Q2 2021 American Electric Power Company Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the American Electric power second quarter 'twenty 'twenty 1 earnings call.
At this time all participants are in a listen only mode.
Later, we will conduct the question and answer session.
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That's the reminder, this conference is being recorded.
I would now like to turn the conference to our host Vice President of Investor Relations.
Darcy Reese. Please go ahead.
Thank you Tony Good morning, everyone and welcome to the second quarter 2021 earnings call for American Electric power. We appreciate your taking the time to join US today, our earnings release presentation slides and related financial information are available on our website at AEP 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 are Nick Akins, our chairman, President and Chief Executive Officer, and Julia Sloat, Our Chief Financial Officer, We will take your questions. Following their remarks, I will now turn the call over to Nick.
Thanks, Dorothy and welcome again, everyone to American Electric Power's second quarter, 'twenty 'twenty 1 earnings call.
Today, we reported strong second quarter operating earnings of $1.18 per share versus $1.8 for the same periods of the 'twenty 'twenty, our second quarter results reflect significant progress in terms of economic recovery throughout Aep's service territory, where the continued focus on O&M as we navigate through what is hopefully in the emergence from the COVID-19 pandemic.
Gross regional product has already exceeded as pre pandemic levels and employ the cross AEP service territory has now within 2% of its pre pandemic levels after adding over 163000 jobs in the first 6 months of this year.
Increase vaccinations combined with the additional physical stimulus from the American rescue plan for contributing to the strong demand for goods and services throughout the economy.
Aep's normalized retail sales in the second quarter of 2021 were the highest we've seen since the second quarter of 2018, clearly we are pleased with the improvements we've seen thus far and we'll continue to monitor the recoveries progress over the second half of the year.
Accordingly, we are reaffirming our 'twenty 'twenty 1 guidance range of for 55 to 475 per share a N of Fox, 5% to 7% long term growth rate and would be again disappointed not to be in the upper half of our sales guidance range. As we have previously stated Julia will be discussing these issues in more detail in her report.
Art.
Rate case activity across our jurisdictions continues to be active and substantial in Ohio. We are awaiting an order by the commission on the settlement reached in filed with the Commission earlier. This year as a reminder of the settlement has broad support from the settling parties, including the Commission staff, the Ohio consumers Council of industrial companies of commercial companies and other entities.
The Ohio Hospital Association, we expect the decision in the third quarter of this year.
The service company of Oklahoma file the rate case at the end of April DSO is seeking a 115 point for 1 million net revenue increase from the 10% Roe.
The following transact transitions north central costs from the rider of established and the approval into base rates. The case also seeks to continue of distribution rider recovery of recover our T O of expenses and other.
The depreciation rate testimony of the parties as to you in August with the hearing scheduled for September and an order expected in the fourth quarter of 2021.
In Indiana and M follow the base rate case on July 1st the filing is based on the future test year model and seeks the 97 million net revenue increase with a 10% ROE of the major items in the case include the recognition of over $500 million in capital investments per year of Indiana continuation of the transmission tracker the federal tax right.
Or should there as those changes occur and deployment of a M on meters to <unk> to provide customers more control and insight into their usage.
And our sweat goderich sections, we have rate cases, pending in Louisiana, and Texas and are preparing a filing in Arkansas for Tomorrow July 20 <unk>.
In Texas of hearing was held in May and swept copilot its reply brief.
And propose findings of facts on law on July 1st Sweat co is seeking of net revenue increase of 73 million and an ROE of 10, 35%. The fall of the includes investments made from February 2018 accelerated depreciation for 3 coal plants and increase in storm reserve and vegetation management, we expect an order in the fourth quarter.
Order with rates relating back to the effective date of March 2021.
In Louisiana, a procedural schedule of set with testimony due in the third quarter of 2021 and the hearing in January of 2022. The case seeks the 93 million net revenue increase of 10, 3.5% ROE in the order is expected between the second and third quarter of 2022.
In Arkansas, the case will contain a formula rate plan for subsequent years and consider the retirement of the previously announced coal the lignite assets. This falling as Tom to along with the North Central in service dates and the provide a mechanism both for recovery of costs associated with investments in flow through of the PTC disrupted customers.
We have certificate filings in Virginia, West, Virginia, and Kentucky related to investments needed to comply with the CCR and the L. G rules on coal plants in the region. We received an order in Kentucky and in ALJ decision and Virginia, denying EOG investments.
Final decisions from the Virginia Commission in the West Virginia Commission will be received in the third quarter of 2021, we understand that these are difficult decisions for states to make regarding the future of their generation resources.
We will be working with our commissions to navigate the implications of how each state's decision will affect the ongoing operations of these plants.
The <unk> and P. S O continue to make good progress with their commissions to recognize the storm Yuri expenditures Julie will cover this in more detail in her comments, but as a reminder, we filed for recovery of of whack returned over 5 years from Louisiana, Arkansas, and Oklahoma and will do so in the near future in Texas.
<unk> has filed for financing authority to explore the securitization of option. It was established by the legislature.
On the companies plan to transition its generation fleet reduced carbon emissions by 80% by 2030 of net zero by 2050 is well underway.
In April we announced new resource plans that include. The addition of up to 16600 megawatts of regulated renewable resources over the next decade. This plan provides a meaningful opportunity to invest in clean energy resources, while benefiting our customers and strengthening our communities.
Of our 2 billion of investment in the North Central wind facilities as the first in the very significant step forward in this transition and it provides a solid foundation for our clean energy transformation. The Sundance facility was placed in service in the second quarter and the Maverick of its reverse facilities remain on time and on budget for completion during the fourth quarter 'twenty 1.
In first quarter 'twenty 2 respectively. Solicitations also are underway for additional large scale renewable acquisitions, the atco and sweat co and we expect the issue the RFP to begin to fill the resource needs for P. S. O in October of 2021.
Our transmission investments continue to be strong.
Helping our communities prepare for a clean more efficient and resilient energy future. Our transmission Holdco contributed <unk> 34 per share in the second quarter of 15 cents from the same period last year, we remain engaged in the various processes at <unk> and third as we advocate the need for transmission and more robust comprehensive.
Planning methodology is to ensure that our path to of clean energy economy is as smooth as possible. We also continue to be of strong advocate like many supportive of achieving net zero of targets for the continuation of the 50 basis point of our T. O incentive this important incentive codified in the federal Power Act is critical to ensuring that needed transmission.
<unk> has made as we transition to a clean energy economy. If this nation has to move quickly to of clean energy environment, there must be of resolution and clarity around the important issues of investment return expectations as well as long standing issues of transmission siting processes and cost allocation mechanisms for certainly seems to be on the right track as they are.
Look of transmission related planning issues, just for additional development, but of course investment related incentives are important in that equation as well.
Okay now regarding the strategic process is ongoing regarding our Kentucky assets. We're on track with the timeline. We shared previously to have an announcement of a complete process, 1 way or another by year end.
As we have stated previously keep in mind that we must obtain FERC, Kentucky Public service Commission approvals before of deal could close so that could push into 2022.
As we focus on reaching a suitable transaction deal we would announce in 2021 and move forward expeditiously on these 2 filings in parallel and reach closing as soon as possible. These.
These regulatory approval processes of our 180 days for the FERC section 2 of 3 filing in 120 days for the Kentucky Public Service Commission transfer of control review.
While this is an ongoing confidential process progress is being made it reminds me of the Carly Simon song anticipation and if I paraphrase. Some of the lyrics. We can never know about the day is to come but we think about them anyway, and hopefully you're chasing after some finer day more to come during the rest of 2021 on what that.
Finer day looks for it looks like for AEP.
Last but not least our achieving excellence program as of year over year effort to maintain our cost discipline. Our efforts year to date of largely centered on the returning to the workplace. The vast majority of those that would be in the office of returning in August like many employers we will accommodate remote hybrid and on site work going forward what was once of 100.
Percent onsite for our office staff prior to the pandemic will become approximately 24% remote 43% hybrid and 33% on site. When we finally, when we fully return.
That excludes field level of employees of course, we plan to reap the benefits of reduced travel less occupied office space savings on real estate, the broader talent pool and improved worker efficiency through digitization and automation initiatives that that accelerated during the COVID-19 pandemic.
As you know 1 of the highest priorities involves ensuring a P is active in supporting our communities and serving as a positive voice of force for social Justice and advancing ratio of the quality. We have engaged both in community dialogues as well as conversations within the company to promote a deeper understanding and commitment to meaningful change. Our efforts include the renewed focus on our chair.
Notable giving to support our organizations that are focused on these efforts. Our AEP Foundation has announced significant additional focus on social injustice related initiatives. These of activities not only support the culture, we expect within AEP, but also sets. An example for our communities in the nation on what could be in this country.
So for so now I'll move to the equalizer chart and I think you have that with the with the bubbles of each company.
For that you know I'll remind everybody, we generally target the ROA for the regulated segments to be in the 9 and half the 10% range the <unk>.
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We have to keep in mind, though that we are and have been in the process of thickening of the equity layers over the last several years. So we have to take that into accounts.
For AEP, Ohio, the ROE for AEP, Ohio comes in at 9.7%.
The RFP was near authorized primarily due the timely recovery of capital investments, we expect the ROE to continue the trend around those authorized levels and of course I mentioned earlier, we're waiting on the Commission Commission order as well.
It Atco the.
ROE is coming in at 8.1%, it's our ROE was below authorized due to higher amortization primarily related to the retired coal fired generating assets and higher depreciation from increase of Virginia depreciation rates of capital investments and of course I've already talked about previously about the Virginia case in and where it stands with the Virginia superb.
The court.
In Kentucky, the ROE is 5.9%, Kentucky. The ROE is below authorized use of the loss of load from weak economic conditions and loss of major customers along with higher expenses.
And in June 2020, Kentucky power filed a base rate case, seeking 65 million revenue increase in the ROE of 10%, Kentucky power received the final order in the base case and rates went into effect in January of 2021 authorizing an ROE of 9.3% in the revenue increase of $52 million.
Our NIM came in at 9.8% are there already is consistent with authorized ROE of <unk>.
For which are of $9.8 6% in Michigan, the 9.7 in Indiana.
Earlier in July of 'twenty, 'twenty, 1 as I mentioned earlier, they fall of the new rate case in Indiana.
And we will continue on with that.
So came in at 7.9% is below its authorized level, primarily due to increased capital investment currently made in base rates and higher than anticipated equity due to the extreme for February winter weather event, which.
Julia will be talking about a little bit later.
And then of course are we in the April 2021 as I mentioned earlier, we filed a new base rate case, there as well.
For sweat co. The ROA of Sweat code of 7.9% below authorized primarily due to increased capital investment currently not in base rates and the continued impact of the Arkansas share of the Turk plant that is not in retail rates and of course, I've mentioned earlier it affects it by about 110 basis points.
So we have the 3 cases in October 2000, Twenty's sweat profile of the Texas case, which we're still waiting the outcome swept to also is falling of the Arkansas case, and then I mentioned earlier, the Louisiana case as well.
AEP, Texas is at 7.9%.
Always below authorized primarily again to a significant level of investment in Texas and the timing of the annual cost recovery filings associated with that investment as you recall, we have D CRF and T cost filings it recover on a pretty regular basis. So the expectation is for the ROE.
For you to hover around that 8% because of all of the investment that's going in that state.
But should trend toward 9.4% of the long term longer term.
AEP transmission Holdco the ROE for the Holdco is at 11%.
The ROE is above authorized primarily driven by higher revenues due to the differences between the actual and forecasted revenues. The transco has benefit from of forward looking formula rate mechanism, which helps to minimize regulatory lag. So of transmission is forecasting to continue to be around 11% in 2021. So the.
The overall about 9%, but again remind you of the equity layers of increase.
Actually pretty substantially over the last few years so.
The 1 of the tradeoffs that are being made there.
So in closing we had a strong quarter on the first half of the year I am proud of the accomplishments of our employees of made in 2021 and the commitment that our team makes day in and day out to the communities, we serve especially during the pandemic and as we come out of this trying time, our employees continue to focus on maintaining a high level of discipline in controlling costs.
And with the board economy on the men certainly it gives us confidence in the rest of the year on delivering on the mission of consistent earnings and dividend growth expectations that we've reduced the year after year, if I look at the key areas for AEP to address for the remainder of 'twenty, 1 and in the 22. They are to conclude the strategic review of Kentucky.
Conclude north central with the appropriate financing the ownership and recovery advance our clean energy transition with the 16600 megawatts of renewable resources and continue the improvement of our credit metrics in line with our 2022 expectations, which Julie will talk about again.
Of course, all of this is grounded fundamentally by safety cultural and operational excellence of expectations with a focus on the execution.
If we have any food fodder fans on the call. The rock Hall is inducting them in this year's class of inductees. They did a song called this will be our year, which was originally recorded by the zombies, but it says now are there and we've only just begun this would be our year took a long time to come and this is true for a P regarding our clean energy.
<unk> transition and our execution towards portfolio optimization with that I'll turn it over to Julie.
Alright, thanks, Nick Thanks, Darcy, it's good to be with everyone. This morning, I'm going to walk us through the second quarter and year to date financial results share some thoughts on our service territory load and finish with the review of our credit metrics on liquidity. So let's go to slide number 6 which shows the comparison of GAAP to operating earnings for the quarter and year to date periods GAAP earnings for the <unk>.
Quarter were $1.16 per share compared to $1 <unk> per share in 2020 GAAP earnings through June were $2.31 per share compared to $2.5 per share in 2020. There is a reconciliation of GAAP to operating earnings on pages 14, and 15 of the presentation today.
So let's walk through our quarterly operating earnings performance by segment, that's laid out on slide number 7.
Operating earnings for the second quarter totaled $1.18 per share or $590 million compared to $1 <unk> per share or $534 million in 2020 operating earnings for the vertically integrated utilities were 45 cents per share down 10 cents driven.
Driven by a year over year increase in the O&M due to lower prior year O&M, which included actions. We took 2 of guests of the pandemic. Other pressures included lower wholesale load and higher depreciation and other taxes. These items were partially offset by the impact of rate changes across multiple jurisdictions and higher normalized retail load.
Transmission revenue in off system sales.
The transmission and distribution utilities segment earned <unk> 31 cents per share up 2 tenths from last year favorable drivers in this segment included higher normalized retail load the transmission revenue and rate changes, partially offsetting these favorable items were higher tax depreciation and O&M expenses as well as the unfavorable weather and lower asking the D C.
Yeah.
AEP transmission Holdco segment continued to growth contributing 34 cents per share an improvement of 15 cents, which got a boost because of the unfavorable annual true up last year consistent with the 2021 earnings guidance assumptions. We had provided to you our fundamental return on investment growth continued as net plant increased by $1.4 billion or 13.
Percent since June of last year generation and marketing produced <unk> <unk> per share down 2 cents from last year influenced by the prior year land sales and 1 time items relating to in Oakland Union <unk> adjustment and the sale of cones Vale, neither were mostly offset in the generation business by higher energy margins and lower expenses from the <unk>.
Retirement of the local union.
Finally, corporate and other was up 5 cents per share driven by investment gains lower tax and lower taxes, which was partially offset by higher O&M and net interest expense. So bear with me a moment on talk a little bit more about that investment gain as we work through the year to date on yourself. If you flip to slide 8 we can look at year to date results operating earnings.
Through June totaled $2.33 per share or $1.2 billion compared to $2.10 per share of $1 billion in 2020 looking at the drivers by segment operating earnings for vertically integrated utilities were $1 per share down 5 cents due the higher O&M and depreciation expenses other smaller.
<unk> is included in the lower normalized retail and wholesale load other higher other taxes and of prior period of fuel adjustment the impact of weather was favorable due to the warmer than normal temps in the winter of 2020.
Other favorable items in the segment included the impact of rate changes across multiple jurisdictions higher off system sales and transmission revenue the.
Transmission and distribution utilities segment earned <unk> 54 per share up a penny from last year earnings in this segment were up due to higher transmission revenue rate changes weather and normalized retail load partially offsetting these favorable items were higher tax depreciation O&M and interest expenses as well as lower <unk>.
D C. The AEP transmission Holdco segment contributed 68 per share up 21 cents from last year for the same reasons identified in the quarterly comparison.
Generation of marketing produced 16 cents per share down 2 from last year due to favorable 1 time items in the prior year relating to an Oakland Union <unk> adjustment and the sale of Cowen sales higher energy margins and lower expenses in the generation business offset the unfavorable ERCOT market prices on the wholesale business during the storm here in February the <unk>.
Decrease in renewables business was driven by lower energy margins and higher expenses.
Finally, corporate and other was up 8 cents per share driven by investment gains and lower taxes, and partially offset by higher O&M. So let me take a quick moment to comment about the investment gain which is predominantly a function of our direct and indirect investment in charge point and you'll see on the waterfall. This produced a 9 cent benefit year to date and.
<unk> 2021, as compared to the corresponding 2020 period, you may recall that in the fourth quarter and full year 2020. This investment produced a 5 cent contribution and we would expect the year over year variance to be more pronounced at this point in 2021, and we had no benefit during the same period in 2020.
So turning to page 9 I'll update you on our normalized load performance for the quarter before I talk about class level trend I'd like to start with a couple of observations at a macro level. So first of all since all of these charts are showing of year over year of growth. It is important to recall that the second quarter of 2020 with it the trough of the recession when restrict.
<unk> on businesses to manage the public health crisis with the greatest so the magnitude of growth percentages, it's being influenced by the comparison basis and the second observation is that there has been a steady path to recovery since the bottoming out in the second quarter of last year. The momentum we're seeing as a positive sign for the economic recovery throughout the service territory.
If you start on the upper left corner, you will see that normalized residential sales were down 3.1% compared to last year, bringing the year to date and decline down to 1 half of the percent as mentioned earlier. The comparison basis is the key here you'll notice that residential sales were up 6.2% when the COVID-19 restrictions were at their greatest in fact, 1.
The year later, the only down 3.1%, which suggests some of the increase in residential is having some staying power as more businesses have embraced the remote workforce for jobs that can be easily performed at home in fact, the second quarter normalized sales in 2021 were the second highest second quarter on record.
Moving every second quarter before the pandemic began so moving to the right weather normalized commercial sales increased by 10%, bringing the year to date growth up to 3.9%. If you compare this with the residential class you'll notice the commercial sales growth in the second quarter is more symmetrical with last year when sales were down just over 10 per.
<unk> the.
Growth in commercial sales for the quarter is spread across all operating companies and most sectors. The only sector that was down slightly compared to last year with grocery stores, which were very busy at the onset of the pandemic trying to keep shelves stocked when panic purchasing was at its highest.
So moving to the lower left corner, you'll see that the industrial sales also bounce back in the second quarter industrial sales for the quarter increased by 12, 8%, bringing the year to date growth up to tune up 2.8% similar to commercial the commercial class, you'll see a symmetrical recovery compared to the second quarter of 2021.
Sales were down 12, 4% also industrial sales were up at every operating company in nearly every sector. The only industrial sector in our top 10 net reported less sales this year compared to the second quarter of 2020 of the paper manufacturing sector, which Ironically was also higher last year, partially due.
To panic purchasing of toilet paper. This is a phenomenon that none of us are likely to forget, especially if you're on 1 of the folks who didn't get a jump on it.
Finally in the lower right corner, you can see that in total normalized retail sales increased by 6.3% for the quarter and were up 1.9% through the first half in here by all indications of recovery from the pandemic and recession are on a firm footing. So let's go to slide 10. There are 2 more charged here that help put the second quarter normally.
The sales performance into perspective, the bar chart shows the last 5 years of weather normalized retail sales in the second quarters for AE for the AEP system.
Our retail load performance in the second quarter of 2021 has not only recovered from the recession, but it is also the highest second quarter since 2018 the.
The line chart on the bottom of this page shows the seasonally adjusted retail sales by quarter, which provides an illustration of the trend of the recovery and again confirms that our current level of sales is the highest since the second quarter of 2018. So before we leave the load story, let me remind you of an important factor to consider when evaluating the impact of.
Load growth the mix matters. So while we're seeing strong growth now in commercial and industrial sales those are priced at much lower realizations and the decline we're seeing in residential sales to further illustrate this point the impact of the pandemic was most pronounced in our biggest metropolitan area that the Columbus, Ohio since Columbus since AA.
The P. Ohio is in the T&D utilities segment, where we only collect an unbundled rate the strong recovery that we're seeing this year is coming in at much lower realization and the system average finally, let me let me remind you that debt there are rate design mechanisms in place to limit the exposure when entering a downturn that can also limit the.
Impact on when Youre coming out of recession. So while the industrial sales are up significantly this year versus last year. It does not mean the revenues will increase by the same percentage. So what does all of this mean when do we think about the remainder of 2020, well it means that our confidence in our earnings guidance range is fortified by what we're seeing it suggests that the load trends, we anticipated are coming to.
Fruition as the chart on page 9 illustrates our continued investment at Transco is fueling strong performance in the segment beyond the favorable true up the impact that we had anticipated and while O&M is up it's enabling us to take care of our business and customer needs given the loan growth. We're seeing obviously, we have the second half of the year to navigate but we're pleased with the direction and our keep.
A watchful eye on the economic activity in our service territory, while scanning for any impact associated with horizon and Covid variance.
So let's check in on the company's capitalization and liquidity the liquidity position on page 11 on a GAAP basis, our debt to capital ratio increased <unk>, 1% from the prior year quarter to 62.6% when adjusted for the storm. The Aerie event the ratio remains consistent with year end 2020 at.
61, 8%, let's talk about our <unk> the debt metric as it did in the first quarter of the effect of storm here continues to have a temporary and noticeable impact on 2021 on this metric taking a look at the upper right quadrant honest page, you'll see that are <unk> of debt metric based on on the traditional Moody's and GAAP.
Related basis, as well as on an adjusted Moody's and GAAP calculated basis.
On a traditional unadjusted basis, our S. S load of debt ratio increased by 2% during the quarter to 9.3% on of Moody's basis on an adjusted basis. The the Moody's episode of debt metric is 12, 8% to be very clear. This 12, 8% figure removes or adjust the calculation.
To eliminate the impact of approximately $1.2 billion of cash outflows associated with covering the unplanned Erie driven fuel and purchase power costs in the SPP region directly impacting P. S O and swept Coe in particular.
The metric is also adjusted to remove the effect of the associated debt. We used to fund the unplanned payments you should give you a sense of where we would be from a business as usual perspective. As you know we are on frequent contact with the rating agencies to keep them apprised of all aspects of our business. The rating agencies continue to take the anticipated regulatory recovery in the consider.
<unk> as it relates to our credit rating and importantly, there continues to be no change in our equity financing plan and our multi year cash flow for forecast.
The forecast that's laid out on page 39 does not assume any asset rotation proceeds.
Given the regulatory recovery activity. That's currently in flight, we do expect our <unk> to debt cash flow metric to return to the low to mid teens target range next year. So here's a quick refresh on where all of this regulatory activity stands today for P. S. O on swept co in Oklahoma, we're working through the regulatory process and anticipate issuing securitization bonds and the free.
First half of 'twenty, 'twenty, 2 and both Arkansas, and Louisiana recoveries underway, while final details get worked out in the regulatory process and we will be filing for recovery in the Texas and Texas in the third quarter of 2021.
So let's take a quick moment to visit our liquidity summary on slide 11, you'll see here that our liquidity position remains strong at $3.3 billion supported by our 5 year for billion dollar bank revolver and 2 year $1 billion revolving credit facility that we entered into on March 31 of this year. If you look at the lower left side of the page you'll see there of qualified pension continues to be.
Well funded and are OPEC is funded at 174, 2%. So let's go to slide 12, and we'll do a quick wrap up on we can get to your questions on our performance in the first half of the year gives us confidence to reaffirm our operating earnings guidance range of $4.55 per share to $4.75 per share because of our ability.
To continue to invest in our own system organically, including both our energy delivery system and the transformation of our generation fleet, we're confident in our ability to grow the company at our stated long term growth rate of 5% to 7%. So we certainly do appreciate your time and attention today, so with that I'm going to turn the call over to the operator for your questions.
Yeah.
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And that'll come from the line of Julien.
Dumoulin Smith with Bank of America. Please go ahead.
Good.
Thank you for all of the remarks, I'd say at the pace that you guys were just talking I would of mistake you guys for sitting in New York or something like that.
Yeah no.
Try to catch up on everything that was just that.
[laughter].
But the.
In summary on the logos I hear you I think the critical comments you made was mixed.
Where are you trending against your guidance range here as you think about obviously third quarter. Matt is critically obviously you kept intact the total load growth here.
Any comments just resolve that against the full year number of I mean I know.
We're still early ish for the year, yes.
Yes.
Sort of answered the question, we're still early in the year cause of the third quarters, particularly meaningful.
And we you know we typically.
Look after the third quarter, the C, where we where we actually stand, but but again as Julie mentioned, the O&M goes up commensurate with all of the customer expansion as well and we have a pretty sizable customer expense you look at the industrial and commercial numbers, they're up considerably so and I think I think.
It honestly is outstripping our estimate going end of the year of what overall load growth would be but you.
You know what range of be seen because I think we're sort of in a in a very cyclical period of of.
Trying to figure out you know what the future of holds in terms of whether whether this this other variant of Covid is going to have an impact or or or what happens actually is there of just pent up frustration of then it starts to moderate.
Was promising is though that we're seeing.
We're still seeing the.
The residential load, although it's negative the 'twenty 'twenty is still a positive overall so on.
Our original thesis of of more of residential load going forward and if we can if we can tie that together with improved industrial and commercial load as well.
It could be very very positive, but we certainly have to drill our way through that and really understand that sort of the past third quarter before we really have a good deal of that Julian Yeah, just just to maybe add a little finer point to if youre thinking sequentially for the remainder of the year you know our our low growth rates are expected to moderate in the second half of the year based on prior year.
Comps so when you think about it restrictions where most severe in the second quarter and by the third quarter of last year. So by the third quarter of last year of the service territory had begun a essentially a phased reopening and so as a result, the the 6.3% growth for the second quarter is probably not only the highest growth in the quarter.
And actually it is the highest growth on a piece of history, but it'll also be the highest load growth stat. During the recovery. So if you think about the second half of the of I would expect that year over year to moderate a little bit and so we're just keeping a watchful eye on how the trend continues to click along I know I saw on the Wall Street Journal This morning.
CFO was commenting on where they think of the economy is going to go doesn't look like anybody's changing their estimates based on COVID-19 trends, but we're keeping an eye on that.
Got it excellent. Thank you and then if I can think of it. The tech obviously, you all have a pretty meaningful footprint there.
We've seen various legislative efforts underway I'm curious as best you can tell thus far I know it's early.
Any kind of context, you can put especially on the transmission side of potential projects here.
We're hearing from some of your peers about potentially meaningful shifts.
Well certainly.
Obviously, it remains to be seen as far as transmission investment and it really we think of T N D.
What parts of the businesses associated with T. N D. We have made some inroads in terms of in terms of backup generation those kinds of things in terms of transmission Ah I really think theres, probably continued opportunity for development of storage capability of of other transmission related investments.
On the grid to ensure that we're.
They were able to to adjusted for US we're doing a lot in terms of wine insight into the transmission grid itself.
Continuing to expand our state of ability is continuing to focus on our ability to have even more transmission in place because.
If you're looking for additional generation to be placed in various areas with transmission is a big part of that solution as well so as.
Is that and I think Texas of sort of a microcosm of of the country. When you started.
Reevaluating the system based upon the needs for Mcdonnell the of natural gas perspective, but also from the renewable perspective that brings in the whole planning effort and communication and real time are.
Associated with the operations of the of the transmission ended and for that matter of the distribution system as well so.
I think they're there, they're making the the rights steps.
And I think there's more steps to be made so and it's going to be a sort of a multi year top of effort.
Of course, you know, we're a big part of the transmission in Texas. So will be certainly very focused on on how the T&D business can be expanded to improve the resiliency of the T. N D efforts, but that that means Texas is really going to have to start thinking about resources in a broader view of resources like we're having to do for.
The rest of the system and transmission technologies and for that matter of distribution technologies are going to have to be recognized.
And its ability to provide a more resilient grid you can't have these these are the strict lines drawn between generation and transmission and distribution because that's not the world. We're in anymore. So so we will continue that focus every legislative session every regulatory session will.
It will be centered on that effort.
Excellent.
The Kentucky, I imagine you can't say much but what's the level of interest if you can give any kind of grandmothers.
Yeah. So on.
Honestly.
I don't want to get into too much detail. The I figure yet again, you answered it sort of right at the beginning it is of confidential process, but I can say that we do we do have a credible interest.
And it is a competitive process.
Excellent. Thank you all take care of fee.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Good morning, Steve.
Okay.
Hey, Good morning can you hear me next morning, Oh, Yeah, I can hear you are on.
Okay, great. Thanks.
I might have missed this but just where are you on the $600 million of equity plan for this year, how much of you issued so far.
Thanks for the question, Steve we've actually used the ATM to issue just under 200 million I think it was around 195 million that was associated with the financing of the Sundance North North Central wind facility and we'll be continuing on with the rest of that program. As you know about 100 of that 600 is also associated.
With the drip so that continues to play in the background.
That helps.
Okay.
Then just the.
This might be a little bit hard to answer, but just in terms of thinking about the 1 billion for for next year.
That's in the plan, obviously, if you were to sell Kentucky some of that could maybe offset some of that so just.
Could you just give us latest thoughts on how to think about.
The Kentucky outcome relative to the $1 billion for for for next year.
Yeah, and then net.
10 out of finer point from a strategic perspective, but purely from a financing perspective, you're right on on the money, Steve. So we got $1.4 billion embedded in our plan and for those of you who are following along at home of on page 39 of the cash flow. If you want to take a look at 2020 to.
About 100 of that again is associated with the drip of about 800 is associated with north Central wind financing and then we have another $500 million just associated with general funding of growth Capex and so to your point, Steve to the extent that we would find ourselves in a situation, where we were able to transact and bring dollars.
And the door, we'd absolutely be able to work off some of that otherwise equity issuance and sidestep that so I don't I can't give you a number we don't have a transaction, but that is absolutely the thinking on how we're modeling different scenarios inside the house and I don't know Nick if you have any comment on I think right now for you covered it well it.
As far as it's great to have a financing plan assuming.
Kentucky, the sale of Kentucky doesn't happen, but but also it's great to have the.
The options available to us to further optimize what debt financing plan looks like so so and <unk> and all I'll say again, you know the timing.
Particularly with the reverse being the last 1 that's the largest 1.
First quarter 'twenty, 2 that times out pretty well with this process. So so we'll get this resolved and then there'll be financed 1 way or another but but at the end of the day of the timing of it and the and the process is continuing on plan.
And then just if I could follow up yet.
Again, just to reiterate the plan as it stands today as you know assumes no asset rotation and again I want to reinforce that the 5% to 7% is well intact. Even if we don't have the transaction.
Okay.
And are you do you have a bar.
A bias within that range.
At all or just kind of of that for any of them.
The that's the part probably we can't answer at this point the.
[laughter], Okay, so youre being very unbiased.
[laughter] for our move.
Okay. Thanks, so much yeah sort of thing.
Thank you. Our next question comes from the line of Shar Parisian with Guggenheim Partners. Please go ahead.
John Hey, good morning, guys.
I wanted to start with a recent event and get your sense on the Mitchell order in Kentucky.
Sort of rejecting the rate of increase you saw obviously you know it's not a surprise for on the AG strong comments part of the decision making is this sort of the signal that the state and the PSG in general they are starting to commit to maybe a little bit more of a rational thinking around the economic approach to coal like the lease cost approach of just starting to.
Ben further towards renewables, so how do we think about the viability of the plant in the state and could we see some acceleration of that 1 point for gigs of sort of on when you brought into the plan for the state on the prior calls of direct read and then how do we sort of think about west Virginia as rate requests coming off the Kentucky order yeah.
Sure It is.
The interesting I mean, it's multi jurisdictional.
As you know in Mitchell as is the Wheeling and because of your power and I think we have to get resolved.
Oh, the Kentucky, Virginia, and West, Virginia, West, Virginia has yet to speak on this issue, but but.
And it's the only the ALJ in Virginia, So we'll hear more on from from Virginia on that.
But it's I think it's really important for us to really hold on there are cards for now because we got to get through a state process. It's good to have clarity and I think of Kentucky. Obviously is the first shoe to drop in this regard.
But we've also made it clear.
Clear that the these are multi jurisdiction, we a unit. So so we have to make sure that there are some compatibility of of the the art.
The jurisdictions that are involved we will go through the process, we'll get the initial views of of the of.
The commissions and and the and then if they are on different different tracks.
Tracks.
We'll have to further.
Analyze and resolve that with the commissions and Theres a lot of resolutions that could occur some summer short of some are longer but but.
But we have to understand where all 3 commissions are before really doing the senior I think I think it was good to get clarity though.
And and I think it's pretty important.
Debt, whether it's the E L G or the CCR, if they approve all of them if they approve CCR investments, but don't improve approve EOG investments. Then you know that effectively brings the the generation of retirement dates back from 2040 to 20 of 28.
So that's something we have to consider along with the with those commissions, but we'll know more about this in the in the August timeframe.
The hazard to say you know what what Kentucky.
It's the it's pretty interesting that the they would be looking at the the.
The LG part of it and and I think I think.
I think there is becoming more of an awareness of of the there has to be of plan now what that plan is we've got a fully resolved with all of those commissions. So so more to come on that.
Got it and then thanks for the visibility around the sort of the Kentucky process and I know Nick you, obviously mentioned that.
Further optimization is always a possibility remind us of like the trigger point is the shaping of the for instance at 16.6 Gigawatts of renewables you discussed in the prior call, obviously, Kentucky will more than likely backfill some of your north central equity needs. So as you're thinking about further optimization.
<unk> should we be watching like the outcomes of the IR of fees. The PSC approval of how much you plan to own versus Ppas, which I guess, which stipulates your incremental equity needs and the resulting size of them potentially further optimization measures yeah, yeah. So.
Just like.
We've gone through probably a couple of years now of discussions about how the north central was gonna get financed in and we're finally getting to the point, where you know of.
Ultimately, we will know how it is being being financed the 16.6 Gigawatts and an Ah Ah is certainly we made a pretty credible case that we ought to own a significant part of that I'd like to own all of it but certainly Ah if.
The operationally and from from a Ah Ah Ah.
Contracting standpoint, and certainly the ability for us to to respond to the system related activities. It's important for us the own and control of those at those assets and I think that debt as.
As we go forward.
Youre right it will be the integrated resource planning filings that are made.
The start that dialogue now we're in the process of doing rfps to get more.
More information of obviously from the for the market in terms of what's out there from a developmental perspective and that process is ongoing so that'll that'll certainly fortify and he sees the CCN followings, we have to make or or anything like that after the resource planning filings, but the resource planning filings will be your first the first.
The real dialogue around how quickly this transformation will occur in each 1 of the jurisdictions and and so we're feeling pretty good about it because it's.
It's getting to the point, where we have to the side from a capacity standpoint.
How we how.
How we support these utilities and and and it's pretty clear to me that that the the movement of that clean energy economy of the moving us toward as long as you have some element of Baseload 24, 7 capacity that renewables will be the the big part of that so so a lot of that's just become an.
I think it's becoming much more transparent and and an hour of jurisdictions.
I think the conditions are both federally and from a state perspective are there just a better realization of what the options are and the timing of those options and and that's what will drive for do that resource planning process.
Got it and then lastly for me on them and I apologize if I'm, putting you on the spot now because of it.
You know the news just broke out this morning, but is there any kind of read through to the Firstenergy deferred prosecution agreement that was announced this morning to the SEC.
The investigation at AEP.
No that's not.
Like I said I've said before we are on the outside looking in we have no knowledge of of any of that activity and and so.
If the report is the true I'm glad to see that there is some element of of.
Putting all of this in the rearview mirror because.
Naturally are now said before AEP has been hung up in the in the wake of that and and the.
I'm certainly hopeful that the that there are some some closure abroad brought about from that so.
But yes I have.
It was a it was a surprise for me and we knew nothing about it and and certainly.
The.
There's really nothing else that we've that AEP can say other than what we've put on our website and and and and naturally Theres just nothing to report from our perspective.
Terrific. Thank you Ron and then generally congrats on today's results.
Okay.
Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please go ahead.
Good morning, Hey, good morning.
Are you Ah congrats on a constructive update in on the weaving and I mentioned the both Carly Simon on the few factors that may be the first.
[laughter] yeah right.
So lots of things.
Just wanted to discuss on Kentucky.
There are 2 approaches.
Approaches that can help minimize tax leakage on that sort of the ability to bring proceeds back in and sort of the impact of taxes.
Yeah. Thanks for the question Stephen.
As you know, we're a little tax inefficient right now so you know given the tax basis in Kentucky, and the the different hurdles that we're considering I wouldn't see that 1 being a showstopper and quite frankly that might give us an opportunity to enhance or improve our tax efficiency without getting into a bunch of numbers.
I wouldn't let that trip you up in terms of what things could stop us moving forward.
Yeah. That's helpful. And then maybe just thinking through the upcoming Rfps you mentioned, the the Opco and swept go Rfps could you just talk in a little more detail in terms of color around the b. The the timetable there and I'm sorry, if I missed that if you all go through it.
Didnt quite follow there I'm, just thinking about sort of what that might mean for timing of incremental spending and sort of how we should think about those processes.
Yeah.
Yeah. So.
We've.
Certainly gone through the.
The basic requirements for the Rfps for all of these.
These areas are but.
As we go through that process.
There's a debt atco.
We issued an RFP there for 300 megawatts of solar.
And wind resources.
Really for a completion date of 2023, the or 2020 for.
And then in the May of 2021 atco issued an RFP to obtain.
There's 100 megawatts of solar and wind energy via P. P. A an RFP.
For the renewable energy certificates, the only which is consistent with the.
With the Virginia on what their what their requirements are and then.
And then swept co issued an RFP for own resources up to 3000 megawatts of wind and up to 300 megawatts of solar resources.
For the optional battery storage by the way.
That can achieve completion by 2020 for towards the 2025.
And they're also seeking 200 megawatts of capacity and the 23 of 24 range and another $2.50 in the 25 to 27 range. So those bids are due in.
Mid August.
And then the peso we are.
In June we notified the regulators the turns that we intend to issue an RFP seeking up to 2600 megawatts of wind.
Wind and up to $13.50 megawatts of solar again with options for battery storage consideration and that's meeting capacity needs are about 2025, So and then the peso plans the issue the RFP in October of this year. So those those are the ones that are on the board right now.
And have really some near term related requirements.
And most of our.
On our capacity related Rick.
<unk> so.
The.
And the and again, there they're being done pretty much the same same way as the of the others.
With north central that Oh, it will.
We will certainly do more of a of a turnkey type of thing where we take ownership at the time, the that's approved and right. So and then of course, we'll go through the process of of approvals by the various the commissions along the way so.
But that's that's the plan right now and then we will continue the 2.
Matter of fact, we're spending a lot of time with our board focused on the.
The strategies related to these types of these types of filings in the plan long term.
And it's important for everyone to understand this is gonna be a continual process and the <unk>.
We're just seeing the the first part of of of.
These drove really driven by capacity requirements and not just sort of a on energy convenience. So so.
I think they're really good to go out with right now.
That's why we have at this point.
That's really helpful. That's all I had thank you.
Thank you. Our next question comes from the line of Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, good morning.
The morning, How're you doing.
Good good.
I just wanted to pick up on Kentucky, a little bit more of that as possible and just wanted to know if you might be able to comment in any degree to whether the strategic review process has received more interest from strategic or financial players.
And then as well you know kind of given strong prices achieved in recent industry transactions and the strong interest you know here in Kentucky. As this process made you saw about more asset rotation beyond Kentucky to increase the balance sheet headroom overall.
Yeah. So the for the for the first question you know we started out this process I'm, saying that we expected to get the strategics and financials and we have strategics and financials. So so so so both of both are involved and then as far as your your second.
His concern is as I said earlier with the with the few fighters dialogue the.
This is this is gonna be a continual process for us and if we're practically fully regulated so we have the opportunities to look at.
If we can if we're building 16.6 gigawatts of of our of our renewables resources during the transition and we got the we'd have to have everything on the table in terms of sources and uses so we're gonna go through that process and of course.
Kentucky is sort of a first stop.
And but we will continue to evaluate.
Our assets are.
As sources and if it makes sense.
Based upon what the other opportunities are then then the that's the kind of framework that we want to move this company toward.
Got it that's helpful. Thanks for that and then there's news coming out of FERC with regards to kind of the transmission planning process and just wondering if you might be able to provide you. Some thoughts on your thoughts on on what's been said recently and what you see as kind of.
The best practices here.
Yeah. So you know obviously, we'd like to see a much.
Much better transmission related planning across regions and you know AEP does a pretty good job itself in terms of transmission planning because.
Because we do have a large system the to consider.
But at the same time, our T O R T O.
Of.
Planning process to try to make them more consistent so you can have.
This large transmission being built across regions and across states.
You're going to get that going, particularly as you're trying to trying to get renewable resources to load centers.
We're gonna have to resolve these issues around multi.
Multi jurisdictional multiyear T O.
Type of analysis.
CS and making sure that we're consistent the other part 2 is we've.
We've got to have consistency in terms of ratemaking and and this notion of of reevaluating.
Incentives the structures and and those types of things is not good for making decisions relative to transmission or and if it's not good relative to the Archie O model itself.
So I think I think for.
It really needs to sort of step back and take a look at it I think is a real positive approach to be focusing on the planning aspects and addressing our T O. The Archie O boundaries addressing the areas, where what's competitive what's not competitive all of those types of things of.
That's that's fine, but but we have to have a clear of planning process and first of all you can't have coming back later after a project multi millions of been spent on the project to say.
You know, we're going to stop the project debt.
That has to that has to change and the other part of it is.
We've got to be able to.
Make these investments with some sense of of of certainty of.
And be able to move quickly to make that happen. So I just.
You know I think.
There's only so much balance the visit.
But there also has to be value for the companies involved for.
To make the investments that benefit customers and orders of magnitude greater than what the costs are related to Indian.
You know any incentives related to transmission and if you watch it on a bad message for any by the joined on our T O or anybody to stay in and of our T O.
It's just not good to start messing around with with what the assumptions on a relative to.
2 the future recovery of transmission investment and now you know when you start questioning the incentives you're really questioning.
Anybody that's trying to put on multi year of model together at the show the benefits of transmission has to take that into accounts.
That's something may change the sort of work.
On trying to make an investment in it.
And of any coal unit with with.
Clean energy activities going on in Washington, So you really do have to really think this process through and think about what you're trying to achieve.
A story of that went on about that 1 of the [laughter].
No. That's helpful. Thank you for that I'll stop there. Thank you Becky.
Thank you. Our next question comes from the line of the Geis Chopra with Evercore ISI. Please go ahead.
How are you hey, good morning, Thanks for taking my question.
You addressed sort of a lot of transmission questions.
In the Q&A, maybe just like the MISO transmission.
Opportunity debt the MISO as flagged, perhaps just sort of unveiled towards the end of the year I know of small sort of.
A set of assets for you on that.
Net location, but oh.
Could you compete for some of those projects could that'd be enough upside for you there.
Oh, Yeah, we could we could compete with our trans source.
Entity, which we have been but yeah, we could and it's actually the small impact for us.
As it stands but there's certainly we could we could.
We could certainly participating in any of that yet.
Understood and then just anything you're hearing you know if you will.
Level than your peers and through the sort of the EI organization I mean the.
The infrastructure Bill has a pretty sizable.
You know our capex on the on the transmission side of the investment on the transmission side, just anything you're hearing from from that.
On the federal from.
Yeah. So obviously, we have the the.
I guess just 1.2 trillion.
On the infrastructure Bill that the the.
It's interesting we talk in trillions as opposed of billions now, but but.
In terms of the hard infrastructure side of things.
Yeah.
Peers Theres some kind of.
On the convergence in Washington on that particular issue, although more has to be done on the actual language and things like that but as far as.
Pursuing the advancement of of the.
Certainly of transmission investment, but but no direct pay and those kinds of issues are clearly important.
The along the way we also have to have the as far as renewable.
Renewables and clean energy Ptc's Itc's extensions of those I think that that makes sense.
Uh huh.
<unk> does the delays because of Covid and that kind of thing. So so I think there's opportunities for that and then as far as electric vehicles, certainly we'd like to see electric vehicle infrastructure.
You need to be developed so so I think all all of those areas are positive. The issue is how you leverage into the profit.
The private companies block hours.
Debt instead of the government funding and for transmission for example.
We think that the mechanisms already exist for the development of of transmission of as long as you kind of.
Keep all of the incentives and all of that kind of stuff, but but so.
So federal in the federal government funding of that now.
I think you have to sort of think about what what level of encouragement in what area. So if they if they can make siding much better if they can make certainly the focus on planning of those those issues the enable transmission to get investments we have no problem.
Financing transmission investments. So so I think the government probably all of the pick and choose between what they truly want to focus on debt that's not already leveraged into the into the end of the utilities for example.
Certainly encourage the development of electric vehicles.
With the the focus on charging station infrastructure and those types of things that that would be a benefit and then as far as the renewables transformation for the clean energy transformation.
Any kind of hard infrastructure around.
Being able to to move more quickly from a renewable standpoint, where the tax incentives.
And also other technologies like storage and then also we'd like to see benefits related to.
The.
Either tax incentives for coal fired generation to reduce the.
Underappreciated plant balances for example, if you want to have a national plan around moving to of clean energy economy than.
The more quickly we can we can rich.
Reduce on depreciated plant balances the.
The better we're able to make decisions and commissions and states can make decisions about what the future resource replacements would be so I think there's there's.
Several ways to really focus on this but we're all moving toward the clean energy economy, we just need to make sure that the government doesn't try to draw the do.
Due to much of.
Across the board as opposed to a very selected areas that that enable investment to continue in the private sector that'd be my view.
We share that Kartik, what drove quick just good to see firstenergy resolve the.
Doj investigation or at least on.
On agreement as this morning, the highlighted just any update on the SEC subpoena you got any more color that you can share with us no nothing nothing new there.
Where we've.
We've been communicating with the S E C and we're responsive to any requests they have.
From a documentation standpoint and and.
We're going to continue to work work with them and be supportive and constructive in the process and but nothing nothing new to report there.
Understood. Thank you for taking my questions.
Yeah.
Thank you and our final question comes from the line of Michael <unk> with Goldman Sachs. Please go ahead of nice.
Nice try on the Atlantica, who yeah exactly Michael the Guy who is excited about the changes on the southeastern conference at.
Yeah, Hey, guys real quick question or 2 first of all 1 on the O&M. This year of I you know obviously O&M at the V. I use segment is up a lot. How do you think about what the second half of the year O&M trajectory looks like versus the first half and and how should we think about both for V. I U N T N D.
Kind of segments, the long term kind of of the 'twenty, 2 and beyond trajectory for O&M.
Yeah, I'll, just generally say in and Julie can certainly follow up on this.
But you know as you have expansions and customer load youre going to have higher O&M associated with that but that's a good that's a good expansion of.
The issue for us for what we typically do is.
We're evaluating the true impacts of our achieving excellence program against against what our forecast needs to be in terms of bending the O&M curve. So so we continue to take account of the the.
Good O&M that supports expansion from our customer load perspective, but also continue the not only.
The optimize that.
But also continue the overall optimization of the O&M budget itself. So.
You May see you may see it and that's why obviously, we're watching what third quarter looks like in the fourth quarter and with the low does but but we want to make absolutely sure that we're continuing to make progress consistent with that plan of consistent earnings and dividend improvements in that 5% to 7% growth trajectory. So so.
That's that's what we're doing we're not we're not just saying Oh, yeah, the loads going up but it's been more O&M.
It really is a measured approach from our perspective Julian Yeah, No. That's that's spot on Nick and thanks for the question Michael.
I'm sitting here thinking about this and as we were preparing for the the earnings call on 1 of the things I'm looking at is the next point and look at where loans coming in and as I mentioned.
And in the previous answer to a question on we do expect that loan on a relative basis. When you compare it to last year for the second half would not be as pronounced although we do expect it.
To improve so that's a good thing and that allows us to be a little more comfortable with our O&M costs, where they are because that does help the customer in the long run. So we kept that on top of mind.
And continue to be very diligent about managing cost, but if you're trying to model for the rest of the year. Let me start by saying that we are not changing our guidance, but as you know once we start the year and we can give you of that plan. So you see that waterfall that we give to you how we get to the end of the year, obviously changes right because it's a dynamic business so I wouldn't be surprised.
Relative to that plan. If you saw on O&M to be running a little richer, but I would hope that load would be hanging in there too and then as you know we're doing well on the transmission Holdco segment I'm already kind of clicking along where we thought we would be for the full year. So there may be some benefit there too so do keep that in mind. When you go back and compare and contrast to that.
On guidance walk that we gave to you I think it was on February 25th during our earnings call and then we're happy to help you with any modeling that you have offline.
No that sounds great. Thanks, guys much appreciate it sure.
Sure thing.
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