second scenario option that I mentioned where we not only securitize the fuel, but we have, I think, a little bit of storm cost in there as well as those plant balances would effectively render customer rates neutral. So no impact, okay, de minimis. And then the other alternative was just a 3-year smoothing of those deferrals -- or those deferred costs. And that was to the two, I want to say it was maybe 12% increase in customer rates associated with that subject to check. So as far as our preference would be, our preference is to get it recover. Our preference is to be able to work with all the different stakeholders, which is precisely why we put out the different options and listen to the different stakeholders in the case just with complete appreciation sensitivity to the customers in West Virginia that the general median household income tends to be a bit lower than most definitely the national average, but even across AEP's footprint, it's lower. So we need to be incredibly sensitive to those wallets. As far as preference. Our preference simply is to work with it in the stakeholders and get it done. And as far as when we might be able to get that done, our expectation is that we get that done here in the fourth quarter. So tic tok, any time here, okay?

Andrew Weisel:

Good morning, everybody. Good morning. A lot of information already. So I've only got one less if you can clarify here. I want to ask about the three moving pieces between equity asset sales and CapEx. And I know you're going to talk about this at a couple of weeks, but my question is that if equity needs are generally going to be consistent, how do we think about how you'll finance incremental CapEx? You typically roll forward the CapEx plan, it tends to go up most years. It's currently $40 billion. Does that mean that cash proceeds from these asset sales should help to finance whatever upside there is on the CapEx plan? Or will you have additional equity until the asset sales are announced? How do you think about that bouncing act?

Charles Zebula:

No. Julie, I think your answer is -- I really can't add anything. I would just say, embrace the capital opportunity and sensibly and smartly finance.

Julia Sloat:

13% FFO to debt.

Durgesh Chopra:

Chuck will come the forward work with you. Just real quick on the FFO to debt metric. I just want to clarify the 13% to 14% target for end of this year. Are you assuming that Virginia fuel recovery that's resolved?

Durgesh Chopra:

Got it. So okay. So any sort of -- any incremental sort of cash flow bump from that would be accretive to what you show on this slide, right, even for 2014?

Durgesh Chopra:

Okay. Perfect. And then maybe just one quick -- one real quick -- what's the balance the total deferred fuel cost balance that hasn't been covered as of the Q3, I know the $1.4 billion as of Q2? .

Durgesh Chopra:

West Virginia roughly like $500 million, correct? .

Operator:

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Charles Zebula:

So we're going to lead into that PEI in about 7 or 8 days or 9 days, whatever it is. But the folks right at the management team, as I said earlier, is really on prioritizing the spend and spending dollars where it matters most to our customers. That's the most important thing we can do in our O&M budget will reflect that.

Charles Zebula:

Yes. So as you can see, right, the low growth in particular in commercial is pretty robust. Those numbers will be updated when we on the EEI. And as I said earlier, it's embraced the opportunity. This is a good opportunity for us. I think you have to be smart about it and kind of vet out what is real and what is a real load is going to come on. and plan your capital investment profile around that. So lots of activity, lots of discussions. Our economic development team is very busy talking and dealing with the opportunity.

Sophie Karp:

Can you please clarify, you mentioned that you could implement or that it's possible to implement interim rates in Kentucky in January? Do you actually intend to do that? Or how does it take sort of politically it would work out for you there?

Sophie Karp:

Got it. And then just a broad question, I guess. Is there any interest to approach state regulators in stake mechanisms to reduce weather volatility impact on your earnings. I know you're not decoupled in most of our jurisdictions. So kind of curious if you like that type of rate mechanisms or would you drive transition time to situation whether doesn't impact you earn that much.

Darcy Reese:

Thank you for joining us on today's call. always, IR team will be available to answer any additional questions you may have. Eric, would you please give the replay information?

Operator:

Ladies and gentlemen, thank you for standing by and welcome to the American Electric Power Second Quarter 2023 Conference Call. At this time, all parties are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded. I'd now like to turn the conference over to our host, Vice President of Investor Relations, Ms. Darcy Reese. Please go ahead.

Julie Sloat:

Thanks Darcy. Welcome everyone to American Electric Power's second quarter 2023 earnings call. Good to be with everyone this morning. It's a rapid time of change in our industry with new opportunities resulting from federal policy shifts and evolving state and customer priorities. We also continue to navigate a dynamic environment with rising interest rates and supply chain constraints. In short, it's definitely an exciting time to be at AEP as we make significant progress on our important stakeholder commitments and strategic objectives, including delivering on our 2023 operating earnings guidance and 6% to 7% annual operating earnings growth, providing dividend growth in line with earnings, strengthening our balance sheet as we move through the next few quarters, actively managing our portfolio, achieving net-zero by 2045 and central to our purpose, keeping our customer rates affordable. We recently made some organizational adjustments such as the restructuring of our Federal Affairs function, the realignment of our regulatory team, and the refreshment of some of our operating company presidents. These changes will help us to operate more effectively and facilitate our success in this ever-changing environment. As always, we keep the customer at the center of every decision we make. This is why we engage with our federal and state regulators so we know how to best support our operating companies while we balance investor preferences as we grow the business and invest $40 billion over the next five years in new generation resources and our energy delivery infrastructure. This morning, I'll provide a brief overview of our second quarter financial performance before getting into our measured and disciplined approach to simplifying and de-risking our business profile through our portfolio management activities. Related to this, I'll share some updates regarding our unregulated contracted renewables portfolio, retail and distributed resources businesses, and the status of our strategic review of our non-core transmission joint ventures. While we still have a lot of work to do on the regulatory front, I'll conclude by providing insight into the recent successes related to our renewables execution and developments on our regulatory and legislative initiatives as we keep our customers’ needs top of mind. A summary of our second quarter 2023 business highlights and a high level overview of our financial results can be found on Slide 6 of today's presentation. AEP delivered second quarter 2023 operating earnings of $1.13 per share or $582 million compared to $1.20 per share or $618 million last year. The year-over-year decline reflects the timing of higher interest rates in the reversal of last year's second quarter 2022 favorable weather. Today we're pleased to reaffirm our 2023 full year operating earnings guidance range of $5.19 to $5.39 with a $5.29 midpoint and long-term earnings growth rate is 6% to 7%. Given our line of sight at this point in the year, I believe we have the operational flexibility and leverage to pool to ensure that we will deliver on our commitment. Later on, Ann's going to talk or walk through our second quarter of 2023 performance drivers and share some perspectives on our load outlook as we drive economic development within our service territory. She'll also share some details supporting our targeted 14% to 15% FFO to debt range. While our FFO to debt is 11.1% this quarter, our forecasts show material improvement in this metric as we approach year-end and we fully expect to be in our targeted range in early 2024. As we continue to execute on our strategic objectives, we remain focused on simplifying and de-risking our business profile. To that end, you'll recall that in February of this year, we announced a signed agreement with IRG Acquisition Holdings for the sale of our 1,365 megawatt unregulated renewables portfolio. A summary of the renewable sale can be found on Slide 7. In the second quarter, we received FERC 203 approval and clearance from antitrust authorities. The only remaining approval is from the Committee on Foreign Investment in the U.S., which we expect to see receive in the near-term and subsequently close on the sale in August. As we've said, the proceeds from this transaction will be directed to our core regulated businesses and strengthening of our balance sheet. Turning to Slide 8, let's touch on some other asset sales that we have in progress. In May, 2023, we also announced the sale of our New Mexico Renewable Development Solar portfolio, also known as NMRD. We are currently on track with our 50/50 joint venture partner, PNM Resources to close on this transaction by the end of 2023. The sales of our retail and distributed resources businesses are also on schedule to close in the first half of 2024 as previously announced. Please keep in mind that other than the unregulated renewables portfolio proceeds of $1.2 billion, no other sales proceeds are reflected in our five year cash flow outlook. We’ll first obtain the signed sales agreements for NMRD and our retail and distributed resources businesses, and then incorporate the related proceeds into our cash flow outlook. As part of our commitment to portfolio management, I’m pleased to share some additional news with you today. We’re announcing that we’ve completed the strategic review of two of our three non-core transmission joint ventures and have determined that the sale of AEP’s interest in Prairie Wind Transmission and Pioneer Transmission as our preferred path forward. We expect to launch the sales processes soon and we’ll keep you updated on our progress. In the meantime, we continue our strategic review of Transource Energy and expect to complete that review by year end. Now let’s switch gears to AEP’s regulated renewables execution and recent successes. Through our five year $8.6 billion regulated renewables capital plan, we now have a total of $5.2 billion approved and an additional $1.7 billion currently before our commissions for approval. You can find more detail on activities to acquire additional generation resources in the appendix on Slides 31 through 33. In May 2023, the Oklahoma Commission approved PSO’s 995.5 megawatt renewables portfolio for $2.5 billion, which includes three wind and three solar projects. These projects are projected to be in service toward the end of 2025. For SWEPCO’s 999 megawatt renewables portfolio totaling $2.2 billion of investments, I’m happy to report that last month, both the Arkansas and Louisiana Commissions approved the full portfolio containing two wind projects and one solar project. We expect the projects will be going into service by the 2025 timeframe. Since the Texas Commission denied SWEPCO’s application related to these projects, Arkansas will move forward with the 20% of the portfolio total and Louisiana will flex up with 70% giving wholesale customers the remaining 10%. We’re excited to deliver the benefits of lowest reasonable cost and reliable energy to these communities we serve in Arkansas and Louisiana. We’re also currently awaiting for commission decisions expected as early as in the third quarter of 2023 for 151 megawatts of owned wind and energy storage at APCo, 469 megawatts of owned solar at I&M and 154 megawatts of owned wind at PSO. Importantly, our regulated renewables goals are aligned and supported by our integrated resources plans. Accordingly, we’ve issued requests for proposals for generation resources at APCo and I&M with more to come from operating companies soon. I’ll turn now to updates on several of our ongoing regulatory and legislative initiatives. More detail on our regulatory activities can be found in the appendix on Slides 34 through 36. We’re unquestionably focused on closing the gap between our authorized versus earned ROEs. While our second quarter ROE came in at 8.6%, this measure was depressed by 40 basis points due to mild weather. Closing this gap is going to take a little longer than we had anticipated in our 2023 guidance, which you may recall included a 9.4% ROE. But I’m confident that we’ll reduce this gap by year end and still meet our earnings guidance. As we make needed progress in this regard, we are continuing to prioritize federal, state and customer preferences to meet the needs of our communities that we serve. We look forward to building on our constructive relationships with all of our stakeholders and clearing the path for our operating companies to be effective and successful in their respective service territories. In fact, while being mindful of any ex-parte restrictions, I’m personally meeting with many commissioners across AEP’s footprint to engage in discussions about our company and what is top of mind for them in the way of priorities and expectations as we work together to do our best to provide this product that is the fundamental enabler for society. In June 2023, we filed a new base case in Kentucky to address the financial health of the company and established a path for future investment. The application incorporated a comprehensive rate review and a proposed 9.9% ROE with a request to allow for the securitization of $471 million of regulatory assets. This will help to ensure that Kentucky Power is best positioned to provide safe and reliable service, while managing costs to provide affordable service to our customers. We expect that the new rates will be in effect in early 2024. In May 2023, we settled PSO’s base case with the commission staff, attorney general and other parties in Oklahoma providing a path for approval for more efficient cost recovery mechanisms with continuation of the transmission tracker and reestablishment of a distribution tracker. While we await commission – a commission decision expected in the third quarter of 2023, we implemented interim rates starting in early June. For APCo Virginia’s 2022 – 2020 to 2022 triennial filed in March of 2023. We’re working through regulatory – the regulatory calendar and expect an order later this year. And Texas legislation was passed last month, which permits utilities to file the Distribution Cost Recovery Factor or DCRF twice per year instead of once per year. The bill also allows DCRF to be used by a utility even if it has a pending base case review proceeding. This important legislation will help improve AEP’s regulatory lag in Texas, as we make needed distribution investments to bolster the grid in this region. AEPs management of fuel cost recovery remains a top priority with deferred fuel balance at $1.4 billion as of the second quarter 2023. We’ve adapted fuel cost recovery mechanisms across most of our jurisdictions with a focus on balancing customer impact. Notably, we are awaiting a decision on our fuel case in West Virginia. Through this spring we were active at the state legislature and collaborated on a new securitization bill to provide an effective path forward on fuel recovery and other legacy costs while mitigating customer bill impact. In April, 2023, – in our April, 2023 fuel recovery application, we filed two options for consideration, one which amortizes the fuel balance over three years, and alternatively, in an effort to even further minimize cost impacts to customers, we requested West Virginia Commission approval to use securitization to manage our $553 million deferred fuel balance. We also proposed an opportunity within that second option to apply the securitization mechanism to $88 million of deferred storm costs and $1.2 billion of legacy coal plant balances with the intention of offering a solution that would essentially have a neutral impact on customer rate. Keep in mind; securitization is the mechanism we can use to address affordability in West Virginia. While it’s important that we addressed fuel and storm cost recovery in the state, let me be clear that the possible securitization of $1.2 billion for our Amos and Mountaineer coal plant balances is not required to hit our credit metrics, nor does it suggest that there’s a change in our current plant – our current plant retirement schedule of 2040 for these units. Rather, this is entirely driven by the desire to consider all options to mitigate impact to customer bills. The West Virginia Commission subsequently issued a procedural schedule in the fuel case, including the April, 2023 prudence [ph] report, which will be addressed in an evidentiary hearing beginning on September 5. This schedule provides an opportunity to ensure focus on cost concerns and a constructive future in West Virginia balancing customer and financial impacts. Pending the commission’s decision later this year, we could issue bonds to securitize a possible combination of the deferred fuel balance, deferred storm cost, and legacy coal plant balances in the first half of 2024. I’m pleased with the progress we’ve made so far. We still have a lot of work to do as we execute on our plans to meet our commitments, overcome challenges, reach our strategic objectives, engage with stakeholders, and keep customers a top priority. Together we deliver safe, clean, reliable, and affordable energy to our communities while creating value for our investors. With that, Ann will now walk you through our second quarter, 2023 performance drivers and details supporting our financial target. Ann?

Operator:

Thank you. [Operator Instructions] Give us just a moment here. And I can go to Shar Pourreza with Guggenheim Partners. Please go ahead.

Julie Sloat:

Good morning.

Ann Kelly:

Yes. Shar, I’ll take that. As we mentioned, the main impact to our FFO to debt is the timing of the collateral payment. So that’s about a 240 basis point impact to our FFO to debt, and so that should resolve itself by year end and result in a noticeable improvement. We also have about a 100 basis points of favorable impact from the proceeds of the contracted renewable sale and the equity unit conversion. So we are, confident that we are going to have measure improvement by the end of the year and be into the range by next year. In our forecast we don’t have any of the securitization in our cash flows. We do have recovery of deferred fuel, but that is not necessary to be able to get into our current range.

Julie Sloat:

Yes, no, Shar. I so appreciate the question. And you’re right, we have a lot of opportunity to put capital to work as it relates to taking care of the customer and delivering reliable, affordable service. But as you point out, we need to make sure that we’re hitting all the metrics too. So not only do you need to be real mindful of where customer rates are going, when we put money to work, I need to make sure that all my earnings growth targets are going to be hit. Because I think you guys would be upset with me if that didn’t happen, so we’ll make sure that happens. But I also need to make sure that my balance sheet’s really strong too. So let me get to your question around asset sales. We’ve really been focused on, as you know, the non-core related activities that when people buy AEP shares or invest in our bonds, they’re not necessarily looking to buy something that is not a traditional regulated utility type business. So to that end, that’s why you see us kind of going through the paces today where we’ve talked about the unregulated components of our business and, while we love transmission even looking at some of these transmission investments of the joint ventures that are off our footprint, because if we can channel all of our efforts and dollars to taking care of our customers that are regulated in our footprint, that’s where we want to play. So, I wouldn’t anticipate, a significant additional activity coming from us for a couple of reasons. I think we’re pretty cleaned up once we get some of this non-core stuff taken care of. I think we’re in a good place. I think that, there may be some opportunities, on the edges, but for the most part we’re – we should be in a really good space to be continuing to look at the regulated pieces of our business. But we also and very candid Shar, we don’t need to engage in asset sales to make the balance sheet work. What we need to do is make sure we’re being as efficient as possible, and that’s another reason why I want to make sure that every dollar we do put to work is one that a, makes sense for our customers, but also is something that makes sense for our service territories. And specifically why I am calling that out is another reason why I’m out talking with folks in our community. So whether its commissioners, customers, et cetera, need to make sure that we’re aligned or at least absolutely aware of one another’s priorities and then we can make refinements based on those conversations. So, I would never say that we’re not at all capital constraints because I think we naturally are because we put our own constraints on because we got to take care of customer rates and make sure that we’re going to have a really strong balance sheet. We’re working on that. As Ann just mentioned, we expect that FFO to debt to look a lot better once we get to year end and going into 2024. I think in the interim here, it’s going to be just a little bumpy as we work through a couple of the next few months. So I wouldn’t be too concerned about that. I feel comfortable with the numbers I’m seeing, but we’ll continue to be very disciplined around, which dollars we put to work where that it’s consistent with what our stakeholders need and want taking care of our customer and then just being as efficient as we can. So my focus is going to be more at this point on let’s close that gap on the ROE. That’s the piece that I can try to do my best to control.

Julie Sloat:

Yep. Thank you for the coverage.

Jeremy Tonet:

Hi, good morning.

Jeremy Tonet:

I wanted to kind of follow up on some of the points that you were just touching on here because, some of the dockets and local media attention have highlighted some regulatory pushback in certain areas of ablate, and you mentioned, reaching out to local commissioners to build relations there. Just wondering over what timeframe, you expect to kind of meet all of them? Is this a change in regulatory strategy where they hear from headquarters more regularly here? Just wondering how you think about this type of outreach going forward?

Jeremy Tonet:

Got it. That's very helpful. And just one more along these lines, dialing in a little bit more. In Kentucky, our local stakeholder conversations highlight a focus on increased distribution investment as a priority as opposed to the more recent, I guess, transmission investment which could help local stakeholder relations there with a focus on distribution. Just wondering how you see a Kentucky strategy evolving over time here?

Jeremy Tonet:

Got it. So there's room to pivot towards more distribution over transmission. Sounds like you're working with stakeholders there?

Jeremy Tonet:

Got it. I'll leave it there. Thank you very much.

Operator:

And next, we'll move to Anthony Crowdell with Mizuho. Please go ahead.

Julie Sloat:

You bet.

Ann Kelly:

Yes, absolutely. Thanks for the question. So it has inched up, as you can see on the graph. I mean, 60% is our sweet spot and that's what we're targeting going forward. As you can see, we're above that right now. We do expect that to decrease with the contracted renewable sale proceeds and also the equity unit conversion. So that's a couple hundred basis points, that'll reduce that closer to the 60%, but we still have some work to do.

Julie Sloat:

Yes, I mean, I would say we're going to be, we say we're going to be in the target in 2024 and I think approaching the midpoint probably by the end of 2024. There are the fluctuations as I mentioned in FFO that we're experiencing. And that's just really due to timing of quarter-over-quarter fund flows. And so, you will see especially in 2023 that it will be press till the fourth quarter when we really see that switch in the collateral collections and improving our FFO there, so that's what's going to take some time. But we do expect it to increase, like I said, materially by the fourth quarter and then into next year. And Anthony, just to put a little finer point on it too, remember, our threshold that we're sensitive to is 13% as it relates to our Baa2 rating from Moody's. And so that's why we toggle to the 14% to 15% because what we want to have is cushion. So 14% definitely gives us some cushion, so keep that in mind as well. And the other thing I mentioned in my comments too is as we proceed through the rest of this year, you can expect maybe a little more pressure as we go through the next couple of months with some improvement as we get to the fourth quarter. Just want to manage those expectations.

Anthony Crowdell:

And then just lastly, Julie, I appreciate all the commentary you've given on the regulatory strategy and especially Kentucky. And I know Kentucky's a very small piece, but when you look at the equalizer chart, I mean the ROE is pretty low. What’s a reasonable assumption for us to use? Where that ROE could go in 20 – by 2024? I mean, does that go to an allowed of 9.9%? I’m just curious, how long does it take to recover the regulated returns of the utility?

Anthony Crowdell:

Great. Thanks so much for taking my questions. I really appreciate it.

Operator:

And we can go to Julien Dumoulin-Smith with Bank of America. Please go ahead.

Ann Kelly:

Yes. I mean, what I’ll do is I’ll start with kind of addressing the 2023 earnings guidance question. As you look, we’re $0.18 below prior year and we guided to year-over-year for the full year it’s about $0.20 improvement. So that’s $0.38 that we need to outperform last year for the second half of the year. When I look at this, I think it’s helpful to break it down into components. So weather was $0.29 over 2022, about $0.20 of that impact is versus normal. And that’s where we’ve taken some action to offset those headwinds. Interest also is about $0.29 unfavorable year-to-date. It’s running a bit above expectations. We had guided to $0.20, but that also didn’t include interest on Kentucky, because we had expected to sell the business. So that’s about $0.10 per year and that’s covered in revenue. So we had anticipated much of our year-over-year increase to be in the first half of the year because of the timing of the Fed actions. So while we are a little bit short coming into the back half of the year, we also have the proceeds from the contracted renewable sale and equity unit conversion that’ll help reduce our debt somewhat. And we’ve taken other actions to offset the increase in rates because it has been – the Fed has been tightening a little bit longer. When you look at O&M, unfavorable to last year in the first half, but we expect this to reverse due to timing of our O&M spending. Our original guidance planned for reduction of O&M during the second half of the year because last year’s spending was a little bit robust on the O&M side in the back half. And so we had already anticipated a reduction and then we’ve taken additional actions like those that I’ve mentioned to be able to make up for the reduction in weather volumes. And then lastly, there’s a couple other things that we’re pointing to. One is the favorable trends in commercial load that we expect to continue. And then we’ve also seen favorable results in our generation and marketing business that’ll benefit us this year. So, putting that all together that what give us the confidence and our ability to meet our earnings guidance for this year. In terms of maintaining the 6% to 7% EPS growth going forward, it’s really a story on our capital deployment and we have a very robust capital pipeline that allows us to do just that.

Julien Dumoulin-Smith:

Got it. All right. Excellent. And then if I could follow-up briefly on a couple details. Just with respect to PSO, obviously dynamic situation with the ALJ and settlement, can you talk a little bit about your expectations here and maybe about what you had been planning in interim rates? Just ultimately what happens, how you’ve been planning, what’s reflected in rates? If you don’t mind a little bit of an update there.

Julien Dumoulin-Smith:

Duly noted. Thank you. All right, I’ll leave it there. Good luck guys. Speak to you soon.

Operator:

Next we’ll go to David Arcaro with Morgan Stanley. Please go ahead.

Julie Sloat:

Good morning.

Julie Sloat:

Yes, absolutely. Yes. So we did file for rehearing, because we need to make sure that we’re doing all we need to do from a traditional regulatory and administrative perspective. And then what you can anticipate AEP doing is essentially running another RFP and running another process so that we can make sure that we’re doing what we need to accommodate the capacity situation in Texas. I do believe that Texas understands there is an adequacy issue that we would otherwise have to deal with. So that’s something that we will be proceeding forward with. So standby and you’ll see what we come to the street with here in the not too distant future.

Julie Sloat:

Yes, that’s a possibility. That’s a possibility. But what we would do is, accommodate any type of investment in the current CapEx forecast.

Julie Sloat:

Yes, and actually I’m trying to flip the page so we can kind of draw everyone’s attention to them. Right now, I’m looking at Page 32. So for example, we’ve got an application open in Virginia and we made the same filing in West Virginia. For Appalachian Power Company, we’re talking about 151 megawatts, about a $500 million investment for wind and storage capacity there. At this point the process is proceeding along as we would expect. So, I have nothing new to report. So, standby there. And trying to think of where else we have open cases in Indiana, Michigan. Looks like staff has been supportive on the Michigan side, through those applications. And Indiana order is expected in 3Q, so the third quarter of this year. So stay tuned there as well. But so far constructive and productive and we’re moving forward. Then of course we also have, I guess I should call out the wind out – the Wind investment Rock Falls that’s included in the base case at PSO. But that’s part of the base case settlement. So as you know, I just mentioned that we’re well underway in that proceeding.

Julie Sloat:

Thank you.

Sophie Karp:

Hi. Good morning and thank you for taking my questions. I have a couple of questions here. First is on the renewables, right? So clearly Texas maybe has lesser appetite for renewables at this point. And I’m just curious if you how much of the incremental appetite for this do you think is left in Louisiana and like other states that picked up slack in this particular instance? Is there risk in the near term, I guess in your mind, that those states would also turn down potential future proposals because of their perception that they have? They’re pretty much like full as far as renewable generation goes.

Ann Kelly:

Yes. And just to reiterate on our capital plan, so far $5.2 billion of projects have already been approved and we have another $1.7 billion that, that Julie just talked about in the regulatory process that’s out of our $8.6 billion. So we are well on our way and we also have flexibility with our transmission and distribution investments to fill in to the extent that anything else gets delayed a little bit in the process with these RFPs.

Ann Kelly:

Yes. That 40 bps is on average. Okay. So let me answer it this way though, because when I’m thinking about what does this mean for the rest of the year, and as I mentioned in my opening comments, we had initially anticipated or expected on a weighted average basis. We'd be about a 9.4% ROE across our operating companies in our 2023 guidance. And so now what we're suggesting is now that we have a little bit of a hole that is associated with weather on that ROE can't make all that up, I don't think, unless we had some ridiculous weather circumstance in the back half of this year. So we're not going to bet on that because we're going to bet on normal. And so what I would expect is we expect to improve from 8.6%, it will not get to that 9.4%. So even if you get closer to 9%, I think that's reasonable. And our point that we want to make today is despite the fact that we've had pressure as a result of weather, we're adjusting the sales and we fully well expect to be within our guidance range. And so that's the important key to take away today as it relates to our messaging. Then with also the understanding behind the scenes we just need to fundamentally do our very best to make sure we're earning as close as possible to those authorized ROEs beyond the weather situation.

Julie Sloat:

Yes.

Julie Sloat:

Weighted average. Yes.

Julie Sloat:

Thank you. You bet.

Operator:

And next we go to Paul Patterson with Glenrock Associates. Please go ahead.

Paul Patterson:

[Indiscernible] I'm managing. So just – most of my questions have been answered. Only I have a question for you that's a little bit different and that is the Chevron's defense. It looks like that know that the Supreme Court might act on it. And I'm kind of scratching my head and I was thinking what you guys might be thinking about what might happen if in fact, the Chevron doctrine or whatever you want to call it is substantially changed or were repealed or what have you. Do – have you guys thought about this or I'm sure you've thought about it, but any ideas about what you think that might mean for you guys on the ground?

Paul Patterson:

Okay, sure.

Paul Patterson:

It was my first question, but the rest were answered, so thanks so much and I'll follow up with you guys later.

Paul Patterson:

Okay, great. Thank you

Paul Fremont:

Thank you very much. I guess my first question is if you were to get the securitization proceeds, does that change the equity issuance plans that you lay out on Slide 28?

Paul Fremont:

And then my second question sort of related is if you were to get incremental CapEx, what percent should we assume would be equity funded versus let's say debt funded?

Paul Fremont:

Great. Thank you very much.

Operator:

[Operator Instructions]

Operator:

Certainly. Thank you. Replay will be available after 11:30 today and running through August 4 at midnight. You can access the AT&T replay system at any time by dialing 1-866-207-1041, and entering the access code 1289635. International parties may dial 402-970-0847. Those numbers again, 1-866-207-1041 and 402-970-0847 with the access code 1289635. That does conclude our call for the day. Thanks for your participation and for using at AT&T teleconference. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to American Electric Power First Quarter 2023 Earnings Conference Call. At this time, your telephone lines are in a listen-only mode. Later, there will be an opportunity for questions and answers. [Operator Instructions] As a reminder, your call today is being recorded. I'll now turn the conference call over to your host, Vice President of Investor Relations, Darcy Reese. Please go ahead.

Julie Sloat:

Thanks, Darcy. Welcome everyone to AEP's first quarter 2023 earnings call. It's good to be with everyone this morning. Our direction and strategy remain on track with an emphasis on our generation fleet transformation and continued investment in our energy delivery infrastructure, which is all embedded and our five-year $40 billion capital plan. I'll start with an overview of our financial performance for the first quarter before discussing our Kentucky operations following the termination of our transaction with Liberty. I'll then provide some updates on our unregulated contracted renewable sale, retail business review and other strategic plans before closing with some insight into our progress on the regulatory and legislative front as we work to implement important new initiatives to ensure our customers and communities' needs are met and continue to come first, which you know enables us to deliver on our financial stakeholder commitments as well. A summary of our first quarter 2023 business highlights can be found on Slide 6 of today's presentation. We have a long-standing history of consistently delivering on our strategic objectives, and we're pleased to share that this quarter is no different. Turning to a high-level overview of our financial results. I can tell you that AEP delivered first quarter 2023 operating earnings of $1.11 per share, or $572 million. Weather this quarter ranked as one of the mildest in the past 30 years resulting in an unfavorable impact of first quarter results. Despite this, our thoughtful and disciplined approach to managing the business enables us to reaffirm our 2023 full year operating guidance range of $5.19 per share to $5.39 per share, and with a $5.29 per share mid -- $5.29 per share midpoint and long-term earnings growth rate of -- growth rate range of 6% to 7%. We're confident in the built-in flexibility we have in our business to ensure that we successfully deliver on our financial commitments and continue AEP's strong track-record of financial performance. We're also pleased to report that AEP has experienced minimal financial and operational supply chain impacts to-date, primarily due to our successful efforts to diversify our mix of suppliers and increase our order quantities to minimize the impact on our robust capital investment plan. Ann I'll walk through our first quarter performance drivers and share some perspective on our positive load outlook, as we continue to drive our economic development and service territory expansion. She'll also review the drivers to support our targeted 14% to 15% FFO to debt range. While our FFO to debt is at 11.4% this quarter, I am confident this metric will improve materially by year-end. As I mentioned to you on last quarter's call, simplifying and derisking our business profile is one of our top strategic priorities. By actively managing our portfolio and demonstrating a clear commitment to a disciplined execution of initiatives and transactions, we continue to deliver significant benefits to our stakeholders. Actively managing our portfolio also means staying flexible and being ready to change our focus and adapt our strategy when it becomes clear that certain transactions or initiatives may no longer be viable. A few weeks ago, our team was faced with this very challenge. On April 17, we announced the termination of the sale of our Kentucky operations to Liberty. Ensuring the best outcome for stakeholders remains our top priority and we took a disciplined approach to evaluating the continued pursuit of a sale and what that would mean in terms of economics, regulatory expectations, timing uncertainty. We ultimately determined that the better outcome was to terminate the pending sale transaction and to continue our work to develop a clear strategy for our Kentucky operations. I'm thankful for the team's ability to react and adapt to shifting circumstances for the long-term benefit of our customers, employees and investors. After the termination of the sale, AEP met with the Kentucky commissioners and key stakeholders. We discussed Kentucky Power's future and the collaboration needed so that we may continue to serve our customers in a reliable manner while ensuring the financial health and discipline of Kentucky Power moving forward. In the near term, we're renewing our focus on the region and support -- and our support of the communities we serve. You'll see in the earnings call materials today that Kentucky Power's earned ROE for the 12-month period ending the first quarter of 2023 is 2.9%. This does not reflect a financially healthy utility, which needs to be resolved in consideration of the interest of all stakeholders. The underperformance is due in part to a number of unique issues that are and will be addressed for improvement over the course of the next year. As we think about the opportunities ahead for our Kentucky operations, the actions we will be engaged and include a refocus on economic development, enhanced local system reliability, and controlling customer cost. We plan to file a base case in Kentucky in June with an expected six-month commission approval process, with new rates taking effect in January 2024. Other factors that will be beneficial in improving the financial profile and performance include using securitization to recover deferred storm costs and legacy generating plant balances and rightsizing the rate base. While we pivot in Kentucky, we're focused on the successful execution of other key transactions. In February 2023, we announced an agreement with IRG Acquisition Holdings for the sale of our 1,360-megawatt unregulated renewables portfolio. A summary of the renewable sale can be found on Slide 7. All regulatory filings were made in March, and at this time, we're waiting on approval from FERC under section 203 and clearance from the Committee on Foreign Investment in the United States and Euro Antitrust. We already have cleared Hart-Scott-Rodino approval and China Antitrust. Consistent with our prior messaging, we expect the sale to close near the end of our second quarter 2023 depending on the timing of regulatory approvals. The proceeds from the transaction will be directed to our regulated businesses as we transform our generation fleet and enhance the electric delivery infrastructure. Furthering our commitment to simplify and derisk the company, and summarized on Slide 8, we've agreed with our joint venture partner PNM Resources to sell our portfolio of operating and developing solar projects in New Mexico. This 50/50 partnership is known as New Mexico Renewable Development, or NMRD. And we hold this within our unregulated operations portfolio, AEP. NMRD owns eight operating solar projects totaling 135 megawatts, 150 megawatt project currently under construction and six development projects totaling 440 megawatts. Last week, an adviser was selected to move forward with the sale process. We anticipate making a sale announcement early in the fourth quarter of this year and will target closing by the end of 2023, subject to timing of regulatory approvals. We also have some news to share with you today. As you know, in October 2022, we announced the strategic review of our AEP Energy retail business, which primarily operates in the PJM markets. We've completed that strategic review and decided that we will start a sales process for that business and will also fold into the process AEP OnSite Partners, which is our unregulated distributed resources business. We've hired an advisor to move forward, and we'll keep you updated on the progress. We expect to launch the sale process sometime this summer, and we'll update you with the details along the way, but currently expect the completion of this transaction in the first half of 2024. We're focused on our core regulated utility operations and continue to evaluate all value additive potential activities to enhance their performance and look for opportunities to recycle capital. As a consequence of this effort, we've decided to pursue a strategic review of three of our non-core transmission joint venture businesses, including AEP's interest in Prairie Wind Transmission, Pioneer Transmission, Transource Energy. These businesses total approximately $551 million in net plant investment for AEP and consists of 370 line miles and four substations of in-service assets, as well as various projects under development in PJM and SPP. We'll definitely keep you posted on our -- or updated on our progress, but we expect to complete our review by the end of 2023 with a conclusion that consists of remaining in or divesting some or all of the businesses. So, let's switch gears and talk about AEP's regulated renewables execution. I'm pleased to share that we continue to make significant progress on our transition to a clean energy economy that provides more stable and predictable cost to our customers. Through our five-year, $8.6 billion regulated renewables capital plan, we have a total of $6.7 billion approved or before our commissions. Most recently, in March to be specific, we made regulatory filings for $1 billion of investment at INM, representing 469 megawatts of solar energy and another 151 megawatts of owned, wind, storage at owned and -- owned, wind and storage at APCo for $466 million. Public Service of Oklahoma Company along with other parties filed a settlement in early April of 2023 in the fuel-free power plan case, which relates to PSO's 995.5-megawatt solar and wind portfolio for $2.5 billion. Like, in any other negotiation, this settlement we focused on the assurance of customer benefits without undue risk to the company. In this case, the settlement provided crucial capacity without fuel expense that'll help address PSO's large capacity need. The case took a positive step forward last week when the judge issued a preliminary opinion approving the settlement on April 27, and the commission has a case on its agenda for today, May 4. For SWEPCO's 999-megawatt renewables project, which represents a $2.2 billion investment, parties recently filed an Arkansas settlement in January for these owned, wind and solar resources. In another positive development in Texas, the administrative law judge that oversaw the evidentiary hearing issued the preliminary order which recommended project approval. And in Louisiana, we reached the settlement, however, we were disappointed that the Louisiana Commission did not approve the settlement on April 26, but we remain optimistic that the matter will be reconsidered at the next meeting this month. We look forward to the continued consideration in Louisiana and orders coming in Arkansas and Texas in the second quarter. It's important to note that our regulated renewables goals are aligned and supported by our integrated resource plans, focused on reliability and customer affordability. In accordance with these plans, we have requests for proposals issued or preparing to be issued for additional resources at each of our vertically integrated utilities. We plan to make related regulatory filings over the next year while taking into consideration commission preferences from previous RFP processes. Now, let me provide an update on several of our ongoing regular and legislative initiatives. We're focused on reducing our authorized versus ROE gap. Have some work to do on that as our ROE was at 8.8% this quarter, driven in part by the unfavorable weather conditions that I mentioned earlier. On the effort to close the gap, I am happy to report that we reached the settlement and gained commission approval in January 23 -- 2023 that closed out our SWEPCO Louisiana base case. A key to this case was the ability to reset rates and recover costs under a formula rate plan. And we have already put this into action as we filed under this provision last month. Similarly, in April, AEP filed a formula rate review in Arkansas, which was authorized by that commission in the last base case. As we advanced through 2023, the team is actively pursuing rider recovery of the 88 megawatts of the Turk plant not currently in Arkansas rates. And the current base case in Oklahoma is set for hearing on May 9. So, we're making progress on the regulatory front. We also worked closely with our stakeholders on the legislative front in Virginia to improve the former triennial rate case process. The new biennial rate process became law in April after active -- after an active legislative session, APCo filed its last triennial in March of 2023 for the 2020 through 2022 period. The new law will require APCo to file its first biennial in 2024 with the biennial continuing in subsequent two-year period. So, it's going to work like this. The pending triennial will put rates in place for 2024 while we litigate the biennial in 2024 for rates effective in 2025, and we can help you with your modeling needs once we get a little further down the line here. Pivoting to our fuel cost recovery efforts for a minute. Our management of fuel cost recovery is a top priority for us with our total deferred fuel balance at $1.6 billion as of our first quarter. We adapted our fuel cost recovery across all of our jurisdictions with a focus on balancing customer impacts. In Texas, the commission approved the $83 million special fuel surcharge filed in October of 2022 and was being recovered subject to review since February 2023. So, making progress there. We are aware of the staff prudence filing last Friday, April 28 in West Virginia that recommended a disallowance of certain fuel costs. The recommendation was rooted in the commission's prior reference to a 69% capacity factor at our coal facilities. Prudence review is a report produced by an outside consulting firm hired by the staff. The report relies on factors beyond AEP's control and takes issue with some of the practices taken to ensure that our power plants would have fuel available to provide electricity during the peak winter period. Those in the area are very familiar with how the historic swing of fuel cost over the past two years placed extreme pressure on the system and fuel recovery mechanisms. We advocated for the securitization legislation that recently passed in West Virginia knowing it provided an effective path to deal with those issues. In line with this strategy, APCo made a filing on April 28 seeking West Virginia Commission approval to utilize the new securitization tool to pay off the $553 million deferred fuel balance as February 28, 2023. The filing also proposes to apply the mechanism to certain storm costs and legacy coal costs in a manner that minimizes cost impacts to customers while still addressing these historical costs. Related to the consultant's prudence recommendation, the new APCo filing also lays out the environment APCo was operating in over this volatile fuel time or time in fuel cost and the actions taken to ensure coal would be available on the most extreme days on the system. Our plan is to collaborate with the commission to address customer and deferred fuel concerns together for constructive path forward in West Virginia. After receiving the commission approval, the plan would be to issue bonds to securitize a combination of deferred fuel balance, deferred storm costs, and legacy coal plan balances in the amount of $1.84 billion in the first half 2024. So, wrapping it up, I'm pleased with the progress we're making, capitalizing on our momentum from 2022. We continue to deliver on our commitments and execute against our strategic objectives. We're taking a thoughtful and disciplined approach to simplify and derisk our business and investments we make to support our positive earnings growth and outlook. I proudly lead a team whose experience and expertise have made it possible for AEP to lay new groundwork for future success while also responding and adapting to the rapid changes we're seeing in our industry. Together, we're delivering safe, clean, affordable, and reliable energy to our customers and communities, all while creating values for our investors. With that, Ann -- I will ask her to now walk through the first quarter performance drivers and provide us with some details on our financing targets. So to you, Ann.

Operator:

Thank you. [Operator Instructions] Our first question will come from the line of David Arcaro with J.P. Morgan. Go ahead.

Julie Sloat:

Yeah, thanks so much. Appreciate the question. As we continue to talk about simplifying the business, I wouldn't necessarily put the transmission strategic review of the JVs as a derisking, because we are very comfortable with the risk profile of transmission, JV or otherwise. So that being said, this is more about simplification and really focusing on our ability to deal with customers in our footprint. So, nothing wrong with these assets. We love the assets. But we'd really like to take those dollars and channel them toward the traditional core utility business and transco utility business we have at American Electric Power. So -- and why Transource and Pioneer and Prairie Wind? Again, those are outside of our traditional footprint that we have today. ETT is a little different, and it is not necessarily under currently -- or not under current review at this point, as we focus on these pieces that are outside of our footprint. So, we'll see how this goes as far as utilizing any proceeds that we would have from a sale transaction should that occur. Again, this is a strategic review. We haven't made any decisions yet. What you should expect us to do is the same thing we've been talking about, dollars get channeled to traditional investment in the regulated utility operations. Clearly, have a lot to do on the transmission side. But when you bring dollars in the door, our expectation is to maintain a very healthy balance sheet. We've got a little bit of work to do. Ann talked about that in her opening comments. The metric should heal by the end of the year. So, we feel confident in that regard. But going out further in the timeline, we would always look to make sure the metrics are good. And then if we can, responsibly reduce equity issuances in future periods. But again, strategic review underway. We'll keep you apprised. And I would expect this would be more of a story as we get through the end of 2023 with the strategic review. And if anything were to occur, being 2024 story for us. So, thank you for the question.

Aidan Kelly:

Hi. This is actually Aidan Kelly on for Jeremy. Good morning. So just shifting to the New Mexico and retail distributed resources sales, could you talk more about the prospective of buyer market you're seeing right now? Any insight on the type of buyer you would be interested here? Also, just any language on OnSite Partners as well with the G&M segment would be great. Thanks.

Operator:

We have a follow-up question from the line of David Arcara with Morgan Stanley. One moment, please. Apparently, that line is not in queue. We'll go next to the line of Shar Pourreza with Guggenheim Securities. Go ahead, please.

Julie Sloat:

I still appreciate that. And I get it, you guys have a really busy morning. So, I know we have different names who don't typically cover us. So, I just -- I'm still appreciative of your time and attention today. Lots of companies reporting. So that being said, on the Kentucky front, stay tuned, because what you'll -- you should expect us to do is be in conversations with the different stakeholders, with the commission, and staff in particular in Kentucky to make sure we're scratching all the inches. We want to be successful in the arena. And we are going to absolutely have a very thoughtful approach in sensitivity to reliability. We need to make sure that we're keeping the lights on and keeping them affordable for the state of Kentucky and the area that we serve in particular. So, I have a lot of granularity to share with you today other than to assure you that we will be working collaboratively with the partners in that jurisdiction. So, extremely important to us particularly when you look at where the current ROE is. We need to get that up. We need that utility company to be in a healthy situation so we can continue to have low cost capital allocated to that particular piece of the business. And then, I'll ask Ann to talk a little bit about our capital allocation and how we're going to digest that from Kentucky.

Operator:

Our next question will come from the line of Durgesh Chopra with Evercore. Go ahead.

Julie Sloat:

You know what, Durgesh, thank you so much for your question. I don't have a rate base number in front of me. We can absolutely get that to you though. So, we'll circle back with you. But the $551 million, as you point out, is the net plant position that is attributable to AEP in particular.

Andrew Weisel:

Hi, good morning. Thank you. First question on the balance sheet. Just to clarify, if none of these transactions move forward besides contracted renewables, what's your degree of confidence in the targeted credit metrics and FFO guidance, and over what time period?

Operator:

We'll now go to the line of Anthony -- pardon me, Anthony Crowdell with Mizuho. Please go ahead.

Julie Sloat:

Yes. Thanks so much for the question. I'm going to take your first one on the ROEs. I'm going to back up the truck a little bit. You may recall when we provided 2023 earnings guidance, the average ROE across the system for our regulated businesses was going to be around 9.4%. Today, as you know, we're at 8.8%. So here's my expectation. I expect we're going to close that gap as we get toward the end of the year. And as you know, I mentioned several different regulatory filings and successes that we've had in 2023 that are going to help us close that gap. So we feel confident that gap will close, but I do expect that we'll be a little under that 9.4%. Importantly, we have not changed our earnings guidance, so we still plan to get within the goalpost on the earnings guidance and growth rates. So I'm not worried about that either, but it's going to take us a little longer to close the gap versus the 9.4% that we had in that 2023 guidance. So, I'll leave you with that. And as you know, we're not dependent on any single one utility company to get in a direct earning level relative to authorized, that's the benefit of having a portfolio of utilities. But boy, I surely would love to close that gap and be within 10s of basis points versus the authorized in each of our jurisdictions. That's an objective. It's just going to take us a little while to get there because, as you know, these things have a little bit of a lead time on them. So stand by and know the guidance is sound. And then on the Rockport unit, that actually it becomes a merchant unit. And I believe that's captured in, what, our Vertically Integrated Utilities segment, right? And that would be captured as off-system sales, okay? So, hopefully, that will help you with your modeling needs there, too.

Operator:

We have a follow-up question from the line of Shar Pourreza with Guggenheim. Go ahead.

Julie Sloat:

Yes, I -- this is Julie. I'll hand it to Ann here in a minute. Here's how I look at it. Simplification and derisking the business should be part of our fabric. So, we are going to continually look at where the best use and highest value is for each of the dollars that we put to work. So I think that's our job is to make sure that the portfolio of assets we have is the best we can have in the highest earnings. You go back to the question I just answered around earning your authorized ROE, we have to do better at that, and we'll continue to do better at that as we go down the path here. So, I do think you should keep that in back of the mind. We will continue to keep you updated on and signal to you if we think there's a business that might fit that profile that we would consider recycling it. But the ones that you see us talking about today are the ones that are absolutely those in terms of strategic review on the JV side of the house, transmission that -- we love transmission, but we may be able to put that to better use inside the traditional footprint. And then, clearly, on the unregulated side of the house, we want to derisk and simplify. It makes complete sense to move forward with those actions that we outlined today. So Ann, I don't know if you want to talk any more about or add any additional color to that?

Operator:

Our next question will come from the line of Sophie Karp with KeyBanc. Go ahead.

Julie Sloat:

Yeah, I still appreciate that question. So thanks for being on the call today. We're working on it. So let me start with the backdrop on the story. As you know, we continue to channel a great deal of capital to AEP Texas. We do think the recovery mechanisms there are very good. We always think there's opportunity for improvement. So I'll talk about that here in a moment. But one of the things that we've gotten comfortable with, with the touch of underearning relative to authorized in Texas, is the amount of growth that we have in Texas. So on average, we can grow earnings there at 10%, but I got to take a little bit of a haircut because no regulatory recovery is perfect. But we're trying to work on that. And so for example, if you read on Page Number 27, there's some commentary under the little earnings bubble there that we talk about bi-annual TCOS filings to recover significant capital investment. Those good things. We love that. We do have some legislation that is in process and working through that relates specifically to the DCRF and the ability to shorten that timeframe. So maybe we can do that twice a year versus annually. So that will help to kind of close that gap a little bit. And then there's also some legislation around cap structures, too, that might be helpful to us. So, we're trying to work all the different angles. Not to mention the other thing that we're thinking about and continue to talk about is, a way to continue to use those excellent cost recovery mechanisms that are much more progressive in Texas throughout the period, even when you're in for a base case. So, we're trying to use the legislative aspects as well as just trying to be as efficient as possible to close that gap. But we've been comfortable in the near term, taking the little bit of a hit relative to authorized on the ROE because we can grow earnings there and the demand is there. So that was the rationale. But we love the business. We're just trying to make it better in terms of recovery.

Julien Dumoulin-Smith:

Hey, good morning, team. Thank you guys very much. Appreciate the time. Just following up on a couple of the remarks earlier. Just can you elaborate a little bit more on next steps here as you think about Louisiana? Obviously, a little bit of a setback here, but you alluded to potentially putting this back on the -- or maybe not you all, but perhaps the commission electing to reconsider the matter next month. Can you elaborate on the procedural element there, but also some of the other avenues, there's a flex consideration here that can be pursued to the extent to which there may be different outcomes?

Operator:

We'll go next to the line of Paul Fremont with Ladenburg. Go ahead.

Ann Kelly:

Yes, I'll take that, Julie. So, we would expect to collect over the extended timeframes that we have already agreed upon within our jurisdictions. And with respect to West Virginia, we have that model taking advantage of the securitization in the first quarter or the first half of next year.

Sophie Karp:

Hi. Thank you for giving me more time. If I can ask a follow-up on Kentucky, right, like asked differently, when you spoke to regulators there, and clearly, you need to bring the ROE up, right? But what kind of a rate increase would that require for Kentucky rate payers? And like do you get the sense of kind of like the upper limit of the appetite that the regulators might have for rate increases in this environment?

Operator:

We have a follow-up question from Paul Fremont with Ladenburg. Go ahead.

Julie Sloat:

Paul, this is Julie. Actually, securitization will be a great thing, and that helps us, give us a little more flexibility, more importantly, it's good for the customer. And so, when we filed for our new ENEC filing that we made on what was it like February -- I'm sorry, April 28, I think, was the date that we filed it. What you'll see is that we have two proposed options to recover the fuel balance in our filing. And one is to spread the recovery over three years, and the other is to use securitization for the under-recovered fuel balance. And as part of that, we also looked in as an option, again, with the idea and backdrop and motivation is to protect the customer rates because we can't have them trying to swallow a watermelon here is to essentially securitize plant balances from legacy coal plants, so Amos and Mountaineer in particular, and I think we have some storm costs in there as well. And so when I mentioned today, that $1.84 billion number that we would like to securitize, that's all in. And so, we're trying to give the commission options so that we can all work collectively to make sure that the citizens and customers of West Virginia are protected, but that we still have a healthy utility and we're able to hit the balance sheet metrics that we need. So, it's doable. It's absolutely doable, we'll just need to move through the process.

Operator:

[Operator Instructions] We have a follow-up question from Paul Fremont with Ladenburg. Pardon me, that line did not open up. We have Bill Appicelli with UBS. Go ahead.

Julie Sloat:

Yes. So as far as FERC and the other two approvals that we'll need to get, let me answer it this way. When we made the filing initially, we had requested at FERC a 60-day approval process. So, we would like to get an order within 60 days. May 22 would be 60 days. And given that this is normal kind of traditional business unregulated, not tied to significant customers and multiple stakeholders, we don't anticipate any material roadblock as it relates to getting not only FERC approval, but the clearance from the Committee on Foreign Investment in the United States and/or approval under any of the applicable competition loss. So we're comfortable with where we are and expect that we should have that in pretty short order, which gives us confidence to say we think that we'll get this done by the end of the second quarter at the latest. But we'll keep you apprised if anything were to come up. But at this point, we're past commentary periods, and everything seems to be going relatively smoothly. So, anyway, I'll leave it at that, and suggest that if anything shifts, we'll be right in front of you immediately.

Darcy Reese:

Thank you for joining us on today's call. As always, the IR team will be available to answer any additional questions you may have. Alan, would you please give the replay information?

Operator:

Welcome to the American Electric Power Fourth Quarter 2022 Earnings Call. [Operator Instructions]. I would now like to turn the call over to our host Ms. Darcy Reese. Please go ahead.

Julia Sloat:

Thanks, Darcy. Welcome, everyone, to American Electric Power's Fourth Quarter 2022 Earnings Call. I'm happy to be here with all of you this morning, and I'm pleased to be joined by our recently appointed CFO, Ann Kelly, who joined our team in late November. So here we go. We're making great progress and have a lot to share with you today, starting with the financial performance of our fourth quarter and year. I'll provide update on our Kentucky operations sale, unregulated renewable sale and retail business strategic review. I'll also provide insight into the regulatory and legislative front, as we work to implement important new initiatives to ensure our customers and communities needs, which are met in turn, and drives our high-quality investment proposition. Finally, I'll include an update -- or I'll conclude with an update on our generation fleet transformation as we continue to invest in regulated renewables and our energy delivery infrastructure, a summary of 2022 highlights and our focus for 2023 can be found on Slides 6 and 7 of today's presentation. As you know, we have a long history of consistently delivering and exceeding our earnings guidance and 2022 is no exception. I'm very proud of the dedication and accomplishments of the entire AEP team over the past year. While we finished the year strong, I can promise you, we're just getting started. Our robust financial plan continues to yield results. We delivered strong fourth quarter 2022 operating earnings of $1.05 per share bringing our full year 2022 operating earnings to $5.09 per share. We're also -- we also increased our quarterly dividend from $0.78 to $0.83 per share, which we announced back in October. AEP's teamwork-driven performance in 2022 has established a strong foundation from which we can reaffirm our 2023 full year operating earnings guidance range of $5.19 to $5.39, all while mitigating inflationary cost pressures, supply chain pressures and higher interest rates as well as constructively navigating regulatory and legislative frameworks. Formula rates in several of our state jurisdictions and in our high-growth transmission business help us to manage increased interest expense and higher costs. Importantly, as we keep customer affordability top of mind, we are actively working with our states on the economic development front to drive expansion in our service territory, and we are incorporating efficiencies and expense containment into our rate recovery filings to continue to help offset the impact of increased cost pressures. As a matter of fact, the economic development efforts over the past several years are proving to be appreciably beneficial, and we'll talk about normalized load in a few minutes. But to illustrate my point, I can tell you that normalized industrial sales were up 4.5%, largely as a result of those efforts, not to mention the added benefit of attracting jobs, residents and other cascading upside to our communities, all of which helps to manage customer rates given the bigger denominator. We value our stakeholder relationships, and we made steady progress on the regulatory front over the past year, including achieving constructive base rate outcomes in Arkansas and SWEPCO Texas and a favorable Supreme Court appeal related to Virginia's last rate case and the securitization of Winter Storm Uri costs in Oklahoma. Our resulting earned regulated ROE as of December 31 was 9.1%, which suggests we still have work to do on this front, and I'll talk about our regulatory activity that we have underway to address this. So hang with me for a few minutes, and I'll get there. AEP is leading the transition to a clean energy economy as we engage in one of the largest generation fleet transformations in our industry, in 2022, our 1.5 gigawatt North Central wind portfolio became fully operational with the completion of the Traverse wind farm project, which marked the beginning of our clean energy fleet transition. We'll continue to execute on our fleet transformation strategy with the opportunity to add approximately 17 gigawatts of new generation resources between 2023 and 2032, while mitigating fuel cost volatility and creating a more diverse resource portfolio to benefit our customers. This will significantly contribute to AEP's reduced carbon emissions profile and put us on a path to achieve our upgraded net zero goal by 2045. Importantly, the recent passage of the Inflation Reduction Act provides support for our clean energy goals, and this will extend our investment runway as we continue to address the needs of our generation fleet. Since assuming the role of President and now CEO, I prioritize simplifying and derisking our business profile, which has become a core standard by which we evaluate our business activity. By actively managing our portfolio and demonstrating a clear commitment to the successful execution of initiatives and transactions, we continue to deliver significant benefits to our stakeholders. As you are very much aware, we are working diligently to complete the sale of our Kentucky operations to Liberty. You can find the related regulatory time line on Slide 8 in the presentation today. As an update, AEP and Liberty followed the blueprint provided by the FERC order and filed a new FERC 203 application on February 14 of this year, requesting a shortened comment period and expedited approval to meet the contractual April 26, 2023 transaction close date. Immediately after the filing was made, FERC issued a notice incorporating a shortened 45-day comment deadline related to the application. The shortened comment period is a good sign signaling the commission is open to considering our application on an accelerated basis. AEP and Algonquin are in regular communication discussing various aspects of the transaction, the path forward and our partnership. We're mindful of the April 26 date in the stock purchase agreement and are cognizant of the tight time frame given the March 31 comment period deadline. The objective of both AEP and Algonquin remains clear, and that's to close the transaction. And both parties are firmly committed to moving forward and bringing forth the benefits of this transaction to customers. Related to our unregulated contract renewables portfolio, after strong buyer interest, we're pleased with our announcement made yesterday for the sale of our 1,365 megawatt portfolio to IRG Acquisition Holdings, which is a partnership owned by Invenergy, CDPQ and funds managed by Blackstone infrastructure. A summary of the sale can be seen on Slide 9 of the presentation today. We're currently targeting a second quarter 2023 close. The utilization of the proceeds from the sale is now reflected in our updated multiyear financing plan on Slide 39, and the transaction proceeds will be directed to support our regulated businesses as we enhance the energy delivery infrastructure and transform our generation fleet. Our near-term focus remains closing on our 2 pending sale transactions Kentucky and our unregulated renewables. Once both of these transactions are complete, we plan to revisit the equity needs in our current multiyear financing plan. As we've been clear in the past we will use the asset sales to responsibly eliminate equity while maintaining a strong balance sheet, no change in messaging on this. And that's important that I reiterate that. No change in the messaging. Finally, in October 2022, we announced the strategic review of our retail business. We're looking at this business to determine how or if it fits with the current AP portfolio and we'll keep you updated on our progress. We're expecting to complete the strategic review in the first half of 2023. Let me touch on our regulatory and legislative initiatives that we have underway. We remain focused on reducing our authorized versus actual ROE gap. As I mentioned earlier, our 2022 earned regulated was ?ROE 9.1% and -- our 2023 earnings guidance range assumes a 9.4% earned ROE, and we are already making progress in that direction. In January, we reached the settlement and gain commission approval for our Louisiana base case, which allows us to reestablish a formula rate plan -- as we advance through the year, the team will be active in completing our current base case in Oklahoma and rider recovery of the 88 megawatts of the Turk plant, which is not currently in Arkansas rates. We also filed an electric security plan in Ohio, which will take us into 2024. Let me shift gears and provide you with an update on our deferred fuel recovery efforts that are currently underway. As we've previously shared with you over the past several months, we have made adjustments to our traditional cost recovery methods in a number of our states to allow for recovery while spreading the cost out for our customers to make them more affordable. In West Virginia, we continue to pursue approval of the pass-through of fuel costs under the fuel clause. We also intend to propose an alternative path to recovery of these costs under proposed legislation, if Approved, that would allow us to securitize these costs and minimize customer impact. The West Virginia Commission recently instructed its staff to finish its prudence review of the 2021 and 2022 fuel costs. The state legislature continues to move the securitization legislation forward with the Commission Chair recently testifying in support before the lawmakers. I'll conclude my remarks with an update on our regulated renewables strategy and execution. Our capacity needs continue to drive us forward on the regulated renewables front, and we continue to work with our regulators, policymakers and other key stakeholders to ensure a durable and sustainable transmission -- transition to a clean energy economy in our vertically integrated state. The recently enacted Inflation Reduction Act will help us advance our goals in this area and will provide additional value to our customers as we seek to acquire resources consistent with our plan. We've made considerable progress on SWEPCO's 999-megawatt renewables application, which represents a $2.2 billion investment for AEP. Parties filed a unanimous settlement in Arkansas on January 27 and for a portfolio of owned wind and solar resources. A hearing was held in Texas in January, and we continue to have constructive settlement dialogue with parties in Louisiana, and the hearing date has been formally extended to March 21 to accommodate this. We look forward to receiving the commission's orders, which are expected in the second quarter of 2023 on Louisiana and the third quarter of 2023 for Texas. In November of 2022, PSO made a regulatory filing in Oklahoma to own 995.5 megawatts of solar and wind projects representing a $2.5 billion investment. A procedural schedule was issued last month which includes a hearing date in April and an expected commission order in the third quarter of this year. Separately, we're also seeking to acquire the 154-megawatt [indiscernible] wind facility in Oklahoma from EDF. FERC approved this acquisition on February 16, and we're pursuing rate recovery of this investment through the ongoing PSO base rate case. The project is already in service and will provide immediate capacity for PSO's customers. Our regulated renewables goals are aligned and supported by our integrated resources plans. In accordance with those plans, we issued request for proposal in 2022 for wind, solar and other resources at APCo, INM and once again at SWEPCO. We anticipate making the related regulatory funds to acquire additional resources under these RFPs throughout 2023. We continue to see rapid changes in our industry and increasing need and demand from customers and communities across the United States. At the end of 2022, as I prepared to assume my new position at AEP, the team and I dedicated a considerable amount of time and energy to determining how AEP would continue to deliver safe, clean, affordable and reliable energy and how we could deliver this energy faster and more efficiently to our customers while generating enhanced value to our stakeholders. Our long-term earnings growth rate of 6% to 7% is underpinned by a robust $40 billion capital investment plan for 2023 through 2027, which includes $15 billion in transmission and $9 billion in regulated renewables investments. As evidenced by our fourth quarter and full year 2022 performance AEP has had a long-standing track record of consistently delivering on our strategic objectives, our transformation strategy is working and the investments we're making continue to support our positive earnings growth and results. Now please join me in welcoming Ann to her first AEP earnings call. I'll leave you in her very capable hands as she provides insight and perspective into our performance drivers for 2022 and the details supporting our financial targets. Ann?

Operator:

[Operator Instructions]. And we'll first go to Shahriar Pourreza with Guggenheim Partners.

Julia Sloat:

Yes. I still appreciate the question because shares, I'm sure you can imagine, it is absolutely top of mind for us. And as Ann mentioned in her comments, top of mind from a CFO perspective, most definitely. As you know, we did get an order. The staff is going through its paces as we had to work through the prudency review. And in the background, what's playing is a legislation that could potentially accommodate securitization of the dollars we have outstanding, our fuel balance in West Virginia $520 million -- so it's not insignificant and it's extremely important to be able to digest this in a way that can accommodate customer rates. So we're hoping that we'll be able to be in a position we'll be able to utilize the securitization legislation, if approved, to be able to smooth this out and take care of customer needs in terms of the bill in path. And I don't know, Ann, do you have any other thoughts on that, how we might do that?

Shahriar Pourreza:

Got it. Okay. Perfect. And then just lastly, on the financing needs. Obviously, we've noticed that you now include both the $1.2 billion expected cash proceeds from Kentucky as well as I think for the first time, the expected $1.2 billion from the contracted renewable sale. I guess looking at the sources and uses, why wait to update your funding needs on the equity side, especially if you're including the proceeds already. Is there anything we should be thinking about here?

Operator:

And next, we'll go to Jeremy Tonet with JPMorgan. .

Julia Sloat:

Yes, absolutely. And I love the question because that's exactly what we're doing in our house right now is going through the paces to determine exactly does it fit -- if there's anything that does fit, what does that look like? Stay tuned. That will be a first half story for AEP. So expect us to be coming to you probably in the second quarter with a little more granular detail because we're literally going through that analysis now and working with the troops to make sure we have that finally, too, so we can get back out to you. As far as quantifying how big is this business and what does it mean currently to AEP, the net asset position or, I guess, equity position, if you strip out the liabilities, we're talking about $193 million -- the vast majority of that is working capital to the tune of about $150 million of the $193 million, and the rest is largely IT software, and then we have a little smidge of goodwill in there of about $1 million to give you some parameters. And then another thing that I would think about is what does that mean from an EPS perspective, in 2022, this retail business contributed $0.05 of EPS. And in 2023, we have $0.04 embedded in our guidance to give you that goalpost to. Hopefully, that helps.

Julia Sloat:

We haven't disclosed an EBITDA number. I can tell you that in our guidance for 2023, we're looking at $0.01 that renewable business contributed, I think it was $0.08. Does that sound right, Ann? $0.08, yes?

Julia Sloat:

$0.08 in 2022 to give you those parameters.

Julia Sloat:

That's right. We expect to get our -- up to the -- get the ball between the uprates in the last part of the year. We do expect to have a little bit of pressure on the front end as we continue to work through some of the fuel balances. As I mentioned, when you look at West Virginia stand-alone, it's about $520 million. Does that sound right, Ann?

Operator:

And next, we'll go to Steve Fleishman with Wolfe Research.

Julia Sloat:

So we're at 13.2% as of year-end. And so if we get above that 14%-ish range by year-end 2023, I don't know that looks about -- I don't say entirely 100 basis points, but it's pretty significant.

Steven Fleishman:

Okay. That's very helpful. And then just on the ROE improvement to the 9.4 in this year's guidance. Is it -- is there any states that are really driving a lot of that? Are there any states that they're still kind of the most room to go after '23?

Steven Fleishman:

Just for clarity on that last point in Virginia, why does -- what are things that would help you in the Virginia law, it go into the biannual so you don't have to go so far between cases or something else?

Operator:

Next, we can go to Nick Campanella with Credit Suisse.

Julia Sloat:

Yes. Nick, I still appreciate the question, and I'll let Ann jump in here in a second on what our thoughts are on funding. But I have before I do that, I have to say, we're committed to the transaction. I know you point that out. And I know we do have a tight time line. That's precisely why I threw that out there in my opening comments. The objective is to, I'll say, push for the tape because I know we've got that April 26 date. But importantly, I need you guys to have this takeaway both the AEP and the Algonquin team members continue to have a regular dialogue and work closely together. So we're all in and we'll continue to push to try to do this as expeditiously as possible. But I think we're also in a good position from a financing perspective. Ann, you want to talk a little bit...

Nicholas Campanella:

Okay. That's helpful. I appreciate that. And then I guess just I know we talked a lot about deferred fuel, but we noticed that the CFO is slightly depressed in '23 versus kind of what you outlined at the Analyst Day. And I think you're making up for that in the back part of the plan. But is that purely just deferred fuel impacts? Or is there something else fundamental there? That would helpful.

Operator:

Next, we can go to Bill Appicelli with UBS.

Julia Sloat:

Yes. So the next gating item for us is March 31. That ends the commentary period, and we'll just proceed from there. We know the other backdrop for us or backstop for us, as I mentioned in my comments, is the April 26 date. So that's top of mind for us as well. But here's where I continue to go in my mind. None of the benefits yet to the customer until we close the transaction. They don't start in advance. So that's incredibly important. And I think we've got everyone's attention. And Bill, the other thing that we were particularly sensitive to, and I know Darcy has probably shared this with you, if you've called in, in the interim here, but we really made an effort to take the FERC blueprint to make sure that we were accommodating or addressing the concerns that FERC voiced as it relates to taking care of customers and making sure there's no harm. And as a matter of fact, if you at the application. I think we go in pre through the new 203 application in pretty granular form. I think it's Pages 4, 5 and 6. Clearly, I've read this a few times. Take a look at that if you want to get a better sense of what the parties have come up with to be able to take care of the customers in the state of Kentucky and specifically Kentucky Power's footprint. So I think everybody is going to be working on an expedited basis and schedule. And clearly, we very much appreciated the shortened comment period because I do think it's indicative. So we'll continue to work through it and rest assured that both the AEP and Algonquin team members will continue to be in regular contact with one another because at this point, we're partners in all of this.

Julia Sloat:

Excellent question, excellent question. And here's how we can answer that for you. I mentioned that the teams are in constant contact and regular contact. I would expect that if we get closer to that date, that the teams will be talking specifically about this. So stay tuned.

Durgesh Chopra:

Just first, a quick clarification. The -- I think you mentioned $0.08 for the renewables business EPS. That's just half year, right? So that's what's embedded in the guidance and the full year earnings are double that to $0.16, right?

Durgesh Chopra:

Got it. So that's the full year contribution for 2022?

Durgesh Chopra:

Got it. Okay. And then just, again, I want to go back to the sort of the financing slide. Can you just updated thoughts on use of proceeds here. Clearly, the renewable sale is on track and get $1.2 billion in cash. So how should we think about use of proceeds? Should that at least eliminate equity for 2024?

Ann Kelly:

No. Right now, we are not going to reduce any equity in the outer years. But as Julie mentioned, once we close the Kentucky transaction, the renewables transaction, we're going to we reevaluate and see whether or not we can responsibly take out equity in the future while keeping in mind and having a strong balance sheet.

Unidentified Analyst:

Great. So I guess the first question, right now, the sales proceeds from the 2 transactions actually are in excess of the equity that you had identified last year. So we should assume though that the sales proceeds don't eliminate your equity need, they just reduce it. Is that a fair characterization?

Unidentified Analyst:

Great. And then moving to Virginia. You guys -- or there's a bill, I think that's under duration SB 1075, would you expect that to survive, come out of conference and ultimately be adopted? Or I guess, what's your thought process on what will happen in Virginia?

Unidentified Analyst:

Great. And can you break out for 2022, just the contribution from generation?

Unidentified Analyst:

In the G&M section, so the merchant -- in other words, the merchant generation contribution in 2022.

Unidentified Analyst:

That would be great. And maybe the last question for me. the income tax changes and other and corporate and other, can you maybe give a little flavor as to what drove those?

Ann Kelly:

Yes. So the income tax, there's a little bit of geography here with respect to the parent company loss that's driving that impact. And then -- the other is just a lot of very small items that are loan together.

Darcy Reese:

Thank you for joining us on today's call. As always, the IR team will be available to answer any additional questions you may have. Brad, would you please give the replay information.

Operator:

Ladies and Gentlemen, thank you for standing by and welcome to the American Electric Power Third Quarter 2022 Conference Call. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. [Operator Instructions]. And as a reminder, your conference is being recorded. I would now like to turn the conference over to you host Vice President of Investor Relations Darcy Reese. Please go ahead.

Nick Akins:

Okay, thanks, Darcy. Welcome everyone to American Electric Powers third quarter 2022 earnings call. We continue to make significant progress on our commitments, we have leveraged our scale, our financial strength, portfolio management and transition to a pure play regulated utility. Over the past 10 years, we've had a great record of consistently exceeding our earnings projections and raising guidance, with this quarter being no exception. Today I'll provide a brief recap of the key financial highlights for the quarter, followed by updates on our Kentucky sale process, our unregulated contracted renewables portfolio sale, and the previously announced strategic review of our retail business, all of which are part of our strategy to simplify and derisk our business profile. I will then spend time discussing our carbon emission reduction goals, in addition to our continued emphasis on regulated renewables execution, and generation fleet transformation. I'll conclude by providing insights into our other ongoing regulatory activities. All of this summarized information can be found on slide six and seven of today's presentation with supporting details in the appendix. So, after the financials, we continue to build on our momentum delivering strong third quarter 2022, operating earnings $1.62 per share or $831 million. Today, we are reaffirming our 2022 narrowed full year operating guidance range, as well as our newly introduced 2023 operating earnings guidance range, both of which we had announced at our recent Analyst Day. As a reminder, we are going -- are guiding to a 2022 range of $4.97 to $5.07, with an increased midpoint of $5.02 per share, and our 2023 guidance range is $5.19 to $5.31, with a $5.29 per share midpoint. Our long term earnings growth rate guidance of 6% to 7% is underpinned by a robust $40 billion capital investment plan for 2023 to 2027, which includes $26 billion in wires and $9 billion in regulated renewables investments. Moreover, our dividend growth is in line with our long-term growth rate and within our targeted payout ratio of 60% to 70%. We continue to derisk our platform and execute our strategy to ensure that we are best positioned for value creation in the face of global economic uncertainty and inflationary pressures. As part of this effort, we are continuing to work with states to drive reliability and resiliency in our service territory amidst customer bill considerations and other macroeconomic factors. In order to lessen the impact on our capital investment plan, we have also diversified our mix of suppliers, which has minimized customer and business supply chain disruptions to date. Later in today's call, Julie will walk through our third quarter performance drivers and share thoughts on the positive load outlook in our service territory as well as on our targeted 14% to 15% FFO to debt range. So now talking about some of the strategic reviews. True to our steadfast commitment to execution, we're in the final stretch to complete the sale of our Kentucky operations celebrity. As we previously mentioned, FERC told their approval date to December 16, and we have, therefore, signed with Liberty to plan for a January 2023 closing date. This date is keyed off of FERC's process and should give confidence to all stakeholders, including employees, customers, communities and shareholders. It also enables our transition teams to adequately and efficiently plan for the closing. While our sale time line has shifted over the past year, we are not revising our earnings guidance or any of our equity needs. We are pleased to reach this point and are confident in our ability to close the transaction shortly after the start of the new year. Related to our unregulated contracted renewals portfolio, we launched the sale process for this 1,365 megawatt portfolio in late August 2022 with strong buyer interest from both financial and strategic investors. We recently accepted bids for Phase 1 of the auction process and are proceeding into Phase II due diligence with selected bidders. We are on pace for closing for a closing date in the second quarter of 2023. Selling the portfolio will allow AEP to shift focus and rotate capital towards regulated businesses as we continue to transform our generation fleet and enhance transmission infrastructure. As we announced earlier this month on our Analyst Day, we are pursuing a strategic review of our retail business as we adjust to how our interest in the competitive markets has changed over time. We'll keep you updated on our progress and expect to complete our review in the first half of 2023. We're always considering opportunities to enhance shareholder value, and we'll continue to evaluate potential value-additive opportunities for our regulated businesses against the backdrop of our goal to further simplify and derisk the business. Now regarding emission reduction goals, as we mentioned in the Analyst Day, AEP remains firmly grounded in our principles of resiliency, reliability and affordability, while recognizing the value of our diverse resource portfolio given today's world of energy-related volatility. We are undertaking one of the largest clean energy transformations in the country through our regulated renewable strategy, and we announced our enhanced and accelerated carbon emission reduction goals at our Analyst Day in early October, as I mentioned earlier. First, we have rebased our near-term emission reduction target of 80% by 2030 now pegged to a 2005 baseline instead of 2000. Second, we upgraded our near-term reduction target. And as such, all Scope one emissions are now included in our carbon emission reduction goals. Lastly, we accelerated our net zero goal by five years from 2050 to 2045. We are confident in our path forward and our ability to hit key milestones in a steady and timely manner. Importantly, these goals are aligned and supported by our latest integrated resource lands that are in the various states. We will continue our planned retirement and disposition of select fossil fuel units while adding renewables to our generation portfolio. Our 1.5-gigawatt North Central wind portfolio, which became fully operational in March of this year, represents only the beginning of our clean energy fleet transition. In addition, we have 17-gigawatts of potential generation additions across different resource types within our vertically-integrated utilities over the next 10 years. Combined, this represents 18.5-gigawatts of new generation, which will significantly contribute to AEP's reduced carbon emissions profile and put us on a path to achieve net zero -- our net zero goal by 2045. As an update, on October 19, related to SWEPCO's 999-megawatt renewables totaling $2.2 billion of investment, the Arkansas staff filed support of these resources subject to conditions. Commission orders are expected in 2023. As we look to the long term, we are committed to building a reliable and resilient grid to efficiently deliver clean energy to our customers, and we will continue to monitor new technologies that can help us close the gap to net zero, while maintaining the highly reliable and affordable delivery of energy that our customers expect. Moreover, newly passed provisions and the Inflation Reduction Act, which is foundational to our clean energy investment strategy should help bolster advancement of new carbon-free energy sources. The bill includes tax credits for technologies like clean hydrogen projection -- production and energy storage, in addition to the technology neutral tax credits for our carbon-free resources and we will continue to evaluate these resources through our integrated resource plans. With regard to our ongoing regulatory activities, our regulated ROE as of September 30, 2022, is 9.3% and continues to improve as we work through regulatory cases and continue to make strides in reducing our authorized versus actual ROE gap. In fact, as an update on SWEPCO on September 29, we filed notice to move the 88 megawatts of Turk Plant into rates in Arkansas. The full filing will occur within the November, December time frame, and we will seek a rider to place the 88-megawatt capacity in rates. With respect to our outstanding SWEPCO Louisiana rate case, we are expecting an order in the fourth quarter of 2022. We've also made notable progress on APCo's 2020 Virginia case. As many of you likely recall, we successfully appeal the triennial rate order the day following the issuance of the order in November 2020, giving confidence in our position that the order was inconsistent with Virginia statute. We are pleased that the court recently ruled in AEP's favor preserving our right to seek a retroactive adjustment in addition to the ongoing rate adjustment. Interim rates were implemented in Virginia on October First of this year. We've also actively managed the implications of increased fuel costs as we focus on maintaining a balance between cost recovery and customer impacts. As part of this effort, our operating companies continue to work with commissions, regulators and other stakeholders to educate customers about surges and put mechanisms in place to alleviate these pressures. For example, we have 6-month and 2-month clauses in I&M and SWEPCO Louisiana respectively, to help ease the effect of longer-term fuel classes. We also -- we were also able to lengthen the months of fuel recovery in Virginia and Oklahoma and are working with our customers and commissions to make sure we recover that over a longer period of time. As you all know, this will be my last earnings call as I will be transitioning from CEO to Executive Chair on January 1, and Julie will become CEO of AEP. We're very excited to have an executive of Julie's caliber to lead our company. I'm confident in her deep knowledge of AEP as well as the emphasis she places on consistency, quality of earnings and dividends and shareholder and customer value creation that will be instrumental to AEP's continued success. I'm also confident that she has the heart to be a strong leader. I'm reminded of the lyrics of Rush’s Closer to the Heart that I have always related to as a CEO, and it goes something like this. And the men and women who hold high places must be the ones who start to mold a new reality closer to the heart. The role of a CEO in the company, our communities and our country has changed during my tenure, Julie is the embodiment of the new CEO and will lead this company to even greater success. After 44 earnings call, my tenure will soon come to an end as CEO of this great company. So, I'll end this call with lyrics from a great Led Zeppelin song. And so today, my world at smiles. And song title is Merely Thank You. Julie?

Operator:

[Operator Instructions] Our first question is from Jeremy Tonet from JPMorgan. Please go ahead.

Nick Akins:

Yes, I'll just follow up with the -- did I mention transmission. So I'll turn it over to Julie, who respond to that.

Nick Akins:

But the overarching theme around transmission is that with -- certainly with the movement to clean energy economy, and the focus we have on renewables being put in place, you can't put these renewables in place without additional transmission, transmission, is becoming more constrained. So it turns out to be very positive from an AEP perspective from an opportunities to really focus on not only the development of transmission, which were the largest in the country but also in terms of the renewables build-out and in fact, distribution with distributed energy resources that will drive different resource needs as well. So all in good shape from that perspective. So we feel very, very bullish about our transmission.

Nick Akins:

Yes, Julie.

Operator:

And the next question will come from the line of Durgesh Chopra -- I'm sorry, from Evercore ISI. Please go ahead.

Nick Akins:

I would certainly say that the list was robust. And all the usual suspects that you would think of and beyond. But there were a lot. And I'd say it was still generally half and half, 60-40, whatever it was of strategics and others financials. And so -- and actually, the Phase 2, we're going into a list with strategics and financials and it's a well-balanced group. One that I'm sure will hold each other accountable during the process, but we're very happy with the responses we received.

Nick Akins:

Yes. They'll go into the confidential rooms and all that kind of stuff and more due diligence will be done, and we'll go through the process with them. So that's just what the process is.

Durgesh Chopra:

Got it. And then maybe just to pivot on to the second subpoena from SEC. Just how to read into that? What are the implications for you? I mean, does this increase the risk sort of potential?

Operator:

The next question is from Julien Dumoulin-Smith from Bank of America.

Nick Akins:

I mean there's not much else we can say about it, obviously, because it is a process with the SEC, and it's really up to the SEC what -- how they want to continue to analyze the information, ask for new information. And typically, I guess, whenever they need new information, they'll issue new subpoena. So it's just part of the process, and it's really up to the SEC. And our only -- I mean the only control we have is to continue to cooperate very positively and respond, and we'll continue to do that.

Nick Akins:

Yes, Julie?

Julien Dumoulin-Smith:

Got it right. So there's no qualification issues or needing to get clarification on legislation, right, that it should be directly applicable.

Julie Sloat:

Yes. But we do need some clarification on the legislation because it's very specific to what you're trying to securitize. So that will be a critical path for us.

Julie Sloat:

Yes, yes, yes.

Ross Fowler:

Good morning, Nick, good morning, Julie. How are you? Thank you for the quote. I very much appreciate that on this end of the phone, so.

Ross Fowler:

So I just had a couple of questions here. I was going to ask about this peanut, but we've kind of beaten that to death. But the retail strategic computing, that's going to happen within sort of the first half of next year. Are there other businesses that sort of fit into that same sort of potential strategic category? I'm thinking about wholesale services or distributed resources. Are they core to you? Or is that something we could see in the future?

Julie Sloat:

Yes, yes. I would leave you with this thought. As it relates to on-site partners, which is our distributed energy solutions organization, and we have wholesale services as well when you look at the quadrants of our unregulated components of our total AEP business, I would submit to you that you should assume that they operate business as usual. Those are close to the customer. Those are things that we need to engage in to manage our day-to-day operations and we want to make sure that we're extracting all the intelligence we possibly can and taking care of the customer at the same time. But if there are things we can leverage to help us in the regulated envelope, we'll be doing that as well. So distributed energy solutions seems to scratch that itch. And we've gotten a lot of success and runway out of that. So business as usual. And we'll keep you apprised. Anything else that we put on deck like Nick said, we got all of our burners busy. You know what's on deck. But the point here is to get as efficient as we possibly can so that we can deliver the goods, take care of you, take care of our customer and then where we're good to go.

Nick Akins:

Yes. So obviously, we've had the same conversation relative to [indiscernible] in Congress. We -- our transmission of large block of our transmission is transmission within our service territory. And actually, the -- just basically the nuts and bolts of making sure that we have rehabilitation of the grid, replacement of old resources. We have some transmission lines. And I just -- every time we have our subcompany Board meeting, I always comment about these 100-year old lines that come up for replacement. And we're still in the process of doing that. We've talked a lot about the amount is the sheer magnitude of AEP's transmission system and the average age being 57 years old or some number like that. And the spend that we have ongoing now just increases by a year, every year it goes by like a 57 to 56 by spending $3 billion. So really -- we have not had issues with the construction of our transmission. Now if you do a new transmission with new large-scale transmission, that's where you really get into permitting and right-of-way issues. And that's really part of the permit legislation. And then when you cross over states, obviously, the cost allocation issues occur. So -- but by and large, almost all of our transmission is really related to transmission that either already exist or within our territory that we have. We certainly have the ability to move forward with. And we also have -- and this is probably more than you asked for, but from a transmission perspective, we've increased our planning associated with that. We used to do 120% of the capital plan. Now we do 130%. And we're also looking at distribution actually to do the same thing around 120%. So those are mechanisms where we continue to be able to use bottles, we continue to be able to adjust based upon different projects being either slowed down, sped up or whatever, and we continually adjust to that because we have thousands of projects to be able to work that through. So that really drives that element of consistency around our ability to provide capital for transmission and in fact, distribution.

Nick Akins:

Looking for something from you, but go ahead.

Nick Akins:

Yes. Julie?

Michael Lapides:

Got it. And then speaking of APCO and the court case in Virginia, and the $37 million pretax benefit you took this quarter, how should we think about that for 2023? I mean, is that just a nonrecurring onetime or should we smooth that out over 23 quarters? I'm just trying to think about how to actually model that.

Michael Lapides:

That does help. And then finally, I last thing. Can you remind us what your cash tax position will be in the coming years?

Operator:

And at this time there are no further questions in queue. Please continue.

Operator:

Thank you. And ladies and gentlemen, this conference will be available for replay beginning at 11:30 a.m. today and running through November 4 at midnight. You may access the AT& T replay system at any time by dialing 866-207-1041 and entering the access code 7723525. International callers can dial 402-970-0847. Again, the numbers are 1800- I'm sorry, 1866-207-1041 and 402-970-0847. Access code is 7723525. And that does conclude our conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.

Operator:

Welcome to the American Electric Power Second Quarter 2022 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later there will be an opportunity for questions-and-answers session. And as a reminder, your conference call is being recorded. I'll now turn the conference call over to your host, Vice President of Investor Relations, Darcy Reese. Go ahead.

Nick Akins:

Okay. Thanks Darcy. Welcome everyone to American Electric Power's second quarter 2022 earnings call. AEP continues to make progress on the strategic initiatives we announced earlier this year with strong execution against our plan resulting in another solid quarter. Later in the call Julie will walk you through our second quarter performance drivers including the strong load increases we're experiencing in our territory, as well as provide additional details surrounding our financial position. But I'll start with the key financial highlights for the quarter. We'll then move to an update on our Kentucky operations sale process and timeline. I will also spend time discussing the progress we are making in our transition to a clean energy future as we simplify and derisk our business profile by divesting unregulated renewable assets while maintaining focus on our responsible generation fleet transformation and regulated renewables execution. I will close by providing some additional insights into our ongoing regulatory activities including our transmission business. We are very pleased with our positive momentum this quarter, delivering operating earnings of $1.20 per share or $618 million. We are moving full speed ahead towards the increased operating earnings guidance range and long-term earnings growth rate we provided during our fourth quarter 2021 earnings call and we are reaffirming both financial targets this quarter. As a reminder we are guiding to an operating earnings guidance range of $4.87 to $5.07 per share for 2022 with a $4.97 midpoint and a long-term earnings growth rate of 6% to 7%. We are also continuing to ensure we are best positioned for value creation as we navigate the macro trends impacting our industry and the broader economy. We are working with states to drive expansion in our service territory while considering global economic uncertainty inflationary pressures and of course customer bills. We're also diversifying our mix of suppliers to minimize supply chain disruptions for our customers in business while also lessening the impact on our capital investment plan. We know that timing of the closing of the sale of Kentucky Power and AEP Kentucky Transco to Liberty as top of mind, and we have been working with Liberty to obtain the approvals necessary for closing this summer. A regulatory timeline of the sale can be found on slide seven of today's presentation. We are pleased to report the Kentucky Commission approved the key milestone in the transaction with an order approving the sales transfer in early May. As we have discussed previously a prerequisite in our contract of Liberty for closing the sale is approving the approval of new Mitchell operating agreements by both the Kentucky Public Service Commission and the West Virginia Public Service Commission. While we receive the related Mitchell orders from the Kentucky Commission on May 3 and the West Virginia Commission on July 1, the two states approved the operating agreement with different formats and some divergent post 2028 plant provisions. However, through the two proceedings, both commissions have indicated an ability to use the existing agreement as a basis to operate the plant going forward and accomplish their differing expectations for investment in operations. For that reason, on July 11, we made a compliance filing in West Virginia, and filed an update with Kentucky, providing an alternative way to move forward with Mitchell operations in the near term. We inform both commissions that we will operate under the existing agreement and manage the new operational focus of the two commissions through the operating committee. In the absence of any new agreements, the existing Mitchell operating agreement is still in effect and we believe, no additional regulatory approvals should be required. Since regulatory approval of the new Mitchell operating agreements is a prerequisite in our contract with Liberty for the closing. In the absence of such proposal, we are working with Liberty on the commercial solution for Mitchell-related operations and both parties remain optimistic about reaching a resolution and closing the transaction. At this time, the only regulatory matter currently pending is the 203 application at FERC related to the cell transfer, which FERC is currently considering. We are in the final stages of the Kentucky operations sale process and expect to close this summer. Moving to our unregulated renewable portfolio, in May, we closed on the sale of five unregulated development sites located in the Southwest Power Pool area, marking the successful divestiture of the majority of our wind and solar development assets. As we mentioned last quarter, we have also signed an agreement to sell a solar development site in Ohio, with that transition close expected also in the third quarter. In addition, we are in discussions with an interested party sale of our Flat Ridge II Wind Farm ownership, consisting of 235 megawatts, simplifying the resulting portfolio for our upcoming auctions. These milestones demonstrate our commitment to continued execution. As we announced during our fourth quarter earnings call in February, we are selling our unregulated contracted renewables portfolio in order to simplify and derisk the company and facilitate investment in our regulated businesses. We are in the final stages of preparation of the marketing materials for the auction and expect an official launch of the process no later than early September. After the removal Flat Ridge II, the portfolio consists of 1,365 megawatts of contracted renewable assets, consisting of 1,200 megawatts of wind and 165 megawatts of solar, geographically diversified throughout the US. There has been robust, inbound interest in the portfolio and we expect the process to proceed quickly. As a reminder, utilization of contracted renewable sale proceeds is not yet reflected in our multiyear financing plan. We remain focused on maximizing transaction proceeds and directing additional capital to our regulated businesses, where we have meaningful pipeline of investment opportunities to better serve our customers, as we push toward a clean energy future and enhanced transmission infrastructure. As always, we are open-minded and we'll evaluate all value-additive potential activities, as we focus on our regulated businesses, where we see meaningful long-term opportunities for growth. AEP continues to make significant progress in our transition to clean energy resources through our regulated renewables execution. Details regarding the specific actions we are taking can be found on slides eight and nine in today's presentation. We are also firmly grounded in our principles of resiliency, reliability and affordability while recognizing the increasing value of our diverse resource portfolio against the backdrop of energy-related volatility. SWEPCO is taking steps to secure renewable resources, making regulatory filings in May in Arkansas, Louisiana and Texas to own three renewable turnkey projects totaling 999 megawatts. This $2.2 billion investment is currently reflected in our five-year $38 billion capital plan. SWEPCO expects to issue another RFP in the near term consistent with its RFP for energy and capacity needs. APCo's 409 megawatts of owned solar and wind resources were approved by West Virginia and Virginia, marking an $841 million capital investment that is also included in our current capital plan. Request for a proposal are in process in APCo, O&M and PSO with expected in-service dates in the year-end 2024 and 2025 timeframe. We also expect to make regulatory filings to acquire additional renewable resources prior to year-end 2022. Finally the US Supreme Court ruling at the end of June related to the federal EPA’s regulation of greenhouse gas emissions will not require any changes to AEP's current generation and compliance planning. Our generation fleet transformation plans are well on track. We remain fully committed to our target of an 80% carbon reduction emission -- emission reduction rate by 2030 and net zero by 2050 and we are proud of the work well underway at AEP to help us achieve this goal. Reaching these targets is foundational to our long-term strategy and we believe we are on the right path toward prioritizing regulated investment opportunities and transitioning our generation fleet. Turning now to a brief update on our regulatory activity. Our regulated ROE as of the end of June 2022 is 9.2%. We continue to work through regulatory cases and maintain our focus on reducing our authorized versus actual ROE spreads. Additional regulatory activity in the quarter included a commission order received in May on SWEPCO's Arkansas rate case, including a 9.5% ROE, marking a net revenue increase of $28 million and a capital structure of 55% debt to 45% equity. We are also expecting a decision on SWEPCO's losing out a rate case in the third quarter. Oral arguments related to APCo's 2020 Virginia base case were held in March 2022 at the Virginia Supreme Court, with an anticipated final decision later this year. FERC recently initiated several rule-making proceedings related to transmission planning, cost allocation, generation interconnection to the transmission grid and extreme weather preparedness. We support the commission in these actions and are in full support -- full agreement that that reform is needed to build the infrastructure necessary to transition our generation fleet in the most efficient and cost-effective way possible, while also helping achieve our carbon reduction goals. These proposed rules align with AEP’s objectives of developing a more robust, reliable and flexible grid of the future that ultimately reduces cost to customers and strengthens economic development in our communities. Before I turn it over to Julie, I want to take a moment to thank our team for the incredible work that they are doing as we execute against our strategic objectives and deliver for our stakeholders. What's going on today at AEP is a perfect blend of the execution of Bachman–Turner Overdrive’s "Takin' Care Of Business" with the edge of Prince’s "Let's Go Crazy" in a good sense, of course. We have an incredible market position, a bold mission and the foundation in place to achieve our goals to deliver on our vision of further modernizing our energy grid in order to supply reliable, cleaner, low-cost resources for all the communities serve. As we think about the future and the next chapter of AEP, we're excited to share more about our plans at AEP's upcoming Analyst Day on October 4 in New York City. We will provide additional detail soon and look forward to seeing you there. Julie, over to you.

Operator:

We'll first go to the line of Jeremy Tonet with JPMorgan. Go ahead.