Q1 2022 American Electric Power Company Inc Earnings Call
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[music], our strongest ever fourth quarter, we are maintaining that momentum and delivering strong results for the first quarter of 2022.
With operating earnings for the first quarter coming in at $1 22 per share or $616 million.
Earlier this year, we made a number of refinements to our strategic initiatives and financial targets. We raised our 2022 operating earnings guidance range and increased our long term earnings growth rate and we have hit the ground running in 2022 today, we are reaffirming our 2022 full year operating earnings guidance. As a reminder, we are guiding to a.
A range of 487% to <unk> seven.
<unk> per share for 2022, with a 497 midpoint and we also reaffirm our long term earnings growth rate of 6% to 7%.
As Youll recall, we announced several significant developments in connection with last quarters earnings. In addition to lifting our 14% to 15% <unk> to debt targeted range, we announced the decision to sell all or a portion of contracted renewable assets within the unregulated business. The announcement of the strategic divestiture of <unk>.
Wowed us to recalibrate, our five year capital plan of 38 billion with a $1 5 billion shift to transmission and the elimination of growth capital in the contracted renewables business. We are already seeing the positive impacts of these initiatives in quarter, one and we look forward to continue to execute in these important areas throughout.
The course of the year, we also expect to maintain positive momentum in our economic outlook as we work collaboratively with states to drive economic expansion in our service territory.
There is more to come on all that but I first want to take a step back and highlight some of the other proactive work our team has done.
As macro trends continue to affect our industry and the economic landscape at large we are focused on derisking, our platform and elevating our strategy to enhance shareholder value. For example, given lingering global supply chain issues. We are diversifying our mix of suppliers in order to reduce the impact on our capital investment plan as a result.
AEP has experienced minimal customer our business disruptions to date with these significant initiatives underway and a track record of thinking creatively. It is truly a team effort and we're lucky to have one of the most talented teams in the business.
Regarding Kentucky, we expect to complete the sale of Kentucky power and AEP, Kentucky Transco to Liberty in the second quarter of this year, a regulatory time line of the sale is on slide seven of today's presentation. In 2021, we announced a comprehensive strategic review of our Kentucky operations, resulting in an agreement to sell those assets.
For 2.8, $4 6 billion enterprise value.
Both parties have been steadily working to obtain the necessary approvals to complete this transaction, which is in the public interest the Kentucky Public Service Commission hearing was held on March 28, and March 29, we know that Liberty is well positioned to serve Kentucky customers and are confident our employees in Kentucky, We will continue to.
Thrive within an organization that process prioritizes safety and operational excellence based on the statutory requirements. We continue to expect to receive a decision from the commission on the sale transfer no later than May 4th.
PRC approval on the sale transfer is also in process earlier. This week <unk> notified us of a need for more information in the two O. Three transfer application. This request is not unusual as FERC looks to ensure its record is complete by seeking additional information. We do not believe this request will impact the closing of the deal in the second quarter.
Once a decision is made by the state level next week, we will provide the requested information back to FERC will plan to ask FERC to abide by the original approval timeline to ensure our Kentucky customers receive benefits from this transaction in a timely manner.
Another significant regulatory milestone for the transaction is gaining approvals on the Mitchell operating agreement, which are a condition of the final cell transfer.
Both Kentucky and West Virginia are aware that updated Mitchell operating agreement approvals are needed to put in place.
The commission orders on environmental compliance issued 2021, the Kentucky Public Service Commission hearings were held on March burst in March 30th and the West Virginia Public Service Commission was held on April seven parties, providing options, allowing flexibility for both states to collaborate and reach a common agreement as Kentucky continues to.
Down interest and Mitchell plant post 2028, we expect to receive commission decisions on the Mitchell agreements on expedited basis in May of this year, we plan to file the related FERC application. After state Commission approvals throughout this process. We have established a strong record of benefits of this transaction most.
Notably the clear and measurable customer benefits that we see.
Okay now moving on to the contracted renewable asset sale during our fourth quarter earnings call in February we announced the decision to sell all or a portion of our unregulated contracted renewables portfolio to simplify and Derisk the company and allow us to focus on our regulated business our portfolio consist of 600 Meg.
Lots of unregulated contracted renewables the sale of which will help facilitate the investment of 16000 megawatts of regulated renewables through 2030 in the last couple of months, we have made significant progress on this opportunity, including working with an adviser preparing outside consultant reviews of the technical and market aspects of our.
Portfolio and evaluating our sales strategy and timing and trust in the sale of the portfolio has been robust. The sale provides a unique opportunity to acquire a large operating wind portfolio complemented with some solar operations as well.
We expect to launch the sales process sometime during the second half of 2022 likely in the August September timeframe, and can be accelerated or D accelerated as needed.
Additionally, we are pleased to announce we have signed a term sheet to sell most of our wind and solar development portfolio, including five sites, which are located in the southwest power pool. We have also executed an agreement to sell our solar development site here in Ohio financial details of these upcoming sales are confidential and we will not be disclosed but <unk>.
<unk>, our commitment toward that execution.
The reallocation of contracted renewables capital is assumed in our guidance, but utilization of proceeds is not yet reflected in guidance or our multi year financing plan, we will seek to maximize transaction proceeds in the sale avoid dilution and directed the proceeds are two investments in our regulated.
Business as we continue to enhance the transmission infrastructure and move forward with our generation fleet transformation.
Looking ahead, we will continue our track record of optimizing the portfolio and reallocating capital to our regulated business, where we continue to see a meaningful long term opportunity for growth.
AEP is making significant progress as well in our transition to a clean energy future. In fact, we already have several initiatives underway in line with our sustainability goals and through our regulated renewables execution details can be seen on slides eight and nine in March we commissioned our third and final north central wind.
Site Traverse wind Energy Center, which is the largest single wind farm built at one time in North America, and one of the largest wind facilities worldwide completing the 2 billion trifecta investment that include Sundance and the Maverick wind energy centers combined they are providing <unk> hundred 84 megawatts of clean.
Energy to our customers in Arkansas, Louisiana, and Oklahoma, North Central will save customers, an estimated $3 billion in electricity costs over the next two.
Next 30 years and.
In March we also issued a request for proposal and I am for 800 megawatts of wind and 500 megawatts of solar additional rfps or in process simultaneously at Atco, DSO and sweat Koh with expected in service dates of 2024 to 2025, we expect to make a regulatory filing in the second quarter of this.
Year related.
Related to the Sweat Coast June 2021, RFP. These are long term investments not just for our business and our local communities, but for the global environment as well.
Through our current state of coal retirements, we are progressing towards our target.
We have an 80%, 80% carbon emissions reduction rate by 2030, and net zero by 2050, achieving this goal is an integral part of our long term strategy to prioritize regulated investment opportunities and transition our generation portfolio.
Our plans are a very well thought out continue the movement to a clean energy economy, but remained firmly grounded in the principles of resiliency reliability and affordability, while recognizing the value of a diverse portfolio of resources, particularly given today's world of energy related volatility.
Yeah.
Last year, we set regulatory foundations and a series of rate cases across multiple jurisdictions regulated ROE as of March 31, 2022 is that a steady nine 2% as we continue to work through regulatory cases, and focus on reducing authorized versus actual Roe spreads.
And EM obtain commission approval in February on our Indiana case, a base case settlement.
Oral arguments of Atco is 2020, and Virginia base case appeal were held in March at the Virginia Supreme Court with an anticipated final decision. This year, we expect to see commission decisions as well on swept COSE rate cases, this year in both Arkansas, and Louisiana and look forward to keeping you informed on that progress too.
Related to FERC, we commend the commission for moving forward with proposed reforms to transmission planning and cost allocation first proposed rulemaking aligns with our goals of developing a more robust reliable and flexible grid of the future that ultimately reduces cost to customers and strengthens economic development in the communities in which we.
Serve we believe many of these reforms are needed to build the infrastructure necessary to transition our generation fleet in the most efficient and cost effective way possible and achieve our carbon reduction goals. We look forward to continuing to work collaboratively with the commission on this and any subsequent rulemaking and with the <unk> on <unk>.
<unk> any new requirements.
At the conclusion of our fourth quarter call I told you all that AEP stood poised to make even greater headway in 2022, and I think it's fair to say, we are making good on that promise capitalizing on our momentum from 2021, we.
We have continued to execute against our strategic objectives steadily and successfully as we think about what's next for this year and beyond we hope to further modernize our energy grid in order to supply reliable cleaner low cost resources for all the communities we serve.
We will also consider further asset rotation through the lens of Derisking and simplification and we will evaluate any and all value added to a potential activities as we focus on our regulated business.
As I've said before AEP is in a very unique position the largest transmission system one of the largest renewables build outs and a diverse territory to adjust when the risk of supply chain load forecast regulatory risks etcetera, AEP is the very definition of consistency and opportunity.
We at AEP as well as our shareholders and customers hold ourselves accountable on the continual execution of all of these strategic objectives to paraphrase a big hit by the police every breath you take every move you make every step you take we'll be watching AEP and as our CFO would say we've got this julie.
Thank you Nick Thanks, Darcy, it's getting to be with you. This morning, thanks for dialing in everyone I'm going to walk us through our first quarter results share some updates on our service Terry service territory load and finished with commentary on our credit metrics liquidity as well as some thoughts on our guidance financial targets and recap our current portfolio management activities underway.
So let's go to slide 10, which shows the comparison of GAAP to operating earnings for the quarter GAAP earnings for the first quarter were $1 41 per share compared to $1 16 per share in 2021 hears.
There's a reconciliation of GAAP to operating earnings on page 16 of the presentation today.
Through our quarterly operating earnings performance by segment on Slide 11.
Operating earnings for the first quarter totaled $1 22 per share or $616 million compared to $1 15 per share or $571 million in 2021.
Operating earnings for the vertically integrated utilities were 59 per share up <unk> <unk>.
Favorable drivers included rate changes across multiple jurisdictions normalized load and O&M.
Somewhat offset by increased depreciation and lower off system sales and wholesale load I'd like to take a second to talk about O&M and depreciation in particular because of a change in accounting related to Rockport unit two lease at I N M will see approximately a five car.
Contribution of favorable O&M consequence, offset by <unk> <unk> of unfavorable depreciation in each quarter of 2022, but no consequential earnings impact and to be clear. This is entirely consistent with the 2022 guidance details we posted in our investor presentations earlier this year I have more to share unload and load perform.
<unk> here in a minute so hang with me on this.
The transmission and distribution utilities segment earned <unk> 30 per share up seven <unk>.
Compared to last year favorable drivers in this segment included rate changes in Texas, and Ohio normalized load and transmission revenue offsetting these favorable items were unfavorable O&M and depreciation.
The transmission Holdco segment contributed 34 cents per share down a penny compared to last year investment growth was favorable by <unk> offset offset by two cents of mainly property taxes, driven by the increased investment and a penny of income taxes. This is in line with the guidance that we provided to you earlier this year and you'll recall that our 2022 guidance.
Had this segment down by eight <unk> year over year as a result of the 12 cents of investment growth being more than offset by the annual true up that will occur in the second quarter and some unfavorable comparisons on the tax and financing side. As you know this segment continues to be an important part of our 6% to 7% EPS growth.
Generation and marketing produced <unk> <unk> per share down three from last year. The improvement in wholesale margins was more than offset by lower retail margins and reduce generation you may recall that storm here had an unfavorable impact on wholesale margins in the first quarter of 2021.
Finally, corporate and other was down a penny per share driven by increased O&M lower investment gains and unfavorable interest. These were offset by favorable income taxes lower investment gains are largely related to charge point gains that we had in the first quarter of 2021.
Turning to slide 12, I'll provide an update on our normalized load performance for the quarter and a general sense. The AEP service territory is extremely fertile for economic growth right now in fact as of the first quarter. Our load has officially fully recovered from the pandemic recession and has now transitioned into the expansionary phase of this business cycle.
Starting in the upper left corner normalized residential sales increased by eight tenths of a percent compared to the first quarter of 2021. This growth was composed of growth in both customer counts and weather normalized usage for the quarter.
While results were mixed by operating company is strongest residential growth with the AP and the AP serviced AR AP, Texas service territory, which was partially influenced by the year over year comparison, given the customer outage is driven by storm here in the first quarter of 2021.
Our final data point to share regarding residential sales is that our first quarter sales were still one 1% above their pre pandemic levels over two years. After the pandemic began this is driven by number of factors, including higher numbers of people, who are able to work remotely that used to work in offices prior to the pandemic.
Moving to the right weather normalized commercial sales increased by four 2% compared to the first quarter of 2021.
Growth in commercial sales are spread across every operating company in most industries. The largest increase in commercial sales is coming from data centers, whose load was up 33% compared to last year.
In addition, we continued to see strong recovery in our sectors most impacted by the pandemic such as hotels schools and churches, where real estate has been booming throughout the entire pandemic.
<unk> normalized <unk> normalized commercial sales in the first quarter were two 5% above their pre pandemic levels, which shows that we've gone beyond recovery and are now in full expansion mode across the territory.
Can now focus your attention on the lower left corner, you'll see that industrial sales posted another very strong quarter up five 6% compared to last year industrial sales were up at most operating companies and many of our largest sectors in the first quarter.
We experienced double digit growth in a number of key industries, this quarter, including chemicals manufacturing oil and gas extraction petroleum and petroleum products. We also saw robust growth in primary metals manufacturing coal mining and food manufacturing, having said that first quarter industrial sales are still one 6% behind their prepay.
<unk> levels. However, we have a large number of customer expansions that are expected to come online later this year and still fully expect to eclipse our pre COVID-19 industrial sales levels. In 2022, we can continue to be confident in our full year 2022 guidance for normalized retail load. While we certainly did not anticipate the Russian invasion in Ukraine, when we do.
The 22 2022 forecast I'd like to remind you that AEP service territory is uniquely positioned to benefit from higher energy prices given the concentration of energy production that is located throughout the AEP footprint energy producers in our footprint have responded to higher energy prices, which has resulted in increased economic activity throughout the service territory.
Sorry.
Finally, when you pull it all together in the lower right corner, you will see that Aep's normalized retail sales increased by three 2% for the quarter as I mentioned earlier, our loan has gone beyond recovery mode and is in full expansion mode for the quarter every operating company posted higher normalized sales than last year. Furthermore, our first quarter retail sales were up.
We're one 5% above their pre pandemic levels, so 50 basis points above pre pandemic levels to use a sports analogy I would say our load performance in the first quarter was in the zone.
There are many factors outside of our control that could influence our results I want to stress that the positive load story was shared with you today is largely the result of intentional efforts by our employees to promote economic development as a part of our long term strategy to strengthen the communities that we serve we're fully aware of the increased uncertainty that exists in the macro economy, but if put into work.
That it takes to ensure that we continue to see growth in our service territory going forward.
So let's go to page 13 to check on the company's capitalization and liquidity position.
On a GAAP basis, our debt to cap ratio increased 60 basis points from the prior quarter to 61, 5% primarily due to an increase in equity from our issuance of AEP common stock in March which is consistent with our 2022 guidance as the $805 million or the $805 million of equity units issued three years ago.
Into equity, let's talk about our <unk> in that <unk> to debt metric, taking a look at the upper right quadrant on this page you'll see our <unk> to debt metric stands at 13, 7% on both a Moody's and a GAAP basis, which is an increase of three 8% and three 9% respectively from the prior quarter the metrics or calculate.
It off with a 12 month Rolling F. F. O total so the increase in <unk> to debt is mainly a result of the fact that the cash flow drag from February 2021 Winter storm year. He has now dropped off the cash flow from operations calculation. This improvement has significantly narrowed the gap toward achieving our <unk> to debt target range of 14% to 15%.
As we stated on the last earnings call, we anticipate trending toward this target range as the year progresses.
Let's take a quick moment to visit our liquidity summary on the lower right side of slide 13.
Our five year $4 billion bank revolver, and two year $1 billion revolving credit facility to support our liquidity position, which remains strong at $3 $8 billion.
Switching gears, our qualified pension funding increased one 6% during the quarter to 106, 4%. The rise in interest rates that decrease plan liabilities was primary driver for this quarter's gain and funded status, let's go to slide 14.
This quarter has provided a solid foundation for the rest of 2022, and we're reaffirming our operating earnings guidance range of $4 87 per share to $5 seven per share. We continue to be committed to our long term growth rate of 6% to 7% that we updated on our last earnings call. We are working through the Kentucky power sale to Liberty and expect to close in the set.
Quarter and as Nick mentioned, we have signed an agreement to sell our solar development site in Ohio and have entered into a term sheet to sell five additional wind and solar sites in SPP on the unregulated side of the business. Additionally, we're preparing to market the unregulated contracted renewables portfolio in the second half of this year and are receiving a significant amount of interest on this.
Beyond the portfolio optimization activities underway, we remain focused on the fundamentals, which are executing on the regulated renewables plan disciplined capital allocation and securing positive regulatory outcomes.
Before we break I want to mention one last thing before we get to your questions and that is to remind everyone that while we have not yet set the date, we will be hosting an investor conference sometime in late September early fall timeframe to give you a broader AEP update we certainly do appreciate your time and attention today with that I'm going to ask the operator to open the call. So we can hear what's on your mind.
Answer the question that you have.
Certainly ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
Humor me with draw your question at any time by repeating the one zero command. If you are using a speakerphone. Please pick up the handset before pressing the numbers.
Once again, if you have a question you May press, one then zero at this time.
And it'll be one moment for our first question.
Comes from Julien Dumoulin.
Lynn Smith at Bank of America. Please go ahead.
Morning Julien.
Good morning.
Excellent.
Yes good.
Do you have that.
Thank you.
Maybe let's start with this just in terms of the timing of the renewable sale here could you just.
Talk a little bit about how the CBD stuff.
Could impact that.
Just your sense of the ability to get it done and just any comments on that <unk> applications again.
The minimum.
Separately and related how do you think about the timing of proceeds here specifically this is a little bit faster than what we were.
We had perceived.
You know the.
Proceeds from Liberty and that's coming in.
Perhaps a little bit faster than perhaps the equity issuances in your forward plans otherwise suggest.
So most of most of our assets are wind assets so and.
And as we go forward with the transactions.
We don't see any issues with that and as a matter of fact.
Even though even though on the regulated side.
The timing of which we actually need assets for solar and that kind of thing that comes later so I'm.
Mr. 'twenty four 'twenty five timeframe. So on both sides of the ledger, we're in good shape from that perspective and and and.
These assets, obviously, we're going to try to time it.
Appropriately.
As we talked about the large portion of the 1.6 gigawatts of those 600 megawatts.
They will be marketed in the third quarter and I'd say, we're getting very robust.
I mean, it's very robust interest.
Really on both sides are strategics in.
In terms of anytime top of private equity that kind of thing so it's really.
The process will continue and there's nothing stopping us. So we're in good shape from that perspective, and then your second part of your question. Julia did you have that part yeah, and Julian Let me know if I'm not not answering this directly or if you need a little more granularity specifically as it relates to dollar flows associated with any type of transaction that we enter into so today you heard us talk about.
The fact that we have a term sheet in place for our five development sites. Those dollars are still small and so we'll see those show up eventually price second quarter or third quarter and operating earnings, but obviously not even disclosing that was not a needle mover for us I'm not going to change the earnings guidance or anything like that.
So not to worry on that front and then as it relates specifically to the broader unregulated renewables contract in portfolio, we'll start the marketing effort in the second half of this year. Obviously, we will continue as we have a little more detail to share you know, we do have an upcoming investor conference. So stay tuned for that and then it will be.
To navigate any potential.
Proceeds from transactions as you know we don't we don't even know exactly how that's ultimately going to look when we sell them as an entire portfolio and we sell them in different pieces. So that's to be determined so standby on that and then obviously we continue to work through the contracting process, we would expect them to close that or or turning towards the second quarter as Nick mentioned.
And I mentioned in my opening remarks, I'm, that's already reflected as it relates to Kentucky, I'm, bringing dollars N and our plan you may recall that we eliminated about $1 $4 billion of equity that we originally had in our 2022 guidance. So I think what we're moving on track, let me know if theres something I didn't address there.
And since we're really moving on the universal scale assets.
Their project specific so we can go through that process and time it any way that we wish to do it. So so that's and actually their actual pretty quickly so.
So we'll go through that process, and we'll define that better and they'll probably be part of our our analyst day discussion.
Now speaking of those day discussion just a super quick if I can have an important point.
Do you think about just approaching your customers directly related energy price environment doing well in industrial and C&I sales growth presumed.
Presumably your customers are interested we heard this from energy can you can you elaborate how youre thinking about the opportunity here in this elevated environment as it further angle to your renewable aspiration.
Well certainly the renewables are a key part of being able to really.
It's really mitigate cost to consumers going forward, so from an industrial standpoint and manufacturing standpoint.
We're going to see a lot of that movement to our territory because when you think about onshoring.
When you think about strict strategic.
Reviews of supply chain actions that need to occur within this country, that's going to occur within our territory. So our focus will be and I think from the renewable side, particularly the regulator renewable side to be able to continue to progress on that is a benefit because a clear benefit for customers and certainly north central showed that.
But I think from an industrial standpoint is going to look very good for us we have the resources for capacity.
And when you when you layer in the renewables for the incremental needs of capacity, it's really the best of both worlds to provide reliable secure supply to our industrials and really at a competitive price. So so I think we're in great shape from that perspective going forward.
Okay.
Yeah sure thing.
Next we'll go to Steve Fleishman with Wolfe Research.
Good morning, Steve.
Hey, Good morning can you hear me.
You sound enthusiastic.
That is enthusiastic for me sorry.
Right.
Julian it so.
So.
Jim.
Just on the.
On the Kentucky process.
There does seem to be a decent amount of.
People that want different things on the Mitchell operating agreement.
Can you just talk to your.
Your confidence in resolving those issues by the second quarter, and just because and just maybe frame the issue.
Issues in how you think they can get resolved.
Yeah, you know obviously, there's been a lot of focus on the Mitchell agreements themselves.
And we've certainly tried to accommodate the multiple parties that are involved and made it as flexible as possible and obviously the issue is 2028 and how you reconcile that going forward and from a state perspective, I think we're in a good good place because it does provide the flexibility to find whatever value proposition there is at that point.
And there also is optionality around the ability to potentially separate the units.
Oh out each individual commission to make their own decisions relative relative to these units. So so I think I think its positioned very well there's been a lot of dialogue.
Lots of settlement discussions associated with that and of course, there's a lot of varied opinions, but but at the end of the day, we have to do this because.
Because we have two commissions are going different directions are relative to the loss of the Mitchell plant and I think what we've arrived two is a very credible.
Balanced view.
How is the optionality that that.
These needs are.
Going forward, so in and of course.
We certainly will continue to focus on the EOG and CCR expense associated with that in the appropriate manner and that that will improve the optionality going forward to where decisions can be made at the appropriate time, but.
I would say we're in a good place and we expect we expect.
The Mitchell approvals to occur very quickly after the transaction approval.
Okay.
Okay, great. Thank you and then just you've been pretty pretty good and right about.
About federal.
The BBB legislation kind of.
To get done or whatever you want to call. It. These days just curious if you have any.
Thoughts and updates.
There yeah.
And you can change.
All I'll say is I'll say this.
Certainly certainly imagine us sooner imagine is at the center of all of this but there are also as I think from the original infrastructure package.
Group of Senators, who are coming together to try to focus on some pretty substantial issues and and really when you think about senator imagine being on both the armed services Committee and the Energy Committee and knowing the Ukraine situation and the focus on energy as it relates to it.
You're going to see.
At least an attempt at a lot of focus on.
How to how to support natural gas LNG expansion.
Expansion for pipeline capability.
And then of course, he's also talked about the climate provisions.
And I think there'll be a lot of interest too in the technologies of the hydrogen hubs in and particularly in West Virginia.
And then.
Obviously, murkowski ABRAZO theres, others that are engaging in that discussion.
Yeah.
The Itc's PTC as the climate provisions that the industry is looking for I think there's some bipartisan level of support for that that so the question really is can can they get together before.
Really before memorial day.
And if they're still talking after memorial day is probably a positive indication.
My own personal belief is is if it if it's not successful, we'll probably see an 11th hour type of AR.
At the end of the year relative to Itc's, bdcs and perhaps even expansion.
Of those so.
I think youll see us attempted a smaller bill.
You'll still get hung up with the pay for us, particularly with our imagine wanting to get it paid for cinemas is obviously a different different view on that so but there's probably some element of recognition that something has to be done to have this country focus on the security of supply.
Not only for ourselves.
The Ukraine situations demonstrated but also for Europe and in the rest of the world. So.
That's probably the impetus of getting something done and old defined the framework of whether something gets done or not if it doesn't after the election I think that I think like I said, its 11th hour or perhaps the the IRS and treasury make adjustments based upon based upon what's happened realm.
Supply chain activities. So I think I think that's that's that.
That would be my view of where things are going.
Great that's super helpful. Thank you.
Yeah.
Next we will go to sharp Teresa with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Good morning.
Just I just wanted to question on on sort of the renewable comments and as we're looking kind of at your current Rfps that are in progress, there's sort of a fairly healthy mix between wind and solar and storage.
Thinking about kind of the upcoming 'twenty, one 'twenty two rfps.
How are you sort of thinking about the potential tell.
Risks around solar with circumvention investigation is pricing uncertainties.
Strange I guess.
These tail risk impact the mix for 'twenty, one and 'twenty, two and do you see any risk to the $8 2 billion you've allocated to renewables I mean, we've already seen two peers provide some mornings around this one this morning as well as delays. So I'm just kind of curious how this fits in with your <unk>.
<unk> yeah.
I don't see a lot of risk and the reason why is because ours is more.
Through 2030.
These projects will come into play in the 'twenty four 'twenty five timeframe. So we have time for not only for the.
<unk> reviews of solar that's occurring with the administration, but also in terms of the supply chain activities just to level out somewhat.
Four we're actually out back in the market you know acquiring.
These types of resources. So so we have a little bit of time, I think probably by first quarter next year we'd.
We'd want to see things start to start to level off so that we can we can get.
Get that process rolling in the meantime, we got the resource planning filings.
<unk> that are being made and keep in mind too I made this point originally.
These these plans are.
You know a really fungible from year to year based upon what we see in terms of the value proposition of each type of resources. So so a lot of it's love us win some of its solar solar picks up in the later years from a resource plan perspective. So there's time for the solar thing to get to get resolved, but even if it doesn't.
That says, there's probably going to be more wind or other types of resources that are put in place to support these objectives, because remember they're driven by capacity requirements and we'll continue to evaluate that process and I'll take a step further to own. This as we've always said that if something were to happen well relative to the.
Our renewables build out we've got transmission.
In transmission, we can soak up a lot of capital from that perspective, because of the focus on providing better customer service more resilient and reliable grid. So we have that optionality, but I'm not I'm not even there yet I think I think we're we may be.
Because the $8 $2 billion, we have in there assumes a certain percentage of those types of resources that we would own.
That could be higher transmission could be higher so we have optionality around all of that.
I'm not concerned from an ADR perspective.
Sure the current gas price environment and health economic argument.
Malooly, absolutely because of that.
3 billion for North Central was down on a previous gas forecast and if you'd looked at that today, it's probably probably much larger I think I think it's really looking good for customers got it got it and then Nick just from a financing perspective, as we're thinking about incremental spending that's going to come from these future Rfps can you.
Just be a little bit more specific on your prepared comments around further asset sales.
Call. Your goes that remain I guess, what could a structure look like.
What remains.
Yeah, so and the point I'm, making is obviously, we're going through the process step by step with the with the unregulated contracted renewables part so there's different parts of parts of that business.
And then of course, just I think Kentucky was the first for a shot at it Theres a lot of optimization that can occur we will just have to evaluate against what the opportunities look like.
And if we're if we have.
I mean, if we have underperforming utilities.
That don't figure approximately into the into their clean energy transformation, where we're actually attracting capital and being able to provide higher levels of return than then we have to look at it. So so I'm, just saying that that process will continue regardless not saying.
And actually we are.
We're already too deep and I'm talking about the number too deep in terms of in terms of sales, Kentucky, we still have to get across and then the.
Contracted renewables, we still get across and then we'll see where we're at that point based upon what we're getting in terms of the feedback of the rfps because when these rfps are getting ultimately get approved they will know exactly what the ownership looks like with their financial requirements are and we will do what we've always done we'll make sure that we're going through this process, making ER to ER.
To invest in the right places and we will look at the portfolio and see what makes sense and what doesn't make sense for us to continue to optimize that for shareholder benefits.
And then just one quick follow up from Steve's question is.
Obviously, we appreciate.
The confidence around the operating agreement in the Kentucky sale and reiterating the.
<unk> of the deal, but just to book ended.
Assuming there is maybe an adverse ruling or something thats not portable can you just remind us I think this algonquin have a material adverse change clause is there a timeframe when they could walk away from the deal.
As we're just thinking about a bookend.
It's typical to have those kinds of provisions in that kind of agreement, but I can tell you that that we and Algonquin are arm in arm getting this thing across the finish line. They very much want to own this property and they've actually they've actually stepped up in a considerable way to provide customer benefits.
To make this transaction attractive.
Two the policymakers, Andrew our costs and to the customers. So.
And of course.
I think a seminal event here obviously is may 4th.
Where are the commission will come out with an order and and we will we will look at that order, we will make determinations on what conditions are in place and at that point in time, we will we will make decisions on what it looks like but I think.
From the public interest standpoint are things that the commission would also be looking at.
This transaction is very very good for Kentucky customers and and the like.
And if there are.
I think everyone has to be sort of level headed about all this because.
When you get through this process you actually have a you have a timeframe now for customer benefits to occur substantial benefits.
And that's really a driver to get this thing done as quickly as possible, particularly in this energy related environment. So so.
Good.
Don't anticipate that happening, but if it did well we'll do what we always do we will figure out what the options are and what the possibilities are and go from there but for right now.
We're not planning on that.
Terrific. Thank you guys. Congrats on the results I appreciate it yeah sure thing.
And next we'll go to the line of Jeremy Tonet with J.
J P Morgan.
Hi, good morning, good morning.
Just wanted to pivot a little bit towards transmission here and given the.
MISO planning Smith, a little bit outside of your Guy's footprint, but also as you mentioned the FERC transmission.
Planning and.
Stepping up <unk>.
Capex towards transmission here I'm, just wondering if you could dive in a little bit more as far as what's which specific areas projects might materialize or any other color you can provide on specific transmission opportunities incremental at this point well typically in and we've done this we actually planned for 100.
130%.
Of the of the budget for transmission. So so we have 30% more projects that are occurring that we already have plans scoped ready to go so layering in these multiple projects as a way for us to not only.
As opportunities arrive as the metrics are.
For financials continue to improve we can we can layer in more of that we can adjust to that based on projects that go one one way or another and then also you know.
Recently, we were awarded a Texas, a large project in Texas.
There's also incremental so it was like $1 3 billion or so but.
Those are the kinds of things that will come to pass.
And we have.
We have every bit of opportunity related to transmission not only within our own system.
But also in terms of the incremental systems around us and that's why you know.
You asked about FERC FERC transmission FERC, obviously has taken the right steps relative to our long term planning getting the framework for longer term planning put in place. That's an important part of the process to speed up some of the planning aspects to ensure that we are making the right investments.
The right places, we continue and I think FERC will continue.
To look at even in parallel these issues of of cost allocation of of even the incentive mechanism, but also in terms of interregional planning, which AEP will bode well in terms of that because just about everyone interfaces with us so.
As you look at some of these aspects the more renewables that are needed.
Certainly the more retirements that are occurring across our T. OS is all going to bode well for transmission investment and we like what we see today is not where we were gonna see tomorrow and then FERC is doing the right thing, which we think they are.
Theres going to bolster the ability for us to have a more consistent can grew it.
<unk> clean energy type of system across this nation and you can't do that without AEP.
Got it thank you for that and just shifting gears towards our O&M, just wondering what trends youre seeing there it looks like it was a nickel benefit and vertically integrated a little bit of a headwind in transmission and distribution and just wondering if you could dive in a little bit more as far as what's different trends youre seeing in O&M across the business.
Yeah happy to Jeremy This is Julie.
It didnt cost specifically out the O&M trend in our vertically integrated utilities theres, a little bit of a flipping in and switching going on between O&M and depreciation associated with the Rockport unit. Two lease. That's included in that 2022 guidance that we provided to you back in February and my favorite that pantry. So entirely consists.
Yeah, and we're absolutely watching O&M as we continue to navigate a inflationary pressures et cetera. At this point I would tell you I think were right in line with where we thought we'd be so we're keeping our fingers crossed and you know the team is working like heck to make sure that we've got supply chain and its supply chain is being addressed et cetera.
But at this point.
That guidance that we gave to you stands.
Stands Pat so nothing new to report other than the fact that the team is working really hard to make sure that those numbers come in line.
Meant that we have any new developments will surely keep you apprised.
Got it thank you I'll leave it there.
Perfect. Thank you.
And next we'll go to your cash Chopra with Evercore ISI.
What are the risks.
Good morning, Nick Congrats business other frontier.
Yeah.
Most of my questions have been asked and answered I just had a quick clarification as it relates to the Kentucky sale.
The may 4th is when we when we get the order or transfer and control do we need to get sort of the Michelle operating plan agreement.
Agreement before then or how does that play into the May 4th order no that'll likely come come after shortly thereafter.
And the way we've looked at it as the you know obviously you want the.
Transfer agreement done, but as far as the Mitchell agreement.
The approval, we expect that to occur shortly thereafter with both commissions because.
It's an important aspect of it.
And something I think that that really helps for the.
For the transaction side as well.
I understand so they can actually issue an order they conducted commission can before actually.
On the transfer before resolving the Michelle sort of ongoing.
That's right that's right.
Thank you so much guys.
And next we will go to Sophie Karp.
With Keybanc.
Orange is obi.
Good morning, Thank you for squeezing me in here Dan.
I have a couple of questions here so.
First on the load growth right.
Very healthy numbers here.
Bob I think investing in regions in the country probably at this point.
I'm not sure. It's two quarters is a trend, but lets say how long do you need to see those numbers are in this room.
That it would be in Austin, or maybe your VSAT and long term expectations for what should.
It should be because it makes sense Oh, yes, great question, because you're right two quarters doesn't.
It doesn't make a trend, but when you look at the economy within our service territory.
We're seeing some very positive indicators for for continued expansion and continued economic development.
We are.
Our economic development people are extremely busy with with multiple opportunities that are there coming through throughout our territory actually.
And so we look at that we look at the it's sort of if you were to look at look at our our pipeline of potential opportunities. It is extremely robust and and that gives us confidence in terms of in terms of where we think the economy is going to continue to go within our service territory.
And of course.
We don't see any end to the work from home environment. So we're feeling much better about the prospects of a more robust residential side of things and then on the industrial it like I said the onshoring the security aspects of the energy play within our service territory. The other aspects of what's going on within the within.
The territory with chemicals and manufacturing and so forth.
That pace has picked up markedly with expansions and new developments.
And some of them are still you know.
Years away like the Intel manufacturing here in.
Ohio.
In our territory. Its is substantial there'll be there'll be 20 to 40 more companies associated with that it'll be located and so you see those.
Tops are prerequisites that are being put in place that gives us a lot of positive views about where we think the economy's going we'll watch it we will continue to evaluate it.
If we go through third quarter see the same thing in fourth quarter to the same thing then you'll probably see.
Some adjusting going on relative to.
The 2023 forecast.
But that's our load guy will have to tell us that he these very objective and he's a professor at one of the universities and and he.
Usually he's.
Let me say it this way he is probably more optimistic now than I've ever seen them and that that's a good thing.
Maybe if I can just jump in there with a finer point to as well and so as I made comments in my opening remarks.
We are still at about one 6% behind pre pandemic levels on the industrial side of the house, but as I mentioned and as Nick mentioned, we do see expansions that are going to allow us to not only get passed at 1.6, but to go beyond that so we do expect to be on to be beyond the pre pandemic levels and as a matter of fact, what we've seen so far.
This year in the first quarter is that six of our top 10 sectors were up so that's that's a good indication and then looking forward, we expect to see strong growth in oil and gas as new LNG operations ramp up in Texas and that began a few quarters back. So we're going to start to see the fruits of that efforts as well, but stay tuned as you know we typically.
If we're going to revise guidance, we've historically done it once we get past our peak season, which is summer.
To be perfectly candid, we're looking at this constantly so we will be back to you if theres anything.
Requires us to get new information and frankly, it doesn't we'll definitely want to take advantage of that.
Perfect. Thank you.
Other questions.
Not to beat this dead horse I guess.
I appreciate the fact that the project.
Projects are expected to be commissioned in 'twenty, four 'twenty five timeframe, which is.
Couple of years away to sort out the physical disruptions.
Equipment availability et cetera, but I can tell you.
With pricing what shouldn't be people, who built into those excuse me what do you think they should be assuming in terms of pricing does that make it difficult to spell acuity in the pricing of equipment, particularly solar right now unpredictability really are where the solar market the storage market might be.
A year from now.
Does it make the I guess the process more complicated or.
I just have it at that.
Yeah, I think I think it will make it more complicated but not insurmountable because.
Whatever increases you may see from us from a solar perspective, the overall project benefits will still be positive now it may change.
The relationship between wind and solar in the integrated resource plan Solar may come later than what we thought because if wind continues to continues to progress and as you recall in our resource plan a lot of it was when to start and then eventually and is based on pricing and everything else solar.
Would start to pick up.
And at some point overcome the wind asset and then you move into other technologies.
That condition may change based on that but you.
Also I mean, youll, probably see that in the in the framework of increased gas prices too. So so really the renewables would be relative to each other and not in terms of relatives or whether they'll get done or not so so.
And I really think we'll be in good shape from that perspective. The other part two is is that when you look at.
The other resources really what Youre doing is youre, putting in renewables and you also layer in some natural gas and the plan to really give it 24 seven supply.
Natural gas also as a placeholder for other types of resources, whether it's hydrogen whether its us.
Whether it's small reactors whatever that comes about with new technologies and the grid optimization itself will be a major part of that as well with transmission. So.
There's a multitude of answers there that will occur, but yeah, you're right you would suspect solar.
There'll be some short term perturbation from an increase perspective, but we'll have to deal with but you know in the <unk>.
Overall scheme of things when you look out long term.
It'll still be positive.
Alright, thanks, so much.
Yep.
And our last question comes from Michael Lapides with Goldman Sachs.
Okay.
Hey, Nick Thanks for taking my questions I have two and they are a little bit unrelated.
To the appendices of your slide deck I'm looking at what you used to call kind of your I don't know, though the money chart. The ROE chart for trailing 12 months of larger chart yet the equalizer chart. Thank you and now one of the things that stands out as public serve Oklahoma.
Just curious.
If you can talk a little bit about so and a little bit about may be swept co in app co.
Where the earned ROE or a decent bit below 8% and just kind of how do you think about the trajectory of quote unquote fixing the spread between the earned and authorized.
Yeah. So it's repko, we have rate cases there.
And two of the two of the jurisdictions in DSO.
We will have a.
Our rate case, as well and Ah, but keep in mind too. We just brought in all of the renewables and play a particularly a large chunk of it for <unk>.
So.
That's now that's now rolling through through rates and so we expect we expect that to continue to pick up those are those are.
And really when you look at the industrial and manufacturing economic.
Development part of what's going on in those jurisdictions. There is still very positive so and and of course.
We continue to invest heavily.
And in those jurisdictions so.
And that's why you know we have an equalizer chart that that.
Some of your lower until we file rate cases, and and when the investment changes itself. So we're not we're not concerned by that at this point and and and actually we see peso and and the ZIP codes Juris diction with Arkansas, Louisiana in particular very favorable.
Okay, and then one follow up and this may be just that.
And then on what was in our original guidance, but just curious for the transmission segment, how much do you think.
Even down a little bit of net income and EPS perspective year over year for the first quarter can you remind me what you think the earnings growth trajectory is for the transmission segment and 22 relative to 'twenty, one and kind of the drivers behind that.
Yeah, Julien Yeah, and so Michael I don't have my guidance in front of me.
'twenty two it's in our presentation that we put out there.
Our fourth quarter call, but effectively and actually somebody's going to hand, it well let's.
San Antonio, but effectively what we were anticipating was that year over year, we'd be up about eight cents and that was driven by investment growth being up 12% and I mentioned this actually in my opening comments as well and then we had a true up that would occur and we knew that was going to be a embedded that's why we have it in the <unk>.
<unk> that's associated with the true up was positive the previous.
So I went back and forth sort of double count. So we had two reasons for that and that true up I mean, we had spent just a little bit under our budget for the prior year and as you know we've got forward looking rates. So that's a catch up there and then we had higher load. So we had to catch up there too. So we are getting a little bit of a double counting there, but that's why we had the 11 cent reduction in that true up.
And then we had other financing and income taxes that are kind of brought that number back down to flip it to a negative eight cents. So in aggregate for 2022, we assumed that we'd have about $1 27 from that particular segment again, driven by investment growth offset by a couple of these other bucket items that I threw out there.
We're on that trajectory and that's why I, specifically called that out in my opening comments because I thought.
Just trying to model this that's exactly what I'd be asking.
So then the.
So it would be more.
Into the year.
It's I guess, that's probably fair enough, where we're a little short on the on the first quarter, but yeah. I would just expect that we'll continue to see a transmission investment continue to plug along through the remainder of the year at this point, we don't have any changes as it relates to that specific guidance and you know we have it out there here by year end.
Our guidance forecast and assumptions pages in our traditional investor relations materials I'm happy to walk through it with you offline if you'd like to do that too I. Appreciate it. Thank you guys Super helpful. In a much appreciated your taking the time to get to my questions.
Sure thing Thanks, Marc.
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