Q2 2020 American Electric Power Company Inc Earnings Call

August 6, 2020

Ladies and gentlemen, thank you for standing by welcome to the American Electric power second quarter 2020 earnings call.

At this time all lines are in a listen only mode. Later, we'll conduct a question and answer session instructions will be given to you at that time.

If you need assistance during the call you weigh press Star and then zero and an operator will assist you offline and as a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to Darcy Reid. Please go ahead.

Thank you Cynthia good morning, everyone and welcome to the second quarter 2020 earnings call for American Electric power. We appreciate you taking the time she joined US today, our earnings release presentation slides and related financial information available on our website at <unk> Dot com.

Today, we will be making forward looking statements. During the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors.

Joining me this morning for opening remarks, or Nick Akins, Our chairman, President and Chief Executive Officer, and Brian Tyranny, Our Chief Financial Officer.

We will take your questions. Following their remarks I'll now turn the call over the next okay. Thanks, Darcy and welcome everyone to American Electric power second quarter 2020 earnings call.

While we continue to see the effects of Cobot 19 pandemic HP has responded well with not only ensuring the safety of our employees and redefining the business processes to accommodate the changed environment and reducing our costs in response to lower revenues, but we also responding to hurricane and storm activity to ensure the safe and reliable source.

Mr. Our customers our team at HP, Texas with support from internal and external resources perform well through hurricane Hannah to restore power to over 200000 customers during that recent weather event and we're now supporting recovery efforts in the northeast as well walkover cases are worth escalated and in some areas we.

Continue to engage our employees on safe practices to prevent the virus spread both at work and outside of work to set an example in our communities on the natural brought our operating earnings performance has been strong in the face of these challenges babies operating earnings came in for the quarter. The dollar eight per share, bringing our year to date operating earning institute.

Allergan 10 cents per share versus the dollar share for the second quarter 19, and to 19 per share year to date 20, uniting we are reaffirming our originally stated guidance range of for 25 to 445, this year and our 5% to 7% long term growth rate.

He is also adjusting our capital upward during the five year capital forecast period from 33 billion to 35 billion to accommodate the north Central wind project additions.

Also as we stated in the last quarter earnings call. We have continued to evaluate the short term deferral of 500 million in our 2020 capital program that we talked about last quarter, and we're replacing 100 million back end of the 2020 plan at this point so all in all a constructive quarter given the headwinds of the economy due to cope with.

In fact, we continue to make progress toward our target of achieving at least the midpoint of the guidance range.

As far as load is concerned we continue to see the arbitrage between residential load and negative industrial and commercial load during the quarter.

As we continue to look for leading indicators as to the health of the state economies. We have been pleased to see the new customer connections remains stable and some jurisdictions increasing from 2019 levels looking forward, we expect to see a continued shift to a certain degree from residential load back to commercial and industrial, albeit the ships will be dependent upon the nature.

So the pandemic recovery.

During the cold with 19 crisis, we continue to take all appropriate measures to ensure the safety of our employees both in the field and for those who can work from home.

Temperature testing masking requirements, social distancing and hygiene had become the normal course of business in this environment. While our offices are opened the employee meetings and certain other activities were still asking our employees, who can work from home to remain home most likely through the end of the year. This has not slowed the progress however toward redefine.

Wanting our business processes going forward.

Our achieving excellence program is now back in full swing with the added dimension of work from home learnings that will enable us to bond even more efficiencies than previously considered we also late last year completed initial analysis of what a 20 Onest century technology framework would look like and with the addition of to race Risch former JC Penney.

Chief Information officer to our team she is but by the way hit the ground running I am confident the nexus of her efforts around in other technologies married with achieving excellence co bid learnings and other strategic initiatives will enable us to further define operating efficiencies that will benefit our customers and shareholders. We are on track.

For the 100 million of cost reductions for this year as we adjust to expectations regarding revenues due to cope with 19 in the first quarter, whether deficiencies that we had.

And after reviewing our July weather, we have partially made up for the weather issue that we talked about during the first quarter. So we're making progress within the guidance range exponent expectations and we're now targeting the midpoint of our guidance.

As we move closer to 2021, and the addition of north Central when we will still be disappointed not to be in the upper half of our 5% to 7% long term growth rate.

I would like to spend little time, taking talking about steps, we are taking to an internally consider the effects of the recent and ongoing discussions about race in America.

He is not only engaged externally with various local and national organizations, but we were also opened a very Frank and open dialogue internally we call. It our sees the moment action plan. This plan includes engagement with our leaders and employees in the organization through internal discussions external speakers webcast, including myself.

Ill.

We posted internally and process changes that will continue to make a strong committed company that enables all of our employees to contribute in an open and transparent fashion.

We have a great culture at this at this company, but we can always do better by understanding the impacts of stereotypes different perspectives based upon life experiences the burden placed on employees of color and our organization and what systemic racism versus individual racism act actually means I believe the dialogue will enable a much deeper discount.

And that will benefit our diversity and inclusion efforts as well as enable HCP to be a better partner to our communities as we affectuate lasting change.

We can't talk about these cultural attributes without also realizing what our brand projects externally and that brings me to the second issue that we had a piece certainly believe affects our brand that would be the issues surrounding Ohio House Bill six legislation.

Let me start by saying that we're not aware of any information, suggesting today. These participation in the process was anything other than lawful and ethical.

We have a robust code of ethics and regularly communicate our expectations to our employees that they conduct all business, including advocacy on public policy issues with integrity honesty and in compliance with the law, we consistently advocate for policy positions that benefit our customers communities and shareholders and our advocacy of HP.

Six was no different we ultimately supported the legislation because we believe it maintained important fuel diversity for Ohio, including support for investments in renewables nuclear generation and two coal plants operated by OVEC, we were surprised and disappointed to learn of what federal investigators allege was a scheme by the speaker of Ohio.

House, and others to enrich themselves and we along with you have been trying to educate or sales about the criminal complaint and the underlying conduct in it.

There has been a loss speculation and media reports about the identity of various unnamed companies described in the affidavit in support of the complaint based on the facts that we know we do not believe that HCP as any of the company's specifically described in the affidavit we have not been contacted by any authorities conducting the investigation.

If at any point, we are well we will cooperate fully.

I would also like to discuss Bobbo and see for organizations more generally.

He has contributed to a variety of fava onesy for social welfare organizations to promote economic development and educational programs across our service territories. One such organization is empowering Ohio's economy, which was organized to promote the economic and business development in Ohio, starting in 2015 ATP contribute.

It is a total of 8.7 million two empowering Ohio's economy.

Or a view of publicly available tax forms followed by empowering Ohio's economy shows that it made a number of grants overtime to a wide variety of charitable organizations under Fabio and C and social welfare organizations under five Olin C.

Contributions to empowering Ohio's economy to support its mission, where appropriate unlawful given the ongoing legal proceedings surrounding HB six that we are still learning about and that we are unaware of any allegations of wrongdoing evolving ATP I'm going to let those proceedings play out rather than commenting further on this subject.

We also understand the concerns that some of expressed regarding the lack of transparency surrounding fava wouldn't see for organizations, which are not required to disclose their donors and amounts donated to them with that and mine. We will commit to include additional disclosures in our corporate Accountability report with respect to contributions that we made to fava once.

Organizations in 2020 and going forward, we also reviewing best practices and working to improve our policies and processes around political contributions and contributions to follow and see for entities.

Regarding any repeal and replacement of HB six we are fully prepared as we have done previously to engage in whatever dialogue needs to occur to charter path in Ohio toward a balanced energy portfolio that moves toward a clean energy future for Ohio.

As has been very clear since the beginning of the nuclear debate that we were concerned about forging a path toward the adoption of renewables such as solar and wind along with other technologies such as storage to mobile technologies, the big data analytics to enable a smarter and more efficient grid.

Vsix has some of that but we were also following HB to 47 to move OHA forward from a clean energy technology perspective, if HB sixs repealed in a way that appropriately reverses as effects. The financial impact is minimal to HBP. We already had several years of recovery for the OVEC units HM.

Six along data that we will continue to recover our energy efficiency contracts entered into before the legislation.

Hi, O is already detailed in many respects and we will continue to pursue bilateral solar and wind projects with customers. As we have said since day, one if our customers are expected to help with the bill for nuclear they should also have the opportunity to take full benefit renewables and movement to a clean energy economy and be able to.

Access technologies that will help them to lower their electric bills.

Unrelated to HP six but did not have that should not be lost in the Ohio Legislature has continued interest in promoting greater broadband access, particularly in rural Ohio.

This is an area that we are well positioned to help stimulate Bob providing middle mile services to is fees to advance the service for those communities.

We are optimistic that the broadband legislation that passed the house with broad support continues forward as the pandemic has shown the digital divide is real and getting more pronounced in the need for broadband access for our customers, particularly rural customers is desperately needed and we get leverage into our communication system to make broadband Act.

Yes, the reality, we have already begun pilots in Virginia in West, Virginia, and certainly with our large amounts of the need for large amounts of data from the grid for monitoring and analysis purposes tangentially, providing mid mile broadband accessibility is clearly a benefit to our communities.

On the regulatory front, our base rate case in Ohio was filed earlier this year, where we're seeking a net revenue increase of 41 million at 10.15% ROI and continuation of our daughter and enhanced service reliability rider, we expect a procedural schedule to be set next month in Kentucky.

We filed our base rate case in July which should conclude by year end, we have sought 65 million with a 10% R&D as well as a ahmad deployment within the state we saw it to be creative in our use of.

Hi Fi T. funds.

To help lessen the rate impacts to customers in the state.

I'm pleased to report that the Texas Commission approved the Texas DC RF settlement agreement, increasing revenue requirement by approximately 39 million, which reflects the $440 million of district distribution investment placed in service in 2019 throughout our territory, new customer Interconnects continued to be strong and much.

Each of our service territory in several areas exceeding what we have seen in recent years, while the virus continues to challenge. This nation. This provides hope in American commitment ingenuity will continue to help fuel recovery.

Lastly, we are extremely pleased to have now received all necessary regulatory approvals to move the full north Central wind investment board for the benefit of our customers, although the disappointing PCT and all of our application results in the project benefits not extending through our Texas customers. We we received approvals from the.

Arkansas Public Service Commission and the Louisiana Public Service Commission in May for their portion and the flex up option approval of flexible option was designed to enable the full value. The project to go forward, even if a state elected not to take advantage of the opportunity. We're pleased with the Arkansas Public Service Commission and the Louisiana public.

Service Commission, along with the Oklahoma Corporation Commission of recognize the value of these projects and we look forward to delivering this value to Arkansas, Louisiana and Oklahoma customers.

With regards to the projects scheduled due to the covert 19 pandemic, we expect a minimal delay and the completion of the 109 megawatt Sundance project and expect the project to be delivered in the first quarter of 2021 instead of December 2020. The other two projects are currently expected to be delivered by the developer by the end of 21.

2021.

We're pleased to report in May the IRS provided next for year.

To the four year continuity safe harbor related to production tax credits eligibility. So we have an additional year flexibility should there be any delays to deliver these projects and achieve full value for our customers.

Now looking at the at the.

Equalizer graph on page five of the presentation. Our overall regulated operations. Our OE is currently 9.1% we like to target a range overall have not in the half to 10%. So I'll go into some of the things around weather and other things that that.

I have come into play.

Hi, Joe the.

Borrowing rate, Ohio at the end of second quarter was 11.1%.

There are OE was above authorized due to favorable regulatory items and our transmission true up partially offset by the roll off of legacy fuel and kept capacity carrying charge recoveries. We expect the year end, our OE to trend around authorized levels of 10% as we maintain concurrent capital recovery of destroy.

Fusion transmission investment in June 2020, as I said earlier, we filed a rate case in Ohio.

As far as App goes concern the end of the second quarter was 9.3% ROI that our OE was below authorized due to lower normalized usage and higher depreciation from increased capital investments.

Virginia's first Tri annual review as filed in March 2020, and covers the 17 to 19 periods and that case is currently ongoing.

At Kentucky power.

The ROI is down to 5.7% it was below authorized due to loss of load from weak economic conditions and loss of major customers along with higher expenses transmission revenues were also lower due to the delay of some capital projects in June 2020, Kentucky power filed a new base.

This rate case, seeking a 65 million revenue increase and an ROE of 10%.

I am.

Came in at and 10.6% for the quarter.

There are he was above authorized due to continued management of OEM expenses reduced interest expense in rate true ups, partially offset by lower normalized usage and zarai is projected to trend towards 10% at year end consistent with authorized Roe fees.

DSO came in at 9.4% for the quarter. There are we is right in line with the authorized level due to a management of OEM expenses offset by lower normalization usage Fpsos 2019 base case approved a transmission tracker, a partial distribution tracker and Anoro, we have 9.4% so everything is going well.

There.

Swepco came in at 8.3% and again, it's below authorized due to loss of load and the continued impact of the Arkansas share of the Turk plat, which accounts for about a 110 basis points Swepco received an order and as Arkansas based settlement in December 2019, it's effective in January 2000.

20.

Proving a 24 million increase in an ROE of 9.45%.

Texas came in the quarter is 7.4% their Ari was below authorized due to lag associated with the timing we discussed this earlier.

Last quarter of the annual cost recovery filings and onetime adjustments from our recently finalized base rate case.

Favorable regulatory treatment allows Avi, Texas to fall annual DC, RF and by annual Ti costs filings to recover costs on significant capital investments. So while earnings should improve in 2020 with the base rate case finalized an annual filings now resumed continue levels of investment in Texas, where we'll continue to impact the ROE as well.

Well.

HP transmission came in at 9.8%. It was below authorized primarily driven by the annual revenue true up in the second quarter 2020 and returned the over collection of 2019 revenues transmission is forecasting anoro, we have not in the range of 9.9% to 10.3%.

For 2020 so.

Sure.

Continue on as the year goes forward.

As I mentioned in the past our organization has undertaken a comprehensive view of our ROE in Yemen capital spending efficiency under a program that we coins achieving excellence I'm excited about this opportunity for our employees because it goes to the heart of how we do work removing pass barriers that may have existed and looking at our processes through.

Different lands, we're now moving into the implementation phase of this initiative with opportunities for increased OEM savings and increased efficiencies in our capital spending being interim implemented over the next three years and beyond this work will serve as a platform and help to integrate other initiatives around organizational design digitization.

And in process efficiency and work from home initiatives. The program will also be a precursor to our annual budgeting process in the future.

We will share more information about these initiatives and the expected OEM savings later this year, but we have recently Jumpstarted. This initiative by offering in early retirement incentive program for a target to set of our employees. The program has recently closed I'm pleased to say that we have reached our goals of this initiative were about 200 of our employees have selected to take.

This incentive to retire I'm thankful to those who will be leaving the company soon for many reasons one for their years of service and dedication to HBP and for providing the company an opportunity to take advantage of organizational design changes upon their exit I'll be providing more detail when we wrap up all these initiatives later this fall.

Before I turn this over to Brian, particularly with the headwinds we all face today I'd like to paraphrase some of the lyrics from the song lost in the Echo by the Rock group Lincoln part that I think represents a the today now is may take a little time for you figure out what I'm, saying here, but nevertheless.

The lyric say, we don't hold back we hold our own we can't be Matt we can't be cloned, we can't see flat it and our tone.

What would you get from HP is our consistent focus on being a positive tone attitude and performance that we will help our communities in customers get through this pandemic end the culture issues that scar Society, we will continue to be uniquely qualified to bring stakeholders together to move toward a clean energy future for our customers and again.

And provide the quality dividends and earnings that are shareholders expect Brian I'll turn it over you. Thank you Nick and good morning, everyone.

Take us through the second quarter and year to date financial results provide an update on how we're thinking about 2020, including a look at July load and finish with a review of our balance sheet and liquidity.

Let's talk briefly on slide six which shows the comparison of GAAP to operating earnings for the quarter and year to date periods.

GAAP earnings for the second quarter were one dollar and five cents per share compared to 93 cents per share in 2019.

Earnings through June were $2.05 per share compared to $2.10 per share in 2019. There is a reconciliation of GAAP to operating earnings on pages 15, and 16 of the appendix.

Let's turn to slide seven and look at the drivers of quarterly operating earnings by segment.

Operating earnings for the second quarter were one dollar an eight cents per share or $534 million compared to $1 per share or $494 million in 2019.

Operating earnings for vertically integrated utilities were 55 cents per share up 17 cents driven by lower own EM and higher transmission revenue, primarily due to true ups normalized retail load was favorable due to higher margin residential sales more than offsetting significant decreases and industrial and commercial sales.

We will talk more in more detail about our expectations around normalized load for the year later in the presentation.

Other favorable items included weather and rate changes. These positive items were partially offset by higher depreciation and other taxes and lower wholesale load AFUDC and off system sales.

The transmission and distribution utilities segment earned 29 cents per share up two cents from last year, both owned and transmission revenue were favorable due to the impact of the transmission true up on the segment.

Increased transmission investment in ERCOT was positive as well.

Rate changes were also favorable and partially offset by prior year, Texas carrying charges the roll off of legacy riders in Ohio, depreciation, nor lower normalized retail load and higher interest expense.

Transmission Holdco segment contributed 19 cents per share down 12 cents due to the impacts of the annual true up in a prior year FERC settlement.

Our fundamental return on investment growth continued as net plant increased by $1.5 billion or 17% since June of last year.

Generation and marketing produced operating earnings of 11 cents per share up five cents from last year again on the sale of cones will and land sales contributed the increase in generation business and the renewables business grew with the X. acquisition of multiple renewable assets.

These increases along with.

The timing around income taxes more than offset lower retail margins.

Finally, corporate and other was down four cents per share primarily driven by higher taxes related to consolidating items that will reverse by the year end and partially offset by lower own ends.

Let's turn to slide eight and review our year to date results.

Operating earnings through June were $2.10 per share EUR $1 billion compared to $2.19 per share or $1.1 billion in 2019.

Looking at the drivers by segment operating earnings for vertically integrated utilities were one dollar and five cents per share up four cents earnings in this segment increased due to lower own them and higher transmission revenue similar to the quarter as well as the impact of rate changes across multiple jurisdictions.

Weather was unfavorable primarily due to warmer than normal winter temperatures. Other decreases included higher depreciation tax expenses and lower whole expected wholesale load AFUDC normalize retail load and off system sales.

The transmission and distribution utilities segment earned 53 cents per share down five cents from last year, primarily driven by reversal of a regulatory provisions in Ohio.

Other smaller drivers included higher depreciation the roll off of legacy riders in Ohio Prior year, Texas carrying charges higher interest expense and unfavorable weather.

These items were partially offset by higher rate changes.

Higher transmission true up impact on both own Adam and transmission revenue and recovery of increased transmission investment in ERCOT.

The ATP transmission Holdco segment contributed 47 cents per share down 10, 10 cents from last year for the same reasons identified in the quarterly comparison.

Generation of marketing produced 18 cents per share up four cents from last year the growth in the renewables business and gains on generation more than offset the lower retail margins and timing around income taxes.

Finally, corporate and other was down two cents per share due to higher interest expense and taxes related to consolidating items that will reverse by the year end and offset by a prior year income tax adjustment, partially offsetting these items is lower own them.

Turning to slide nine let's review the assumptions, we shared during the first quarter earnings call to reaffirm our 2020 operating earnings guidance range of $4.25 per share to $4.45 per share.

As shown on the topline we revised our retail sales projection from.

One half percent growth in 2022, or 3.4% decline by the year end of the year.

For the second quarter, our sales growth and total was on target with the revised projections the mix of sales growth a slightly different than projected but to date load is closely tracking to the revised forecast.

The second item was the impact of weather.

While the first quarter, whether produced a significant drag second quarter weather was slightly favorable. In addition, we experienced warmer than normal weather in July, especially in the east.

As a result, we are now assuming less of a negative impact to our 2020 results from weather.

The third item was managing are on track to own M. expense. We had originally plan to drive down on M. costs in 2000 $22.8 billion from $3.1 billion in 2019.

During the first quarter call, we shared that in response to the expected decline in sales, we now plan to reduce spend by an additional $100 million by aggressively managing owning them.

We're on track to hit our projections through both onetime and sustainable reductions.

Finally on the first quarter call, we identified approximately $500 million of capital expenditures that could be shifted out of 2020 and into future years. This was in anticipation of the potential impact of the economic downturn on cash receipts through the second quarter. Our days sales outstanding have only marginally increased we have brought.

About 100 million of the $500 million back into 2020, and we'll maintain flexibility as we move through the balance of the year.

Given the progress made on these key assumptions in the second quarter, we are able to reaffirm our 2020 operating earnings guidance range. The remain items that could positively or negatively impact our projections for the second half of the year, but we're confident in our ability to manage our way through various scenarios.

Yes.

Now, let's turn to slide tend to provide an update on our normalized load for the quarter.

Starting in the lower right corner, our second quarter normalized load was down 5.9%. This was consistent with the expected stations. We shared with you in the first quarter, we anticipated a significant contraction in the second quarter, followed by a gradual recovery over the second half of the year through June our normalized sales were down 3.1.

Percent.

In the upper left quadrant, our normalized residential sales increased by 6.2% in the second quarter.

Year to date residential sales were up 1.9% compared to last year.

We saw significant increases in our residential load during the stay at home provisions that were in effect during the quarter.

Even after our states begin their phase Reopenings, we still saw strong growth in weather normalized residential sales across all jurisdictions. This was would suggest many of our customers have continued to work from home. We expect the spike in residential growth to moderate as the commercial and industrial sectors improve during the second half of the year.

Moving clockwise our normalized commercial sales decreased by 10.1% in the second quarter, bringing the year to date declined to 5%.

Prior to cobot, we'd experienced consistent improvement in our commercial sales over the past year.

State and post stay at home provisions challenged many of our commercial customers all of our leading sectors experienced a drop in normalized load in the quarter with the biggest declines coming in schools churches restaurants and hotels.

Should our states manage without having to shutdown businesses again, we expect commercial sales to gradually improve throughout the balance of the year.

Finally in the lower left chart industrial sales decreased by 12.4% in the quarter, bringing the year to date declined to 6.6%.

A number of factors have changed the outlook for this class, but the biggest driver is the overall drop in economic activities.

The industrial sales the industrial sectors that posted the biggest declined for the quarter were transportation equipment manufacturing mining and primary metals. The two sectors that have grown in 2020 were pipeline transportation and petroleum and coal products.

Let's take a look at weather normalized load history and forecasts in more detail on slide 11.

The chart on the left shows that for the second quarter actual load very closely tracked our revised forecast as you can see from the chart. Our revised forecast assumes an economic trough in the second quarter that will gradually improve over the course of the year. So far we are on track and we'll keep you updated as we move throughout the year.

We wanted the time this call in order to give you the most updated load information through July.

Chart on the upper right shows monthly total weather normalized sales for March through July.

Sales for our system, we're lowest in May and have shown improvement in June and July.

Total normalized load for me was down 8.6% versus June which was down 4.8% versus July which was down only 2.4%.

The monthly macro data from both the business in household surveys show that unemployment rates peaked in April and have improved since this is consistent with our assumption that the trough is behind us and the economy should continue its gradual improvement through the balance of the year.

The bottom right chart shows for the month of July the trend that we forecast for the balance of years on track. Although there are some differences in load mix to what we have predicted or overall load is tracking very closely to our revised forecast.

Normalized residential sales for July while still very positive at 4.3% were less than for the second quarter and both commercial and industrial sales show real improvement versus the second quarter as shown on the prior page.

Now, let's move to slide 12, and review the company's capitalization and liquidity.

Our debt to total capital.

Our debt to capitalization ratio improved 70 basis points in the second quarter to 61.1%. This was largely attributable to reducing our short term debt levels in conjunction with fortifying our liquidity position.

As we navigated the capital market turbulence in March in fact, our liquidity position stood strong at $2.9 billion at quarter end.

The short term reduction actions also helped improve our FFO to debt ratio when compared to the first quarter moving to 14.1% from 12.5% auto Moody's basis.

Our qualified pension funding remained flat at 93% and our OPEB funding increased approximately 5% to 135%.

Falling discount rate increase both plans liabilities during the quarter, but strong asset returns, especially in equities were able to offset the growth in liabilities.

Let's wrap this up on slide 13, so we can get to your questions.

We are reaffirming our existing 2000 operating earnings guidance of $4.25 to $4.45 per share.

We are on track to reduce our own end by the additional $100 million, we announced last quarter in response to the economic downturn and revised load and implications.

Of the $500 million of Capex that we shifted out of 2020 into later years. We've now returned $100 million into this year, we will maintain our flexibility on this issue as we manage through the.

Balance of the year.

We obtained regulatory approvals in Oklahoma, Louisiana, Arkansas, and FERC and are moving forward with our $2 billion North Central wind project in Oklahoma benefiting our customers MPS Olin Swepco.

We have updated our capital plan from 33 or five year capital plan from $33 billion to $35 billion.

As well as our cash flowing credit metrics.

Which are provided on page 40 of the appendix.

Because of our ability to continue invest in our own system organically. We are reaffirming our stated long term growth rate of 5% to 7%.

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

Thank you and ladies and gentlemen, if you wish to ask a question. Please press one been zero on your Touchtone phone.

Here.

No.

Thank you.

Once again for any questions or comments, Chris one and in zero.

And our first question will come from the line.

Jeremy Tony.

JP Morgan your line is open.

Orange year, Hi, good morning.

Good morning.

Thanks for taking my questions here, Yeah, just just wanted to start off by a couple of I guess opposing items.

Influencing.

Going forward here, north central wind getting that over the finish line, obviously big positive Kobe headwind.

On the other side here just wondering if you could talk a bit more about how the these two factors influence I guess your your 5% to 7% range.

With north Central when I think we're just looking to see if that could really help you here are just wanted to see everything was shaken out I guess going forward.

Yes, so I mean, we look at.

Brian mentioned on the the code activity in the load activity.

You are seeing residential load.

The pretty strong.

Certainly.

As you look forward I think residential load is going to continue to look look strong with the work from home environment and the business cases that have developed afterwards.

And then if you have commercial and industrial pickup as well.

It could be.

Positive from a financial standpoint, the other regarding north central and other wind projects in solar projects.

We have a real opportunity to transition to that clean energy economy going forward in our service territory and that will will really makes us a.

Again, we would be disappointed not to be in the upper bar upper half of the 5% to 7% range because.

You have to be bullish about.

Not only.

We are load is going but also in terms of the transformation from a from a just a pure and simple energy policy perspective, regardless of who's in the White house in the next election will continue moving toward a clean energy economy, and then and then also I think bolstered by the other opportunities we have.

I Love.

Whether it's whether it's mid range broadband or other types of activities electric vehicles, and so forth that we're going to see the further electrification of this society. So.

I am really bullish about this about this company in particular, but but as well the industry.

That makes sense that's helpful. Thanks.

Maybe just kind of building off that with my second question I think.

He is going to 1.3 billion of equity issuance to fund North Central This point just wondering if you could update is there any thoughts with regards to is this definitively the path or is there potential for portfolio optimization is that still an option.

Yes, I think it absolutely is still an option and we're looking at all those options to see how to best finance. It we have plenty of time to make those things happen.

Nick said that Sundance might be pushed out to the first quarter of 2021, but we're not going to see the rest of those projects coming into reverse and Maverick until the end of 21. So all those things are in play whether its.

Equity or rotation of capital, but for planning purposes, we were guiding people that two thirds equity for that project in aggregate.

Gotcha Thats very helpful. Thank you.

Thanks, Jim.

Thank you.

Our next question comes from the line of Andrew Weisel with Scotiabank. Your line is open.

Andrew.

Good morning.

First a question on dividends so at the end of the deck you show dividends in 2020 to 1.5 billion versus 1.4 previously I also see the footnote that dividend should grow in earnings. My question is that increase of 100 million a function of more shares outstanding after the north central wind to equity or does it imply it.

Step up in dividend per share along with a step up in EPS or perhaps bose.

I think it'd be some of both because obviously with north central additional equity involved there but also.

As you said I mean are our dividend will move with our with our earnings capability. So I'd say both.

Okay great.

Yes.

Okay.

Well go ahead.

Caused them to seeing from brand one just comment on that but.

He said I covered it.

Okay, great Yeah.

On Capex, you mentioned that you're pulling back $100 million and the deferred Capex I just want to under share under the sure I understand what drove that is that assumption of specific projects being more necessary or more appealing or is it more a function of and better than expected cash flows, yes, I think thats a positive story.

Some of that some of that.

Is related to a new customer connections and so.

It was clearly evident that we needed to move that forward, but also we had the capability financially to move forward. We talked about this last on the deferral of the 500, we did we weren't changing the the five year capital plan, we were going to maintain that that level and the 500 was merely being deferred so that we could underway.

Dan what the Covance issues were going going to be and and so we're continually looking at.

Our process going forward in terms of.

Putting that 500 backend in various stages. So what you saw this quarter was the first stage of that.

Very good if I could just have one more here to clarify the last question, Jeremy the 5% to 7% range, you're pointing to the upper end of that is that a function of north central when now being included or is it more that you're pointing to the higher end with or without north central wind as a onetime or.

Well certainly we looked at we looked at north central but.

Obviously, we continue to track and we believe.

That the upper half of that guidance ranges is certainly achievable in something that we again would be disappointed not to be able to get there.

So.

Thats got is clearly an opportunity for us based on the things that I talked about earlier it should north central when should certainly solidify our position in the upper half, yes, and keep in mind to at the same time.

The achieving excellence program is continuing to grow so we already have plans in place and you're seeing sort of a crescendo of of of savings associated with that plan and the first year 2020 is some of it's in there, but but not much.

And when you look at the future years that continues to grow substantially and certainly.

As I've mentioned earlier. The addition of to race and the focus on Digitization automation.

In combination with the learnings from Cove. It I think is going to further accentuate.

The benefits from achieving excellence.

That all sounds great. Thank you so much.

Yep.

Thank you. Our next question comes from the line James Thanks.

Capital markets.

On James.

Hey, Good morning, guys can you hear me Yep Yep Yep morning, Okay. Good.

Morning.

Real quick quick question I know you had outlined the.

The bending the cost curve that he died down to kind of 2.8 and as co big took over we're now down at 2.7, it seems like year to date.

If you just look at an after tax basis, you guys are already kind of running above that kind of 100 million dollar shorter run rate how should we I guess thing to think about the non tracked doing them versus the.

Additional owned them that you are actually pulling out in response to code.

And as we think about 2021.

Is there any guidance I guess, you could give us on how much of that you think will will be retain evolve as we move into next year.

So we're we're at this point James not able to provide obviously specific guidance on 2021, but I'll say the incremental hundred million that we're able to garner.

As a combination of sustainable and one timers.

And I think it's a matter of managing our way through the downturn in normalized load and just working as hard as we tend to pull out all the stops to make sure that we meet our commitments to shareholders and the and really target the middle part of that range without impacting customers and so far we've been able to do that they're there have been so.

Unexpected things that we've seen maybe some things that aren't line items in OEM.

That have come out and I think is.

You have things like traveling expense.

Conventions that people go to things like that.

Meals just buildings expense that you have things that just don't happen when everyone's working from home that I think are more like one timers that as people go back to work will start to put those things back into place.

But you've seen our track record over the last nine or 10 years now and it's been keeping a very very tight range on untracked on them and we're using those skills that we've learned over the last several years.

To make sure that we're able to manage our way through this circumstance.

I would say.

As Brian mentioned, I mean, theres, a lot of learnings from coded 19, and the impacts and how we've operated in the efficiency of which we've operated and I think it's sort of changes the perspective and changes the threshold.

Even what one timers are.

And then ongoing because.

I think the learnings we have from here, we're going to be much different in our approach related to many of these activities and actually.

You would be surprised now certainly talk about this more at the end of the year of what achieving excellence is showing us of things that were buried in the organization that that that.

We we obviously have an opportunity to take advantage of and and so.

And there's no question that you should expect a continued.

Efficiency around the savings of over NIM and that's that's in the non tracked area you've you've seen on page 34 of the presentation you've seen the tight range, we've been able to keep it in in terms of bending the curve as we go down to $2.7 billion and on track, we actually are bending the curve down.

At this point.

Yes, bending the warping.

So.

That's good.

Now that's great and I guess, just just as a follow up I mean, obviously the run rate's been very very good I mean, you did.

Hi, Rob job I guessing in Twoq just.

The bulk of it from year to date perspective, having showed up but as you move through the rest of the year do you feel like you have additional room, whether it be onetime or again, Nick like you're talking about through just kind of change and workflow to continue to sort of.

Press that down if you need to if we get sort of resurgence cologuard.

Again.

Yes, I think number one really ought to think about the processes are in place and the focusing the organization is in place.

To be able to adjust and I'm I'm perfectly happy with the foundation that's been put in place for this organization on an ongoing basis I mean, because we look at our achieving excellence program. It's not just a onetime program. It's a regular process, we're going to go through and budgeting and is also a regular process will they'll go throughout.

The year for us to be able to adjust so we will do what we have to do and there's no question that we have the foundation to be able to do it.

Okay, great well. Thank you for taking my question and let guys.

Sure.

Thank you.

Next we'll go to line up their gas.

With Evercore ISI and your line is open.

Good morning a.

Hey, good morning.

So there is.

Hello.

Hey can you hear me sorry, Yes go ahead.

Okay great.

Just I wanted to follow up on the on them.

100 million number.

What was that 100 million was actually achieved in the quarter.

It will be.

The OEM capex for the own M, Oh, Im sorry, Oh Im cuts.

[music].

It's going to be achieved ratably throughout the balance of the year.

So from second quarter.

Third and fourth think about it being achieved ratably as we work our way through that.

Understood and I apologize.

So in my.

And when I'm speaking so.

And then the.

The potential labor initiatives.

You outlined is that in addition to the hundred million.

It's all incorporated to get us to that 2.7 billion dollar number.

Understood guys. Thank you so much.

Thanks.

Thank you.

Our next question comes from the line Sophie Karp with Keybanc. Your line is open.

Foreign service Hi, good morning, guys.

Morning.

Good water. Thanks.

Thanks for the time.

Curious about maybe.

Q2 2020 American Electric Power Company Inc Earnings Call

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