Q4 2022 American Electric Power Company Inc Earnings Call
Delivering and exceeding our earnings guidance and 2022 was no exception I am very proud of the dedication and accomplishments of the entire AEP team over the past year. While we finished the year strong I can promise you. We're just getting started our robust financial plan continues to yield results, we delivered strong fourth quarter.
2020 to operating earnings of $1 five per share, bringing our full year 2022 operating earnings to $5 nine per share. We're also we also increased our quarterly dividend from <unk> 78 to 83 per share, which we announced back in October .
Teamwork driven performance in 2022 has established a strong foundation from which we can reaffirm our 2023 full year operating earnings guidance range of $5 19 to $5 39, all while mitigating inflationary cost pressures supply chain pressures and higher interest rates as well as constructively.
And advocating regulatory and legislative frameworks.
Formula rates in several of our state jurisdictions and are in our high growth transmission business help us to manage increased interest expense and higher costs.
Importantly, as we keep customer affordability top of mind, we are actively working with our states on the economic development front to drive expansion in our service territory, and we are incorporating efficiencies and expense containment into our rate recovery filings to continue to help offset the impact of increased cost pressures as a matter of fact.
Economic development efforts over the past several years are proving to be appreciably beneficial and we'll talk about normalized load in a few minutes, but to illustrate my point I can tell you that normalized industrial sales were up four 5% largely as a result of those efforts not to mention the added benefit of attracting jobs resident.
And other cascading upside to our communities all of which help to manage customer rates given the bigger denominator.
We value our stakeholder relationships and we've made steady progress on the regulatory front over the past year, including achieving constructive base rate outcomes in Arkansas and in Arkansas, and swap co, Texas and a favorable Supreme Court appeal related to Virginia last rate case, and the securitization of winter storm Yuri costs in Oklahoma.
Our Ah, resulting earned regulated ROE as of December 31 was nine 1%, which suggest we still have work to do on this front and I'll talk about our regulatory activity that we have underway to address this so hang with me for a few minutes not yet there.
AP is leading the transition to a clean energy economy as we engage in one of our largest generation fleet transformation in our industry in 2022, or one five gigawatt north central wind portfolio became fully operational with the completion of the traverse wind farm project, which marked the beginning of our clean energy transition will continue.
To execute on our fleet transformation strategy with the opportunity to add approximately 17 gigawatts of new generation resources between 2022, or 2023, and 2032, while mitigating fuel cost volatility and creating a more diverse resource portfolio to benefit our customers. This will significantly.
Inefficiently contribute to aep's reduced carbon emissions profile and put us on a path to achieve our upgraded net zero goal by 2045 importantly, the recent passage of the inflation reduction Act provides support for our clean energy goals and this will extend our investment runway as we continue to address the needs of our journey.
<unk> fleet.
Since assuming the role of President and now CEO I've prioritized simplifying and de risking our business profile, which has become a core standard by which we evaluate our business activity by actively managing our portfolio and demonstrating a clear commitment to the successful execution of initiatives and transactions, we continued to deliver significant.
Benefits to our stakeholders as you are very much aware, we are working diligently to complete the sale of our Kentucky operations to Liberty you can find the related regulatory timeline on slide eight in the presentation today as an update AEP and Liberty followed the blueprint provided by the FERC order and filed a new FERC two or three application.
On February 14th of this year requesting a shortened comment period, an expedited approval to meet the contractual April 26, 2023 transaction close date.
Immediately after the filing was made berk issued a notice incorporating a shortened 45 day comment deadline related to the application. The shortened comment period is a good sign signaling. The commission is open to considering our application on an accelerated basis AAP and Algonquin are in regular communication discussing various aspects of the transaction.
The path forward and our partnership we're mindful of the April 26 date, and the stock purchase agreement and are cognizant of the tight timeframe given the March 31 comment period deadline. The objective of both AEP and Algonquin remains clear and Thats the closed transactions and both parties are firmly committed to moving forward and bringing forth the benefit.
<unk> of this transaction to customers.
Related to our unregulated contracted renewables portfolio after strong buyer interest we're pleased with our announcement made yesterday for the sale of our 1600 1365 megawatt portfolio to IRG acquisition Holdings, which is a partnership owned by Invenergy CBB Q and funds managed by Blackstone.
Infrastructure.
Summary of the sales can be seen on slide nine of the presentation. Today. We're currently targeting a second quarter 2023 close the utilization of the proceeds from the sale is now reflected in our updated multiyear financing plan on slide 39, and the transaction proceeds will be directed to support our regulated businesses as we enhance the energy delivery infrastructure and <unk>.
<unk> our generation fleet.
Our near term focus remains closing on our two pending sale transactions and Turkey, and our unregulated renewables once both of these transactions are complete we plan to revisit the equity needs in our current multi year financing plan as we've been clear in the past we will use the asset sales to responsibly eliminate equity while maintaining a balance a strong balance sheet.
No change in messaging on this so that's important.
I reiterate that no change in the messaging.
Finally in October 2022, we announced the strategic review of our retail business. We're looking at this business to determine how or if it fits with the current AAP portfolio and we'll keep you updated on our progress we're expecting to complete the strategic review in the first half of 2023.
Let me touch on our regulatory and legislative initiatives that we have underway, we remain focused on our reducing our authorized versus actual ROE gap as I mentioned earlier, our 2022 earned regulated ROE was nine 1% or 2023 earnings guidance range assumes a nine 4% earned ROE and we.
We're already making progress in that direction in January we reached a settlement and gained commission approval for our Louisiana base case, which allows us to reestablish a formula rate plan as we advance through the year. The team will be active in completing our current base case in Oklahoma and rider recovery of the 88 megawatts of Turk plant, which is not currently in Arca.
We saw rates. We also filed an electric security plan in Ohio, which will take us into 2024.
Let me shift gears and provide you with an update on our deferred fuel recovery efforts that are currently underway as we've previously shared with you over the past several months, we have made adjustments to our traditional cost recovery methods in a number of our states to allow for recovery, while spreading the cost out for our customers to make them more affordable and West Virginia, We continue to.
Pursuant approval of the pass through of fuel costs under the fuel clause. We also intend to propose an alternative path for recovery of these costs under proposed legislation if approved that would allow us to securitize these costs and minimize customer impact.
The West Virginia Commission recently instructed its staff to finish its Prudence review of the 2021 and 2022 fuel costs.
Legislature continues to move the securitization legislation forward with the commission share recently testified in support of the board of lawmakers.
I'll conclude my remarks, with an update on our regulated renewable strategy and execution are capacity needs continue to drive us forward on the regulated renewables front and we continue to work with our regulators policymakers and other key stakeholders to ensure a durable and sustainable transmission transition to a clean energy economy, and our vertically integrated state.
The recently enacted inflation reduction act will help us advance our goals in this area and will provide additional value to our customers as we seek to acquire resources consistent with our plan.
We've made considerable progress on <unk> 999 megawatt renewables application, which presents represents a $2 $2 billion investment for AEP parties filed a unanimous settlement in Arkansas on January 27th for our portfolio of owned wind and solar resources. A hearing was held in Texas in January .
And we continue to have constructive settlement dialogue with parties in Louisiana and the hearing date has been formally extended to March 'twenty one to accommodate this we look forward to receiving the commission's orders, which are expected in the second quarter of 2023 for Arkansas and Louisiana in the third quarter of 2023 for Texas.
In November of 2022, PSL made a regulatory filing in Oklahoma to one 995, five megawatts of solar and wind projects, representing a $2 $5 billion investment a procedural schedule was issued last month, which includes a hearing date in April and an expected Commission order in the third quarter of this year.
<unk>.
Separately, we're also seeking to acquire the 154 megawatt <unk> wind facility in Oklahoma from EDF birth approved this acquisition on February 16th and we're pursuing rate recovery of this investment through the ongoing PSL base rate case.
The rock Falls project is already in service and will provide immediate capacity for those customers.
Our regulated renewables goals are aligned and supported by our integrated resources plan in accordance with those plans we issued request for proposal in 2022 or wind solar and other resources at Ampco <unk>.
And once again at <unk>, we anticipate making the related regulatory filings to acquire additional resources under these rfps throughout 2023.
We continue to see rapid changes in our industry and increasing need and demand from customers and communities across the United States at the end of 2022 as I prepared to assume my new position at AEP the team and I dedicated a considerable amount of time and energy by two determining how AEP would continued to deliver safe clean affordable and reliable energy.
And how we can deliver this energy faster and more efficiently to our customers, while generating enhanced value to our stakeholders.
Our long term earnings growth rate of 6% to 7% is underpinned by a robust 40 billion capital investment plan for 2023 through 2027, which includes 15 billion in transmission and $9 billion and regulated renewables investments as.
As evidenced by our fourth quarter and full year 2022 performance AEP has had a long standing track record of consistently delivering on our strategic objectives of transformation strategy is working and the investments, we're making continue to support our positive earnings growth and results.
Please join me in welcoming and to her first AEP earnings call I'll leave you in her very capable hands of cheap provides insight and perspective into our performance drivers for 2022, and the detail supporting our financial targets and.
Thank you Julian D'arcy, it's great to be with you. All this morning, and thanks for dialing in I'll walk us through our fourth quarter and full year results share some updates on our service territory load and our outlook for 2023.
Finished with commentary on credit metrics and liquidity as well as some thoughts on our guidance financial targets and portfolio management.
Let's go to slide 10, which shows the comparison of GAAP to operating earnings for the quarter and year to date period.
As Julian mentioned, we had a strong operating results in both the fourth quarter and for the full year gap.
GAAP earnings for the fourth quarter were <unk> 75 per share compared to $1 seven per share in 2021.
GAAP earnings for the year were $4 51 per share compared to $4 97 per share in 2021 for the quarter I'll mention that we have reflected additional charges related to the expected sale of Kentucky power technique Transco as nonoperating costs.
This is largely a result of the delay in the closing from the need to file a new two or three application with the FERC there.
There are detailed reconciliations of GAAP to operating earnings on pages, 18, and 19 of the presentation today.
Today, I'm going to focus more on our full year results, but I did want to provide a few highlights on the fourth quarter as we show on slide 11.
Operating earnings for the fourth quarter totaled $1 five per share compared to 98 per share in 2021. This is a seven 7% increase year over year.
While we had a lot of puts and takes our vertically integrated and T&D utilities segments continued to perform well, resulting from rate changes transmission revenue and some favorable weather.
Did see a <unk> <unk> decline in our normalized retail margins, but that was due to a change in sales mix as low as favorable for the quarter I'll discuss load in more detail in a couple of minutes.
We were also able to support an increase in our O&M expenses as a result of the strong earnings that we received.
Transmission Holdco was favorable by <unk>, even after factoring in the loss of the Ohio, RTL Adder as we continue to see the benefits of our investment.
The generation and marketing produced <unk> 16 per share up <unk> 10 from last year, driven by increased retail energy margins and favorable generation performance, primarily driven by fewer outage days year over year and.
And finally, corporate and other was down <unk> per share driven by increased interest expense and investment losses, partially offset by favorable income taxes.
Now, let's have a look at our year to date results on slide 12.
Operating earnings for 2022 totaled $5 <unk> per share compared to $4 74 per share in 2021. This was an increase of 35 per share or 7%.
Looking at the drivers by segment operating earnings for vertically integrated utilities were $2 56 per share up 30.
Due to rate changes across various operating companies favorable weather.
Increased transmission revenue and also increased normalized load.
Offsetting these favorable variances were higher O&M increased depreciation expense and increased interest expense.
Once again the change in accounting around the <unk> two lease results in 'twenty, three and favorable O&M offset by 'twenty three unfavorable depreciation.
And a transmission and distribution utilities segment.
Earned $1 16 per share up <unk> <unk> from last year favorable drivers in this segment included rate changes in Texas, and Ohio favorable weather and increased normalized retail loan in transmission revenue.
Setting these favorable items were unfavorable O&M and depreciation.
With a favorable weather and other items that we experienced in 2022, we were able to responsibly deploy additional O&M in both utility segments spend on items like increased vegetation management to improve system reliability.
The AEP transmission Holdco segment contributed $1 32 per share down <unk> <unk> from last year.
Favorable investment growth of 12 was more than offset by an unfavorable true up of <unk>.
The loss of the <unk> at or in Ohio, and increased income taxes.
Remember our 2022 guidance had this segment down by eight <unk> year over year as a result of the investment growth being more than offset by the annual true up and some unfavorable comparisons for taxes and interest.
Generation and marketing produced <unk> 50 per share of <unk> 24 from last year. The positive variance here is primarily due to the sale of renewable development site.
Improved generation performance in land sales in the generation business improved retail margins and increased wholesale margins stemming from favorable market conditions.
And finally, corporate and other was down 22 per share driven by investment losses unfavorable interest and increased O&M, partially offset by lower income taxes.
The investment losses continued to be impacted by the year over year comparisons for our charge point of investment that we exited in the third quarter.
As we mentioned earlier, we are reaffirming our guidance range for 2023 for.
For convenience we have included an updated waterfall on our actual 2022 results to the midpoint of our guidance for 2023 on slide 36.
While the variances change due to the 2022 actual results. There is no change to our 2023 segment or overall guidance.
We are confident that our regulatory actions to provide timely returns on our distribution and renewable investments continued investment in transmission assets.
Impact of economic development efforts and prudent O&M management will offset headwinds such as rising interest rates and inflationary pressures.
Now turning to slide 13, I'll provide an update on our normalized load performance. Overall 2022 was a remarkable year for normalized load growth across the AEP service territory.
Despite the federal reserve's intentional actions to slow down the economy AEP experiences strongest weather normalized load growth in over 15 years with two 8% annual growth.
Impressive part is that this is experience on top of a recovery here as a reminder, 2021 was the strongest year for Aep's normalized growth in over a decade until 2022.
The growth in 2022 was spread across nearly every operating company in every major retail class.
Starting in the lower right corner of the slide normalized retail sales increased by one 9% in the fourth quarter and ended the year up two 8% compared to last year.
For the quarter and growth in commercial industrial sales more than offset the modest decline in residential sales.
Looking forward you will see that we are expecting growth of seven tenths of a percent in 2023.
Story is changing somewhat the further we move away from the pandemic in 2022, the boost from fiscal policy overwhelmed the federal reserve's efforts to constrain the economy through monetary policy in 2023, we expect the fiscal boost debate given the congressional changes after the election, while the fed's efforts to contain inflation remain in place we.
This to result in a slight moderation of economic growth for the balance of this year.
Moving to the upper left corner normalized residential sales decreased by eight tenths of a percent in the fourth quarter, but finished the year slightly above 2021.
For the quarter residential customer counts increased by four tenths of the <unk>.
This was offset by a one 2% decline in weather normalized usage. This.
This is not surprising when you consider the impact that higher inflation energy costs and interest rates have on customers' disposable income to end the year.
You will notice that we now expect residential sales to decrease by half a percent in 2023 for the same reason.
Moving right weather normalized commercial sales increased by five 4% for the quarter and ended the year up four 2% compared to 2021.
The growth in commercial sales was spread across nearly every operating company fastest growing commercial sectors professional scientific impact services that includes data center.
Where load was up nearly 30% compared to last year for both the quarter and the year to date comparison.
The outlook for 2023 is showing a modest six tenths of percent growth. While we did see momentum in this class driven by economic development the sustained impact of the labor shortage inflation high interest rates and energy costs will act as a headwind in 2023.
Finally, focusing on the lower left corner, you see that industrial sales growth moderated in the first fourth quarter up one 5%, while the year ended four 5% above 2021 industrial.
Industrial sales increased in most operating companies and many of our largest sector.
We continue to experience robust growth in the oil and gas sectors, which were up 6% compared to the fourth quarter of 2021.
Outside of oil and gas, which tends to run countercyclical to the rest of the economy. We did noticed software industrial sales growth consistent with many of the economic indicators.
As you know the ISI manufacturing index fell below 50 in the fourth quarter, which is a sign of an industrial contraction the.
The combination of sustained inflation supply chain disruption, increasing borrowing costs, a strong dollar and elevated energy costs have formed significant challenges for domestic manufacturing.
Fortunately AEP past economic development activities are providing an offset and are keeping aep's industrial sales rose in positive territory.
You see that the outlook is showing industrial sales growth of two 1% in 2023, which is largely attributable to the consistent economic development activities over the past I'll provide additional detail on the impact of these efforts in the next slide.
To summarize the AEP service territory experienced a remarkable year for load growth in 2022, despite the inflationary pressures on wages and energy and a federal reserve that was intentionally trying to slow down the economy.
We are finally seeing evidence that these measures are starting to have an impact which will result in slower growth in 2023.
Fortunately aep's disciplined commitment to economic development should keep our load growth in the black moving forward for example, absent economic development or low growth would've been essentially flat in the fourth quarter and up one 1% for the year.
Turning to slide 14, I want to highlight how our commitment to economic development is helping to sustain loan growth even in the face of challenging economic conditions.
The chart on this slide illustrates why this strategy is so important to us.
The blue bars on the chart show the growth of gross regional product for the AEP service territory over the past year.
You can see that it has been slowing over the period and in fact for the fourth quarter growth in Aep's TRP was slightly negative compared to the fourth quarter of 2021. However, the green bars here show, our industrial sales growth over the same period, you'll notice they have been resilient throughout 2022 without any help from the ERP.
A lot of the growth in.
Industrial load that we are seeing today is a consequence of economic development projects from previous year.
And our focus on economic development is not just about the additional load that we report to you on a quarterly basis.
We are also focused on attracting employer to the service territory.
They're adding new loading customers, our key strategy to providing value to all customers.
This allows us to continue to prioritize investments that will improve the customer experience, while mitigating the rate impact on our customer base.
By making this a key component of our strategy AEP is helping to mitigate the impact of the economic downturns on our customers communities and shareholders.
And Aep's economic development team has a proven track record of helping to bring these new customers to our service territory with an emphasis on jobs and load.
In fact, the AEP service territory has added over 141000 jobs in 2022.
Let's move on to slide 15 to discuss the company's capitalization and liquidity position.
Taking a look at the upper left quadrant on this page you see our <unk> debt metric stands at 13, 2%, which is a decrease of one 3% from the prior quarter.
The primary reason for this decrease is the impact on both <unk> and short term debt from a decrease in our mark to market collateral positions associated with the decline in natural gas and power prices as well as a continued increase in our deferred fuel balances.
We remain committed to our targeted <unk> to debt range of 14% to 15% and we plan to trend back into that range near the end of 2023 as we continue to work through the regulatory recovery process of our deferred fuel balances, which which can drive some volatility in that metric.
You can see our liquidity summary on the lower left quadrant of the slide our five year $4 billion bank revolver, and two year $1 billion revolving credit facilities to support our liquidity position, which remained strong at $2 6 billion.
The $1 1 billion changed from last quarter is mainly due to an increase in commercial paper outstanding for the reasons I mentioned earlier.
On a GAAP basis, our debt to capital ratio increase from the prior quarter by one 5% to 62, 9%.
On the qualified pension front, our funding status remains strong ending the quarter at 102, 4% while assets performed as expected during the quarter. The primary driver for the funded status decrease was due to an increase in the liability caused by changes in actuarial assumptions influenced by the rising interest rate environment in 2022.
Now turning to slide 16, I will give a quick recap of today's message.
First we are focused on execution.
The Kentucky transaction is back in front of the FERC and Liberty in A&P are committed to moving forward with this transaction with.
We just announced the agreement to sell our unregulated contract renewables portfolio and are working through the strategic review of the retail business.
Each of these actions will help us to simplify and Derisk our business.
Even as we worked on these initiatives, we didn't take our eye off the ball and managing the business.
We finished 2022 with solid earnings and made significant investments to support our customers.
Even with the backdrop of supply chain challenges and inflationary pressure.
We continue to be committed to our long term growth rate of six 7% continued dividend growth and a strong balance sheet, while de risking the company focusing on the customer and actively managing the portfolio.
We really appreciate your time and attention today I'm going to ask Brad to opening up the call. So that we can answer any questions that you may have.
Thank you, ladies and ladies and gentlemen, if you do wish to ask a question. Please press one and then zero on your telephone keypad.
Withdraw your question at any time by repeating the one zero command and if you're using a speakerphone. Please pick up your handset before pressing those numbers again, if you have a question one and then zero at this time.
And we'll first go to sharp <unk> with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Morning.
So a couple of quick ones here looking at just the West Virginia fuel cost recovery.
Hearings were obviously held in <unk> and there was discussion about moving to quarterly time periods as well as securitization I guess can you give us maybe an update on how youre looking at the situation, where we might be headed from here. There's a lot of moving pieces I guess, so how's the dialogue going in sort of any sense of bill impact.
Ranges, especially with the recent gas price clubs.
Yes, I. So appreciate the question because as sure as I'm sure you can imagine it is absolutely top of mind for us.
As Ann mentioned in her comments top of mind from a CFO perspective, most definitely.
As you know we did get an order. This staff is going through its paces as we got to work through the Prudency review and in the background. What the play is a legislation that could potentially accommodate securitization of the dollars. We have outstanding are the deferred fuel balance in west Virginia is $520 million.
So it's not insignificant in this extremely important to be able to digest. This in a way that can accommodate customer rates. So we're hoping that we'll be able to be in a position we will be able to utilize the securitization legislation if approved.
To be able to smooth this out and take care of.
Customer needs in terms of the bill impact medical imaging of the units thoughts on that and how we might do them, yes, or no. It's absolutely right, meaning either utilizing a securitization allows us to spread it out over time and minimize and actually keep bar.
Customer rates relatively flat, which is really the intention.
Now this murata sometime it will be effective in June and we made a commission order. So we would expect the securitization could take place in first half of 2024.
Got it okay perfect and then just lastly on the financing. These obviously we've noticed that will include both the $1 2 billion expected cash proceeds from Kentucky as well as <unk>.
I think for the first time, we expected $1 2 billion from the contracted renewable sale I guess looking at the sources and uses why wait.
Date, Youre funding needs on the equity side, especially if you're including the proceeds already is there anything we should be thinking about here.
No hidden message there offshore and we want to make sure that we get both of these transactions in the bag give them taken care of and then we will recalibrate and as you know our objective is twofold, we want to make sure. We have a strong balance sheet, because we don't want anybody worried about a dilutive otherwise actions that we would have to take so that's first and foremost is top of mind for us is.
Is making sure that balance sheet is in check and as you know we put out a target goal for <unk> to debt of 14% to 15%.
That being said.
To the extent that we will then be able to eliminate future equity needs. We don't have a significant amount of equity financing when you look out over the horizon, but if we're able to kind of call that back a little bit and still hit the objective on the strong balance sheet, we will absolutely do that so no hidden message. Obviously both of these are are moving along con.
Tractor renewables new growth, we know that that will close in the second quarter. We believe that the planned to close in the second quarter and as you know, Kentucky is pending with its two or three applications. So stay tuned.
Just want to make sure that we got this completely right for you all and that Youre not concerned.
Fantastic guys.
That's on the execution I appreciate it.
We view.
And next we'll go to Jeremy Tonet with Jpmorgan. Please go ahead.
Hi, good morning.
Army.
Just wanted to pivot towards the retail business, a little bit and if you could just go back I guess, a little bit how that process stands at this point.
Just wondering any thoughts or be considered year of why that would remain in the portfolio will might prevent you from selling it in just wondering if you might be able provide a little bit more color of what's in that business EBIT or earnings or anything else or rubber has around there yes.
Yes, absolutely and I love the question because that's exactly what we're doing in our house right now is going through the paces to determine exactly does it fit if theres anything that does that what does that look like so stay tuned that will be a first half story for AEP adult expect us to come in to you probably in the second quarter with a little more granular detail because we're literally going through.
That analysis, now and working with the troops to make sure we have that finely tuned. So we can get back out to you.
As far as quantifying how big is this business and what does it mean currently to AEP.
The net asset position or I guess equity position. If you strip out the liabilities were talking about $193 million. The vast majority of that is working capital to the tune of about $150 million of the 193.
And the rest is largely it is software.
And then we have a little a little smidge of goodwill and there are about $15 million to give you some parameters and then.
And then.
I would think about it or does that mean from an EPS perspective.
In 2022, this retail business contributed <unk> <unk> of EPS and in 2023.
<unk> embedded in our guidance to give you that that goalpost to hopefully that helps.
That's very helpful. And then just going back to the renewables. So here was the EBITDA number that you might be able to share with us where have shared with us.
We haven't disclosed an EBITDA number I can tell you that in our guidance for 2023, we're looking at a penny.
That renewable business contributed I think it was eight does that sound right.
Now <unk> in 2022 to give you those parameters.
Got it that's helpful and just one last one of the good thing.
Shar was talking about fuel balances what have you and I guess different moving pieces here.
Getting back to what the agencies are looking at how should we think about the cadence of fueled bell fueled balance normalizing in the other items as we get to the 14% to 15% of <unk> that target range by year.
Year end 'twenty driven.
That's right, we expect to get our up to hit the ball between upgrades and the last part of the year. We do expect to have a little bit of pressure in the front end as we continue to work through some of the fuel balances as I mentioned when you look at West Virginia, Standalone was about $520 million on sound right, an <unk> hundred $20 million and as I mentioned.
Securitization of that will take some time likely won't be done by the end of this year, but in terms of our other fuel balances in other jurisdictions, we have positive mechanisms to recover that and also natural gas liquids and power prices are declining so that will help somewhat as well.
Got it very helpful. I'll leave it there thanks and hey, thank you.
And next we'll go to Steve Fleishman with Wolfe Research. Please go ahead.
Yes, hi, good morning.
Yes.
So just consumer hygiene <unk> more question on those two.
Sure.
If you.
If you just looked at.
Year end number on refrigerated debt how.
How much.
Do you think deferred fuel represents in terms of.
Package smaller in that number.
And given that they found it yet.
Yes.
We're at 13, 2% as of year end and so if we get above that 14% ish range by year end of 2023, I don't know that looks about adult say entirely 100 basis points, but it's pretty significant I think I'd estimate the low 100 <unk>. When you think about it we had $1 7 billion of deferred floor.
The end of the year.
Okay, that's very helpful.
And then.
Just on the.
The Roe improvement.
To the warrants issued guidance is there.
At any stage that are really driving a lot of that stage dead.
Okay. The most room to go after 'twenty three.
Yeah, So here's where I'll draw your attention to and I know, we have the little equalizer chart here in the slide deck somewhere I think its on page number 41.
And so you can get a sense of kind of where we are hanging out on each of the respective operating company entities, but what we do have in play right. Now is it <unk>. So Oklahoma, we have a base case underway, so that should help us to begin to heal.
<unk>, the ROE or the earned ROE at PSA So stay tuned for that so base case in play there and then as I mentioned in my opening remarks, we recently were able to finalize our Louisiana base case, and then reactivate beef formula rate plan.
So that will get underway to again to help move <unk> ROE back up closer to its authorized levels, Kentucky, Obviously, you know, what we're doing with Kentucky and.
NAPCO I think Atco, that's why the legislation in Virginia become so important to us because we're not an underwriting position right now we got the outcome of the Virginia, Triennial case, which should be beneficial to us in 2023, but I would still expect outflows roe to be under pressure.
Until we get hopefully some resolution around Virginia legislation that to the extent that we're able to modify.
The regulatory recovery methods that are being employed in that particular state will begin to see some healing on that particular row.
Two so our triennial versus say, a biennial AP and AR lead more toward a biennial or an annual type look versus necessarily that.
Triennial, because unfortunately can attract us and an under earning position. So stay tuned we'll see how the Virginia legislation process moves along our team is absolutely at the table with all the other stakeholders so that sounds constructive.
So we're hopeful and we'll see this developing situation through and then we would expect something to be.
And the improvement territory for <unk>.
Just for clarity on that last point in Virginia.
What are you seeing that neutral to us.
Reaching the launch is going through a biofuel.
North Dakota, so far between case users to get anything shorter Steve is going to be better for us so that will move us in a more productive.
Situation a direction for <unk> in particular, I mean, an annual rate drove would be fine too.
But again you can see the direction, so that that will be important for us as we work through the different solutions that are being contemplated now because I know we have I think three bills that are being evaluated or at least shopped in Virginia.
But as I mentioned <unk>, absolutely at the table and we'll see how this ultimately shakes out obviously the benefit needs to go to the customers. But then also our investors as we work to improve the ROE.
Okay, great. Thank you hey, thanks, Steve.
And next we go to Nick Campanella with Credit Suisse. Please go ahead.
Okay.
Hey team. Thanks, a lot for taking my question.
I guess, just very clear from our filings that have been made so far on the Kentucky transaction that that the parties are committed here and youre working towards.
Closing what is somewhat of a tight deadline can you just kind of give us a sense.
How that changes if your funding strategy changes at all of this deal.
Once it goes through.
And how that overall kind of change your strategies if it weren't there. Thank you.
I still appreciate the question and I'll, let Ian jump in here in a second on what our thoughts are on funding but.
Before I do I'd have to say, we're committed to the transaction I know you point that out.
And I know, we do have a tight timeline is precisely why I threw that out there.
Opening comments the objective is to I'll say push for the paper because I know, we've got that April 26 day, but importantly in any of the guys have the takeaway both the AAP and Algonquin team members continue to have a regular dialogue we worked closely together so.
We're all in and we'll continue to push to try to do this as expeditiously as possible, but I think we're also in a good position from a financing perspective annual talk a little bit yeah, absolutely. So should Kentucky not close we would expect to keep our equity remains the same so no new equity if that happened.
We'll just be managing our <unk> debt as tightly as possible and.
Don't expect any changes.
Okay. That's helpful.
I appreciate that and then I guess just.
I know, we talked a lot about deferred fuel, but we noticed that the the CFO is slightly depressed in 'twenty three versus kind of what you outlined at the analyst day, and I think theyre, making up for that in the back part of the plan, but is that is that purely just deferred fuel impacts or is there something else fundamental there.
Yeah, there's really two main drivers of this deferred fuel is the biggest piece, but the other piece is we've had some.
Return of collateral from a mark to market due to the <unk>.
Reduction in natural gas and power prices that has impacted that as well.
I appreciate the time thanks.
For the question.
And next we'll go to Bill Kelly with UBS. Please go ahead.
Hey, Bill.
Hi, Good morning, Hi, just going back to the Kentucky sale.
I know you said the fiscal.
While we saw a 45 day common period.
We're going to recover.
Sort of a maybe an expedited ruling but we will.
We get further indication from FERC that they will rule in the expedited manner.
Yes. So the next gating item for US is March 31 that ends the commentary period.
And we'll just proceed from there.
We know the other backdrop for us are backstop for US is as I mentioned in my comments is the April 2006 states. So that's top of mind for us as well.
But here's where I continue to go in my mind, no none of the benefits yet to the customer until we close the transaction. It won't start in advance. So that's incredibly important and I think we've got everyone's attention and.
The other thing that we were particularly sensitive to and I know Darcy pressured this with you.
We have called in the interim here, but we've really made an effort to take the FERC blueprint to.
To make sure that we were accommodating or addressing the concerns that FERC voice as it relates to taking care of customers and making sure there's no harm and as a matter of fact, if you look at the application I think we don't preclude the new two or three applications and pretty granular form I think its pages four five and six clearly I've run this a few times.
Take a look at that if you wanted to get a better sense of.
What the parties have come up with to be able to take care of the customers in.
The state of Kentucky, and specifically in Turkey powers footprint. So I think everybody is going to be working on an expedited.
Basis, and schedule and clearly we very much appreciated the shorten comment period, because I do think its indicative. So we'll continue to work through it and rest assured that both the AEP and Algonquin team members will continue to be in regular regular regular contact with one another.
Because at this point, we're partners and oldest.
Okay, No that's very helpful.
What happens if we get to the April 2016, we don't with Citigroup.
Vendors or.
Excellent question excellent question.
Here's how I can answer that for you.
You mentioned that the teams are in constant contact and in regular contact I would expect that if we get closer to that date that the teams will be talking specifically about this so stay tuned.
Okay, great. Thanks, very much yeah, you bet, thanks for being on today.
And excuse me next we'll go to address jumbo with Evercore. Please go ahead.
Good morning, Dave Thanks for giving me John They just got worse.
Clarification.
I think you mentioned <unk>.
For the renewables business UBS.
Investors happier right. So that's what's embedded in the guidance and the full year earnings are doubled over 60 of them right.
No <unk> is last year. So the 2022 EPS from renewables as we mentioned for 2023, we expect that to be one thing.
So that's the full year of contribution for <unk> towards went through.
That's correct, yes, <unk> for 2022.
<unk> for 2023.
And so the way I would characterize it and I think this now we added the press release neutral.
It would be slightly dilutive to the tune of Penny.
No from my chair I'm not worried about it.
Got it Okay, and then just again want to go back to the sort of the financing slide.
Of the new just updated thoughts on use of proceeds here clearly the the.
The renewables sale is on Dragon.
One 2 billion.
So how should we think will use of proceeds for that.
At least eliminate equity for 2024.
So you want take that.
And kind of confidence.
Sorry, I have a little bit of a cold.
No right now we are not going to reduce any equity in the out of years, but as Julie mentioned once we close the Kentucky transaction. The renewables transaction, we're going to we'll reevaluate and see whether or not we can responsibly take out equity in the future while keeping in mind.
Having a strong balance sheet.
Understood I appreciate that guys. Thanks for your time and look forward to working with you. Thanks so much.
And next we go to <unk>.
Paul Fremont with Ladenburg. Please go ahead.
Great. So I guess the first question right now the sales proceeds from the two transactions actually are in excess of the equity that you had identified.
Last year.
So we should assume though that the.
The sales proceeds.
Sure.
<unk> eliminated.
Your equity need they just reduce it to that is that a fair characterization.
I think thats, a fair characterization and just as a reminder, <unk>.
Wasn't here when we when they made these announcements last year, Paul you May remember.
We took out of the 2022 plan.
<unk> was 22022 plants, one 4 billion of equity because we assumed that the Kentucky transaction would have closed we never put that equity back in and so right. Now we're just kind of waiting to have that particular transaction close and then we introduced the contracted renewables transaction on top of that so what you see today is.
Versus what we originally had planned we had already stripped out $1 4 billion of equity. So that's already assumed in this plan versus what we originally had when we announced Kentucky and so as Ann mentioned, what you should anticipate is we've already assumed all the proceeds from these but both of these transactions are assumed in the multi year forecast you have on page 30.
Nine and that once we close on both of them, we like cash we like cash coming in the door. So once we close on those we'll be able to recalibrate to make sure. We're doing hitting two objectives number one make sure that we're getting to that 15% to 14% to 15% <unk> to debt and then being able to tweak meeting otherwise translation.
Do any of those equity needs in those future periods. So don't anticipate us as wiping all of that out because we've already assumed the Kentucky utilization was in there but.
But we may have some wiggle room here to take some additional dollars out in terms of equity once we close on the transactions and so no hidden message there or just wait until we have $1 and we'll be right back to you to be able to take some of those those equity needs out assuming that you hit the metrics that we need to hit for loan on <unk> to debt perspective, and I think we can do it.
Great and then moving to Virginia.
You guys, where there is a bill I think thats under consideration at <unk> 75.
Would you expect that to survive come out of conference and ultimately be adopted or I guess, what's your thought process on what will happen in Virginia, yes.
So here's what I have I have that SB 275 was amended in the house.
And then it.
It was transitioned to a biennial.
And then we're continuing to work with our legislators and the Governor's reached some consensus on the language and if this does pass which you should anticipate is that AAP or Atco would file if last triennial in 2023 and that would cover the period 2022 2022, So we'll see.
If we can get this across the goal line I know we've got some other competing.
Bills or legislation is being proposed as well also looks like a biannual situations.
And can you break out for 2022.
Just the contribution.
Contribution from generation.
From all of our generating assets the generation optimizing yogurt GNL in the Gms.
Section so the merchant in other words, the merchant generation contribution.
In 2022.
Yeah, I can I can give you the renewable part that was eight.
I have that off the top of my head I can give him the resets I'm going to work at a little bit backwards I can give you the retail piece of the business and thats not the generation component. So that was <unk>. So then you've got what 13 there of the total earned we can circle back with you pointed to that number though.
That would be no problem.
That would be great and maybe the last question for me.
The income tax changes and other and corporate and other can you maybe give a little flavor as to what drove those.
One second here, we're kind of running through my notes I don't have I don't have that in front of me.
Yes. So the income tax there is a little bit of geography here with respect to the parent company loss.
That's driving that that.
That impact and then.
The other is just a lot of very small items that are lumped together.
Okay.
Thank you very much thanks, Paul.
And with no further questions in queue I'll hand, the call back over to Darcy Reese.
Yes.
Thank you for joining us on today's call as always the IR team will be available to answer any additional questions. You may have Brad would you. Please give the replay information.
Certainly thank you ladies and gentlemen, this conference will be available for replay after 11 30 eastern today and running through March 3rd at Midnight, you can access the AT&T replay system at any time by dialing one 806, 20710 401 and entering the access code 306 two.
5886 International parties May dial four zero to 90 700847.
Those numbers again, one 806, 20710, or one and international parties for zero to 90, 700 847 with the access code 3625886 that does conclude our call for today. Thanks for your participation a patient.
<unk> teleconference. You may now disconnect.