Q4 2024 American Electric Power Company Inc Earnings Call
Audra: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power Fourth Quarter 2024 Earnings Call. Today's conference is being recorded.
Audra: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Audra: At this time I would like to turn the conference over to Darcy Reese, Vice President of Investor Relations. Please go ahead.
Darcy Reese: Good morning and welcome to American Electric Power's fourth quarter 2024 earnings call. A live webcast of this teleconference and slide presentation are available on our website under the events and presentation section.
Bill Fehrman: We have a few members of our management team with us today, including Bill Fehrman, President and Chief Executive Officer, Trevor Mahalik, Executive Vice President and Chief Financial Officer, and Kate Sturgis, Senior Vice President Controller and Chief Accounting Officer.
Bill Fehrman: We will be making forward-looking statements during the call. Actual results may differ materially from those projected in any forward-looking statement we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings.
Speaker Change: We will take your questions following opening remarks. With that, please turn to slide four and let me hand the call over to Bill.
Bill Fehrman: Thank you Darcy and good morning everyone. Welcome to our fourth quarter 2024 earnings call. Let me start by saying that after six months on the job I continue to get more excited about the very strong and comprehensive AEP value proposition.
Bill Fehrman: Our future is extremely bright and we are committed to delivering on our promises to customers, regulators, and investors by putting our robust capital plan to work.
Bill Fehrman: We are building a platform of success by focusing on execution and accountability. These are exciting times at AEP, and I see incredible value in this company, which I am confident we can further unlock by advancing our long-term strategy and providing safe, affordable, and reliable service across our large footprint.
Speaker Change: Before we jump into our results, I'd like to start by introducing our new CFO, Trevor Mahalik, who joined AEP last month and is on the call with me today. Trevor is a proven leader and an industry veteran. He's hit the ground running and is already considered a very strong, disciplined, and focused member of our senior leadership team.
Speaker Change: I've made a number of changes over the last six months to streamline our leadership structure by eliminating management layers, reorganizing and reducing the size and scope of the service corporation, and improving procurement processes to drive much higher value from suppliers.
Speaker Change: The leadership team is coming together to make AEP a premium traded utility that is highly respected and trusted by our many stakeholders.
Speaker Change: Lastly, I'd like to take a moment to thank Chuck Zebula for his more than 25 years of dedicated service to AEP. We're grateful for his steady hand during the transition and will continue to benefit from his expertise until his well-earned retirement in March.
Speaker Change: In my remarks this morning, I will discuss our strategic focus and our results at a high level before passing it over to Trevor to walk through our financials in more detail.
Speaker Change: Today we announced fourth quarter 2024 operating earnings of $1.24 per share, or $660 million, bringing our full year 2024 operating earnings to $5.62 per share.
Speaker Change: Recall as part of our commitment of continuing to deliver value to our shareholders, last October we increased the quarterly dividend from 88 to 93 cents per share.
Speaker Change: In addition, today we are reaffirming AEP's 2025 Operating Earnings Guidance Range of $5.75 to $5.95 per share and affirming our long-term operating earnings growth rate of 6 to 8 percent.
Speaker Change: all reinforced by our robust $54 billion capital plan from 2025 through 2029. As we have talked about previously, I am committed to a strong balance sheet, and I believe it is critical to funding our robust capital plan.
Speaker Change: We will responsibly finance the great opportunities ahead of us from a position of strength. Trevor will address this further in his remarks.
We will also be disciplined around portfolio management.
Speaker Change: In fact, last month we announced the Ohio and INM Minority Interest Transaction on the transmission business with KKR and PSP Investments for $2.82 billion. The transaction is highly accretive at 2.3 times rate base and valued at 30.3 times price to earnings.
Speaker Change: To put this into another perspective, this is equivalent to issuing AEP common stock at $170 per share.
Speaker Change: Moreover, in the last couple of weeks, we filed for approval with FERC, and we expect to close in the second half of 2025, at which time we'll still retain 95% of AEP's total transmission assets.
Speaker Change: The proceeds from this transaction allow us to rotate capital into investments that benefit our customers as we enhance reliability and deliver on growing energy demand.
Speaker Change: In addition to the minority interest transaction, we also recycled almost a half-billion dollars in net cash proceeds in 2024 through the sale of the New Mexico Renewable Development Solar Portfolio and Distributed Resources business.
Speaker Change: We continue to work with federal policy makers, state legislators, and regulators across our large service footprint to determine what their goals are so we can relentlessly deliver on them.
Speaker Change: I would also like to spend some time this morning walking through AEP's future growth opportunities, which are underpinned by four major drivers.
Speaker Change: large load in our service territories, including data center load that we appreciate having the chance to serve and are aggressively pursuing, economic development efforts in our states, investment across the system in our transmission and distribution infrastructure, and new generation.
Speaker Change: Our capital plan includes customer commitments for 20 gigawatts of incremental load by 2030.
Speaker Change: driven by data-centered demand, reshoring and manufacturing, and continued economic development.
Speaker Change: In fact, large load impacts are already being felt in many of AEP's service territories, especially in Ohio, Texas, and Indiana.
Speaker Change: As demonstrated in our fourth quarter results, we experienced commercial load growth of 12.3% over the fourth quarter and 10.6% growth on the full year compared to 2023.
Speaker Change: One of the reasons we are seeing such growth now is that we have an advanced transmission system that can help support current large loads, which is a significant advantage for us versus our peers.
Speaker Change: As we execute on our $54 billion capital plan to support customer needs, affordability remains top of mind, and we are committed to fair cost allocation associated with large loads.
Speaker Change: We proactively filed the data center tariff in Ohio and large low tariff modifications in Indiana, Kentucky, and West Virginia. And we look forward to commission decisions in Indiana and West Virginia on both states' unanimous settlements in the near future.
Speaker Change: The data center tariff hearing in Ohio concluded last month. We should have a commission decision by the third quarter of this year.
Speaker Change: In addition to our efforts to support load growth, our current capital plan contemplates sustained and substantial investments across our distribution infrastructure to better meet our customers' energy needs and improve customer service.
Speaker Change: Since AEP's distribution system is one of the nation's largest at approximately 225,000 distribution miles.
Speaker Change: These efforts include work to harden or replace poles, conductors, transformers, and other assets.
Speaker Change: as well as deploy automated technologies like AMI meters and GripSmart for enhanced operational performance. In total, we are investing more than $13 billion over the next five years in these areas to improve reliability and reduce both frequency and duration of outages.
Speaker Change: By advancing these initiatives, as well as an aggressive vegetation management program, we will increase customer satisfaction, strengthen our system's resilience to weather events, and reduce costs for operations and maintenance.
Speaker Change: Demand for power is growing at a pace not seen over my 44 years in this business.
Speaker Change: As we discussed last quarter, meeting this demand could require incremental investment of up to $10 billion, driven by additional transmission, distribution, and generation infrastructure not included in our current $54 billion capital plan.
Speaker Change: For example, in our three primary RTOs, we see an opportunity of approximately four to five billion dollars of incremental transmission awards recently approved or expected to be approved in the near term with additional upside on other initiatives.
Speaker Change: The remainder of the $10 billion of incremental capital, upside, is in transmission, distribution, and generation infrastructure across the business.
Speaker Change: In addition, as you'll recall, in November we announced a partnership with Bloom Energy related to fuel cells. Our current capital plan does not include any investment in this custom solution, which will enable our large customers to quickly power their operations while the grid is built out to accommodate further demand.
Speaker Change: Once the necessary infrastructure is connected to these large customers, they can use the fuel cells as backup generation, further adding resiliency to their operations.
Speaker Change: This demonstrates our commitment to finding innovative customer solutions that let them power up much quicker, allowing their business to deliver service to their customers, which will generate profits much sooner than waiting for a grid connection.
Speaker Change: As a matter of fact, just this week, AEP Ohio filed with the Ohio Commission for approval of the first two customer projects using this fuel cell technology totaling 100 megawatts.
Speaker Change: Not only is AEP working to bring solutions tailored to the current power needs of our states, but we are leading efforts in the industry on the potential that small modular reactors, or SMRs, have to meet the growing needs of the future.
Speaker Change: We're looking to partner with the U.S. Department of Energy to support the early site permit process for two potential SMR locations.
Speaker Change: one in Indiana and the other in Virginia. We are laying the groundwork to find solutions to support large loads and are fortunate for the opportunity to build these SMRs, but only with appropriate risk sharing.
Speaker Change: The tech companies are fast movers, and AEP will be there to support them with whatever technology solution they want to deploy. But we need to ensure that we are protected and compensated.
Speaker Change: Moving on to regulatory, over the last six months I have visited 10 of our 11 states and have been actively engaged with various stakeholders listening to their preferences as we invest more in resources at the local level.
Speaker Change: I firmly believe that by delivering for our states and the customers who live there, we can, over time, improve our earned ROEs and increase equity layers as states are more receptive to the need to attract capital.
Speaker Change: It is an absolute imperative that AEP listen closely to our states and then aggressively deliver on the agreed upon commitments. That's my promise to them.
Speaker Change: When I look at 2024 in review, our operating companies achieved a number of positive regulatory developments, including received constructive base rate case outcomes in Indiana, Michigan, Oklahoma, Texas, and Virginia, obtained commission approval of the Ohio electric security plan.
Speaker Change: updated formula weights in Arkansas and Louisiana and filed system resiliency plans in both of our operating companies in Texas.
Speaker Change: As we discussed on our last call, APCO filed its base case in West Virginia while offering securitization as a concept to help mitigate the proposed base rate increase.
Speaker Change: Intervenor testimony in this case is set for April, with rebuttal testimony following in May and a hearing set to start in mid-June of this year. We look forward to working with everyone involved in this case to achieve a positive outcome for both our customers and our shareholders.
Speaker Change: Shifting now to our generation fleet, we previously filed for approval of PSO's Green Country 795 megawatt natural gas facility, SWEPCO's new Hullsville 450 megawatt natural gas plant, as well as SWEPCO's Welch 1053 megawatt natural gas conversion project.
Speaker Change: These facilities and RFPs, which are currently in progress at APCO, INM, and PSO, in addition to future integrated resource plan filings over the next couple years in Arkansas, Kentucky, Indiana, Michigan, Virginia, and West Virginia, support our capacity obligations and will go a long way in meeting our customers' energy needs.
Speaker Change: In summary, we're engaged with key stakeholders on the regulatory front as we keep affordability, system reliability, resiliency and security top of mind. I'm excited to start the new year, having made meaningful progress and we'll continue these important efforts as we advance on our commitment to excellence and deliver on what our states want.
Speaker Change: I'll close by thanking everyone at AEP for their hard work and dedication in 2024.
Speaker Change: I'm energized as we enter 2025 with a strong team and a more streamlined structure that are significantly driving efficiencies, reducing bureaucracy, and creating a much more nimble company that can quickly execute on opportunities.
Speaker Change: We're also having our employees, who have been working from home, return to the office full-time by June 1st to put all hands on deck with a renewed focus on execution and accountability that will serve us well as we advance our strategic priorities to enhance value for our stakeholders.
With that, I'll now turn it over to Trevor.
Speaker Change: Thank you Bill and good morning to everyone on the call. I want to start today by thanking Bill and the board for placing their trust in me to help lead this organization into a bright and exciting future.
Speaker Change: I am honored and grateful for the opportunity to join a dynamic team that is focused on positioning the company for future success, and I'm committed to building on our momentum to create value for all of our stakeholders.
Speaker Change: As part of my transition, I have reviewed AEP's financial and capital plans, and I have confidence in executing on them with this team.
Speaker Change: Today, I will walk us through the fourth quarter and full year results for 2024, expand on Bill's comments related to load growth, and discuss what we expect to see in the years ahead.
Speaker Change: I will finish with commentary on credit metrics, liquidity, and portfolio management, as well as my focus on disciplined capital allocation.
Please turn to slide 7.
Speaker Change: This slide shows the comparison of gap to operating earnings for the quarter and year-to-date periods. Gap earnings for the fourth quarter were $1.25 per share, compared to $0.64 per share in 2023.
Speaker Change: Gap earnings for the year were $5.60 per share compared to $4.26 per share in 2023.
Speaker Change: Detailed reconciliations of GAAP to operating earnings are shown in the appendix on slides 25 and 26.
Speaker Change: Next, I will briefly cover fourth-quarter operating results before moving on to a more detailed walkthrough of our year-to-date results by segment.
Speaker Change: We saw 22 cents of incremental rate changes across multiple jurisdictions, along with higher normalized retail sales at both the vertically integrated and transmission and distribution segments.
Speaker Change: Partially offsetting these favorable drivers were higher O&M and lower margins at the generation and marketing segment.
Speaker Change: For reference, the full details of our fourth quarter results are shown on slide 22.
Speaker Change: Moving on to slide 8, let's have a look at our year-to-date results.
Speaker Change: Operating earnings for 2024 totaled $5.62 per share compared to $5.25 per share in 2023.
Speaker Change: This was an increase of $0.37 per share, or about 7% year-over-year, adding to AEP's long track record of delivering on its financial commitments for investors.
Speaker Change: Looking at the drivers by segment, operating earnings for vertically integrated utilities were $2.63 per share, up $0.16 from a year earlier.
Speaker Change: Positive drivers included rate changes across multiple jurisdictions, notable outcomes in Virginia and Indiana, and a return to relatively normal weather in 2024 compared to the mild weather experienced in 2023.
Speaker Change: These items were partially offset by higher depreciation and higher O&M as we made investments to serve our customers.
Speaker Change: The transmission and distribution utility segment earned $1.51 per share, up 21 cents from last year.
Speaker Change: Favorable drivers in this segment included increased rates in Texas and Ohio, increased transmission revenue, a favorable year-over-year change in weather, and higher normalized retail sales.
Speaker Change: Partially offsetting these items were increased property taxes, depreciation, interest expense, and O&M.
Speaker Change: The AEP Transmission Holco Segment contributed $1.51 per share, up $0.08 from last year. Our continued investment in transmission assets as the new loads are added to our system was the main driver in this segment.
Speaker Change: Generation and Marketing produced $0.48 per share, down $0.11 from last year. The reduced contribution from this segment was primarily driven by the sale of our universal-scale assets in the third quarter of 2023, higher income taxes, and lower retail energy margins.
Speaker Change: These items were partially offset by lower interest expense and higher wholesale margins.
Speaker Change: Finally, corporate and other saw a benefit of three cents per share driven by lower income taxes and O&M which are partially offset by higher net interest expense.
Bill Fehrman: As Bill mentioned earlier, we are reaffirming our operating earnings guidance range for 2025 of $5.75 to $5.95 per share.
Bill Fehrman: For convenience, we've included an updated waterfall, bridging our actual 2024 results to the midpoint of our guidance for 2025 on slide 20.
Bill Fehrman: While some variances changed due to the 2024 actual results, there is no change to our 2025 segment or overall guidance.
Turning to slide 9.
Bill Fehrman: You can see more evidence of just how important load growth is to our financial story.
Bill Fehrman: Weather normalized sales grew 3% in 2024, and we expect that to nearly triple in the years ahead.
Bill Fehrman: These are exciting times in the utility industry as we incorporate this tremendous growth.
Bill Fehrman: As Bill mentioned, the load growth that I'm going to talk about is providing the opportunity to potentially add up to $10 billion of incremental capital over the next five years to our already sizable $54 billion plan.
Bill Fehrman: We are continuing to evaluate the magnitude and timing of this spend to meet the growth opportunities across our footprint.
Bill Fehrman: The gains we are seeing from the data centers and industrial customers represent a once-in-a-generational opportunity to shape and grow the system.
Bill Fehrman: So before I jump into the details, I want to emphasize a few key points about our confidence in the projections you see here.
Bill Fehrman: First, this isn't just a future story. This is a now story. We're already seeing these loads come online across our system. In December of 2024, we added almost 450 megawatts of hyperscale data center load in Ohio alone.
Bill Fehrman: Second, the load additions built into the forecast you see here are all backed by signed customer financial obligations, demonstrating their commitment to bring these projects online.
Bill Fehrman: In fact, nearly all of these loads are backed by take-or-pay contracts and have already been accepted by certain RTOs, including PJM.
Bill Fehrman: This means that our customers are committed to pay for a minimum amount of power over a period of time.
Bill Fehrman: What's more, we've achieved tariff settlements in Indiana, Ohio, and West Virginia to strengthen and lengthen those commitments even further.
Bill Fehrman: Beyond those contracts, we have substantial interconnection queues waiting to sign additional commitments as well.
Bill Fehrman: Diving a little further into the details, you can see where the bulk of our growth is concentrated.
Bill Fehrman: New data centers drove double-digit growth in our commercial sales in 2024, with system-wide data processing load hitting a new high in December of 1.3 million megawatt-hours.
Bill Fehrman: The gains are expanding beyond the transmission and distribution utilities into our higher-margin vertically integrated segment.
Bill Fehrman: Recently, we also connected the first of several Hyperscale Data Center customers in Indiana, including AWS and Google.
Bill Fehrman: Across the entire system, we're contracted to see nearly 5 gigawatts of data processing load come online in 2025, representing almost a 25% increase from 2024.
Bill Fehrman: Beyond commercial load, our industrial sales are also set to accelerate after a resilient 2024.
Bill Fehrman: AEP's industrial load grew by more than 402,000 megawatt hours last year.
Bill Fehrman: This was punctuated by growth of almost 5% in Texas, highlighting the diversity of our service territory and giving us a lot of confidence going into the new year.
Bill Fehrman: We expect industrial sales growth to more than double in 2025 as several new large customers are contracted to come onto the system like Chenier in Texas.
Bill Fehrman: We also have several other large and well publicized industrial projects set to come online in 26 and 27.
Bill Fehrman: More detailed load projections by class can be found on slide 13.
Bill Fehrman: As a reminder, we have more than 20 gigawatts of commercial and industrial load additions contracted to come onto our system through the end of the decade. Roughly half of those are in ERCOT, and the other half are spread across our PJM companies.
Bill Fehrman: As a result, we expect these quarterly sales numbers to continue their rapid growth for several years to come.
Bill Fehrman: Let's move on to slide 10 to discuss the company's capitalization and liquidity.
Bill Fehrman: Our financial performance and strong balance sheet provided good credit metrics for the last 12 months.
Bill Fehrman: Our debt to capitalization remained largely consistent with our historical range.
Bill Fehrman: Our FFO to debt metric stood at 14% for the 12 months ended December 31st, which was within our target range and well above our downgrade threshold of 13%.
Bill Fehrman: Available liquidity remained very strong at 4.6 billion dollars and is supported by six billion dollars in credit facilities.
Bill Fehrman: Our strong balance sheet and credit metric results, coupled with ample liquidity and the outcome of the minority interest transaction expected to close in the second half of this year, have enhanced our financial flexibility.
Bill Fehrman: We can efficiently access the capital markets to support the capital needs in front of us. We are committed to maintaining a strong balance sheet and credit metrics as we evaluate the upcoming capital spend opportunities and match them with optimal financing instruments.
Bill Fehrman: On a similar note, last week I spoke directly with all three rating agencies and conveyed this leadership team's commitment to a strong balance sheet, focused on executing the regulatory and financing plans, as well as disciplined allocation of O&M and capital to our companies.
Finally, let's move on to slide 11.
Bill Fehrman: Before we take your questions, I wanted to summarize what you heard from us today.
first.
Bill Fehrman: You heard we had a strong year-over-year performance in 2024, growing our earnings roughly 7%, with operating earnings coming in at $5.62 per share. We reinforced our commitments to stakeholders and built solid momentum heading into 2025.
Bill Fehrman: Second, you heard that we are absolutely focused on execution in 2025 to support one of the great low-growth stories in our industry. We're executing on strategic investments and delivering on our regulatory strategy, giving us confidence in our financing plans.
Bill Fehrman: Third, you heard we have $10 billion of incremental growth capital that we are currently evaluating.
Bill Fehrman: And fourth, you heard that the $2.82 billion pending minority interest transaction on the transmission assets is an exceptional value proposition to our shareholders.
Bill Fehrman: The transaction further boosts our earnings and credit profiles and helps to reduce near-term equity needs.
Bill Fehrman: Recall that the value we transacted on this is comparable to issuing equity at $170 per share, and we still retain 95% of AEP's total transmission asset post-close.
Bill Fehrman: These components are key to our future success and reinforce our confidence in reaffirming our commitments, including our 2025 guidance range of $5.75 to $5.95 per share, our long-term growth rate of 6% to 8%, while targeting FFO to debt of 14% to 15%.
Bill Fehrman: We really appreciate your time and attention today. I'm going to ask the operator to open the call so we can answer any of your questions that you may have. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We'll take our first question from Shara Parisa at Guggenheim Partners.
Hey guys, good morning.
Morning, sir.
Speaker Change: Morning. Just on the balance sheet, the 40 to 60 basis points of FFO improvement, you highlight that kind of on the slides as a near-term target. Can you sustain that over the plan?
Speaker Change: And then on equity, any sense on the means of issuing the remaining $2.5 billion? Is it juniors? Is it asset optimization? A block? I mean, I know, Bill, in your comments you did highlight portfolio management in your prepared remarks. So I just want to get a sense on that remaining equity as well.
Speaker Change: Yeah, sure. So here's Trevor. I appreciate the question. You know, we are targeting FFO to debt in that 14 to 15 percent range.
Speaker Change: And, again, from our perspective, that is a target that we're looking at.
Speaker Change: I will note that, you know, we are going to have a revision to the way that Moody's calculates.
Speaker Change: the deferred fuel, so we will drop down probably 40, 50 pips, 60 pips.
Speaker Change: depending on where things go with that, which I think it's gonna happen.
Speaker Change: But again, that's going to be above the 13% threshold, and again, from our perspective, both Bill and I are very focused on issuing
Speaker Change: you know, the or executing on the $54 billion capital plan with a strong balance sheet. So I think what you'll see is this will dip down a little bit in the current year. And then really the deferred fuel issue kind of rolls off by 2026.
Speaker Change: And so from that perspective, you know, we're really focused on getting that, you know, in that 14 to 15 percent range in the near term.
Speaker Change: Then getting to your financing question, you know, again, like you said, we put out that $5.35 billion of equity needs.
Speaker Change: last year and kind of talked about that at EEI. The good news is with this transaction, the $2.8 billion goes a long way to solving that.
Speaker Change: of which there's, you know, call it $500 million over the five-year period or $100 million a year on the DRIP. So then it's a very manageable $2 billion.
Thank you. Thank you. Thank you.
Speaker Change: And then looking at various things that we have here to solve for that, you know, there's potential securitization that we're continuing to work on in some of our locations.
Speaker Change: But we'll also utilize, you know, hybrids or other equity-like instruments.
Speaker Change: And then if we need to issue equity, you know, we could do that.
plan that is incredible here.
especially, you know, articulating around that incremental $10 billion.
Speaker Change: But we want to be very judicious with issuing equity, but we think there's a lot of different levers that we can pull, securitization, hybrids.
Speaker Change: And then potentially, you know, over the longer term, if we had to issue incremental equity, we would consider that. But again, very focused on FFO to debt and also executing on, you know, this kind of historic $54 billion growth plan.
Speaker Change: Perfect. And then just lastly, obviously, a lot of load growth and you guys have that new CapEx upside disclosures. Specifically on the 20 gigs of load you're leaning on, just want to get a sense on how much of that is Ohio, and on the dual tariff settlements that are out there.
Speaker Change: Can the differences be bridged and what if the commission's order swings against your settlement? I know, Bill, you've been very active on the stakeholder engagement side, just want to get a sense there. Thanks.
Speaker Change: So we're very obviously focused on the on the rate case and on the tariff filing for for data centers.
Speaker Change: A lot of discussion going on. We're clearly looking to try and find a solution for...
Speaker Change: bringing these folks into our system and bringing the economic development opportunities.
Speaker Change: with us. And so, we're continuing to look. If you think about the data center story that we have,
Speaker Change: In December alone, AAP Ohio added nearly 450 megawatts of data center load from AWS and Meta, so very strong.
Speaker Change: Looking ahead, we anticipate adding similar amounts of load almost every month through 2025. We've got over 4.7 gigawatts of data processing load contracted to begin service this year.
Speaker Change: And then while most of this load, to your point, is concentrated in Ohio and actually Texas, we also have
Speaker Change: Nearly a gigawatt contracted to come online in Indiana, so that's
Speaker Change: extending our growth into the vertical integrated utility segment as well. So, I would note that both Google and AWS have recently begun service in Indiana, so that's very positive for us, and they're going to continue to ramp up.
Speaker Change: progressively over the next over the next several years. So this growth certainly underscores our commitment to economic development and highlights.
Speaker Change: The significant opportunities ahead, but clearly we're going to make sure that this doesn't fall on the shoulders of our existing customers and make sure that the appropriate parties who are driving the incremental cost will pay for the incremental cost.
Speaker Change: Perfect. Trevor, big big congrats to you and the AEP team. I know you're going to do really fantastic there, so big congrats on phase two.
Trevor Mahalik: I really appreciate it. Excited to be here. This is an incredible story and quite the team here. So thank you. Great. Thanks, guys.
Thank you.
We'll move next to Ross Bower at Bank of America.
Thank you for watching!
Morning.
Trevor Mahalik: Trevor, welcome to AAP. Thanks Russ. So I just want to dig into maybe the data center tariffs. You talked about sort of
Trevor Mahalik: protecting yourself around sort of stranded cost risk or minimum take risk. So...
Russ: In that tariff, have you disclosed what that rate is versus maybe other industrial commercial rates? Is it like a minimum power take requirement that's in there? What kind of terms are you looking at in those tariffs that you filed?
Russ: So the tariffs are really driven by the cost of the incremental project and so
There's not a specific.
Russ: say price in the tariff and less until we understand what the cost of the incremental load is going to be or the incremental transmission is going to be to serve that load and so it really is a case
Russ: for us to protect the existing customer base and that the driver behind the data center
Russ: cost will be covered essentially by the company that's that's requiring it. So we feel very good about where we sit. I would say there are a couple of differences.
Russ: in the tariffs if you look across the states. For instance, in Ohio
That tariff is very much focused on data centers whereas
if you look at the similar proposal in Indiana.
Russ: That is a broader tariff that would apply to any and all large loads that are similar to a data center. So, some minor differences across the states, but generally the same purpose holds, which is
Russ: make the customer who's driving the incremental cost pay for the incremental cost and put it in place for a longer period of time so that we know as we're building out this
incredible investment that
Russ: If the customer goes away in year six or seven, we still have...
Russ: coverage for some of those costs and it's not stranded and placed on the shoulders of our existing customers. So very very positive outcome for us. I think it it sets us up and I don't think that it's been a detriment to the to the economic growth we have if you look at the overall
Russ: increases that are already signed up. We have significant growth in accordance with these tariffs, so very, very, very strong interest still even though these tariffs are going into place.
Russ: That's great Bill, thank you. And then Trevor, maybe one for you, you mentioned securitization as a avenue for maybe some of that equity need. Do you have a scaling of that versus the two billion need in the current plan or have you have you sort of not walked through all of that yet?
Russ: Yeah, we're still working through that with the various states, Ross, but, you know, honestly, I think you could look at it and securitization could
Russ: if successful, could potentially, you know, be a big chunk of that remaining $2 billion. So, you know, right now, if you, the way I think of it, is we kind of laid out the $5.35 billion over a five-year period.
the $2.8 billion from the sale transaction.
Russ: really takes care of a big chunk of that in the immediate term here.
Russ: And then we have a lot of other levers to pull over the remaining, you know, four years of the plan to solve for that $2 billion. But securitization could be, if successful, you know, a real win because it could help the customers with regards to security.
Russ: to rates, but it can also help us with regards to the need for the cash that would fill that gap on the $54 billion plan that we laid out.
Speaker Change: Perfect, thank you. And then if we could squeeze one more in back to Becky, Bill.
Speaker Change: You mentioned SMRs and kind of how you're trying to very early stages looking at that but
Speaker Change: you know, under the right risk structure. In other states, we've sort of seen like this idea where, you know, the offtaker would put in a significant proportion of the capital and take more of the risk into that project. Are you thinking about similar structures there? Or, you know, how far have you kind of walked down the thought process of what that structure would look
look like, or might look like.
Speaker Change: interested in SMRs as a technology and that's really driven by
Speaker Change: The fact that our major customers are also interested in that as a
Speaker Change: solution. And as we noted, we've started with the early site
permit work in Indiana and Virginia.
Speaker Change: and have signed MOUs with various parties to support that type of work. We did put in our Tier 1 application with the DOE.
Speaker Change: for one of the sites and the Tier 2 application for the other site to try and get some support for those.
at a broader look.
with regards to how we would think about this.
Speaker Change: clearly I'm not going to put the company at risk in any type of a move as a first-of-a-kind type of technology and so as we've been talking with the potential customers
Speaker Change: we haven't got to any specific arrangements or how this might look at this stage, but certainly there's discussions ongoing to see if there's a way to do this. Clearly the SMR technology providers
Speaker Change: somebody needs to be first and somebody needs to step up and figure out how
Speaker Change: their product and and back it. I mean this is one of those situations where to me
Speaker Change: I'm buying a technology from somebody and it should work and it should be at a price that
is very understandable and protected.
Speaker Change: I'm very excited about where we sit with regards to discussions but I would say we're
Speaker Change: quite a ways away from having anything firmed up or really any firm structure at this point. But whatever we ultimately end up with.
Speaker Change: We'll be very principled and disciplined on our side of this to make sure that Our our shareholders and our customers are are protected from any significant types of negative outcomes
Ross: That's great, thank you. And Trevor, congratulations again on the new role. Wish you nothing but the best. I really appreciate it, Ross. Thank you.
Speaker Change: Thank you for watching. I'm Chris Chappell. I'll see you next time.
We'll go next to Steve Fleshman at Wolf Research.
Thank you.
Thank you for watching. Please subscribe to our channel.
Hi, good morning.
Speaker Change: Congrats, Trevor, as well. Let me echo that. So just on the
Speaker Change: I guess on the upside to the capital plan, and particularly the transmission, so for example there's these PJM
Speaker Change: transmission that the joint venture that you have and the like that's
that's being decided the next month or so, is that?
Speaker Change: That would be upside to the plan, that's not in the plan, so things like that.
Speaker Change: Yeah, Steve, that's right, that would be upside to the plan.
You know, here again, what we've got is
you know, the $54 billion plan that has.
Speaker Change: very definitive things in it and we really aren't putting things into the plan that that aren't for sure and so then when you look at this 10 billion a lot of this is coming to fruition over the next
Speaker Change: You know kind of months here and so we're we're going to be pretty excited about rolling out kind of in a normal cadence on the third quarter call a revision to the $54 billion plan, but yeah, that that would be upside.
Speaker Change: And Steve, just to add to that, just to add a little bit specifically to PJM, you probably know we've announced the joint planning agreements with Dominion and First Energy to propose those projects.
Speaker Change: through the Regional Transmission Expansion Plan. We expect PJM approval in the first quarter on those projects and so again as Trevor noted all of those if they would come to fruition would be upside.
and the rest of us. Thank you. Thank you.
Speaker Change: Okay, and then, you might have answered this, Trevor, and I missed it, but just in the event that you see that capital plan come up, how should we think about funding?
for Incremental Capital.
Speaker Change: So again, Steve, I think on the incremental capital side, we really do have a lot of positives here.
Speaker Change: Again, with the $2.8 billion coming in this year, that's going to set us up really well for, you know, call it roughly half of the equity needs that we laid out before. And then with securitization and other things, that's really going to kind of take us a long way to filling that gap.
At the end of the day, I'm not opposed to
Speaker Change: you know, issuing equity for growth and this kind of growth, I think that really makes sense.
Speaker Change: but at the end of the day you know there's a lot of other things that we're working on internally as we right-size this organization to get you know costs in line with with where this is going as well as as other opportunities we're looking at that I want to be
Speaker Change: Somewhat, you know, careful here in how we say it, but there is, you know, capital allocation internally looking to support this growth plan and, you know, equity, we take equity very seriously here. We know it's very precious.
but we're not opposed to issuing equity for growth purposes.
Yep. Okay. And then, uh, I guess.
Speaker Change: Two questions on data centers. First, just a high-level, curious, after the deep-seek kind of freak-out, just what kind of color are you getting from your customers on their plans? Has anything changed, good or bad?
in terms of the commentary and plans by the customers.
Speaker Change: really no change in plan for us at all. It's been full speed ahead and when
The Deep Sea came out.
Speaker Change: We had conversations with a number of our customers and none of those Individuals spoke in any way that we would be seeing a change And so I think at least for us I can't speak for others obviously, but it continues to be full speed ahead
Speaker Change: Okay, and then lastly on the Bloom partnership and the like, just...
Speaker Change: You know, I think you had made a firm order for the 100 megawatts, and it sounds like you have customers.
Speaker Change: For that, just how are you feeling about the likelihood to get, you know, into that full gigawatt?
Or is it too early to kind of say?
Speaker Change: Well first I'm really excited about the customers that we have that have taken up the first hundred megawatts that that we announced when we talked about the supply agreement with Bloom last November.
Speaker Change: I feel very good about where we're at with those customers. It's obviously proven.
Speaker Change: that it's a viable opportunity for others to use in order to speed.
Speaker Change: I like where we're at with this technology. We're obviously on the leading edge from an innovation perspective. AEP is...
Speaker Change: solving problems for these data centers that, while others are maybe just issuing press releases, we're actually getting to solutions for these folks.
Speaker Change: We'll keep you updated, obviously, as our agreement with Bloom allows for further expansions up to the one gigawatt mark.
Speaker Change: Keep in mind, I would note also that this potential capital outlay is also not included in the current $54 billion capital plan.
Speaker Change: as we've talked about, but it is part of the $10 billion.
incremental investment opportunity that we're currently evaluating and so
Speaker Change: Obviously, if more of that comes on, we'll have more updates for you, but overall, again, the feedback on this innovation and solution for customers has been extremely positive.
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Yep. Great. Thank you. Appreciate it. Thanks, Steve. Thanks, Steve.
We'll move next to Jeremy Tunette at J.P. Morgan.
Thank you.
Hi, good morning.
Good morning.
And Trevor, congratulations as well. Jeremy, I appreciate it.
Speaker Change: Just wanted to start off, I guess, picking up with the custom solutions as you outlined there, you know, being kind of bridge solutions is wondering if you could provide a bit more detail what it means from the AP side, potentially, just if we could frame.
Speaker Change: what that could look like from CapEx or any other way to kind of think about that, you know, potential in specifically just wires or other elements as well as it relates to AEP.
Speaker Change: Sure. Well, first and foremost, again, in the spirit of protecting
Speaker Change: our existing customers for these deals. All costs for the fuel cell projects will be covered by the large customers.
Speaker Change: that are under stand-alone contracts with AEP. And these are very customer-specific, and they'll need state commission.
Speaker Change: approval and so we're very excited about how this is rolling out and the fact that each of these individual customers again will will cover the costs that are associated with the project.
Speaker Change: As far as the capital side, Trevor, maybe you can add a little bit on that or how we're thinking about it. Yeah, and what I'd like to do on that, Jeremy, is roll that out, you know, if and when that comes to fruition, but that's all kind of part of that $10 billion upside. So we haven't really disclosed, you know, specifics around that, but expect more of that to come in the normal cadence.
Bill Fehrman: The only thing I would also add, Bill, is that, you know, I think AEP has had a rich history
of, you know, being an innovator in this industry.
Bill Fehrman: you know, whether it's being the first to kind of have 765KV lines.
Bill Fehrman: you know, all the way to this, you know, solution to help.
Bill Fehrman: Our commercial industrial load come on with this Bloom solution, but as Bill said, you know, we're going to do it in a very disciplined way. And, you know, it kind of talks to what AEP has done over the years to be a leader.
Speaker Change: Got it. Thank you for that. And just pivoting here to West Virginia, if you could, just wondering if you could provide any incremental color on stakeholder conversations and just the state of, I guess, stakeholder relationships in the state at this point and how that has evolved over time.
Speaker Change: have spent a considerable amount of time in the state and talking with key stakeholders, including the prior administration as well as members of the current administration.
I would say that.
Speaker Change: Right now, we were very innovative again in the in the filing that we put in.
Speaker Change: We corrected the deficiencies that we had and put in a very robust filing but inside of that filing we also offered the Commission a separate solution for them to consider
Speaker Change: As I noted in my remarks, the hearing is in June and we expect a commission decision in the third quarter.
Speaker Change: We'll obviously see progress as the intervener testimony is due in April, rebuttal testimony is due in May.
Speaker Change: and the proposed securitization option that we have on the table is not in our current financial plans, so again if it does come to pass
That would be a good adjustment.
Speaker Change: but we did include it in the filing as an option and really purposely to support customer affordability.
this option is a very strong option.
Speaker Change: that helps reduce the cost to customers and so we really look forward to collaborating with all of the stakeholders there and achieving a favorable outcome for for really all parties and and I think that
Speaker Change: So far as the process has gone through, we've gotten positive feedback on how we approach this.
Got it. Thank you for that.
We'll go next to Durgesh Chopra at Evercore ISI.
Thank you.
Durgesh Chopra: Hey team, good morning. Trevor, welcome. I look forward, look forward.
Speaker Change: Listen, I just had two clarification questions, a lot of discussions on the topics I'm going to ask you on. But just to clarify, Bill, I think...
Speaker Change: You know, you discussed the large load tariff in Ohio and decision in Q3 by the Commission.
Speaker Change: Is, as I understand it, the data center customers are not part of that settlement, or the technology customers are not part of that settlement. Is that completely off the table, or can they, could you still work in agreement with them? I guess, Rep, what I'm trying to get at with this is, is there an active dialogue, conversations happening with them, or is it just now in the hands of the Commission?
Speaker Change: So you're correct. There's actually two settlements that were being discussed. There was a settlement amongst the data centers themselves.
that they filed and then
There was a second settlement that was
Speaker Change: ourselves, plus the Commission staff, plus some other large load entities.
Speaker Change: that was filed. Both of those went through the hearing process and then as I said there's basically now in the in the rebuttal and hearing or excuse me intervener testimony rebuttal process.
I would say that there's continuing discussions going on as
Speaker Change: always as you go through these processes, but at this point I would say we're really into waiting for the Commission to issue their ruling and we'll see what happens. Again, we're very open. These are our customers. We want to work with our customers.
Speaker Change: We want to find solutions for them, just like we did with the Bloom Energy deal. And so, we'll always try to find a way forward, but we do have certain principles that we want to make sure
Speaker Change: stay in place, which is good protection for our existing customer base.
Speaker Change: That's very helpful, Carl. Thank you. And then, Charles, back to you, just a little bit more color on the 2025.
Speaker Change: Finance and Finance, obviously, congrats on the asset sale. That's a big bite at the apple from the overall equity in the plan. And then your commentary about, you know, the deferred fuel balance while taking your FFO to get down, but still keeping you comfortably above the downgrade threshold.
Speaker Change: Should we take all that to mean that from an equity standpoint you're done for 2025 or could you still kind of punch in, you know, more equity as you think about just, I'm focused on 2025, not sure if you can answer that or not, but just thinking about whether you're done for 2025 or not.
Speaker Change: You know, getting what our needs are right now, because really, you know, when we laid out that 5.35, that was over a five-year period, so over half of that is coming in in year one.
Speaker Change: That being said, you know, again, we are really focused on this growth of the $10 billion and seeing how we can get that into our plan as quickly as possible.
Speaker Change: So, you know, and then there's other things we're dealing with as well, you know, with, as Bill just mentioned, the potential securitizations. So.
Speaker Change: A lot moving around right now, but I think we're in that great position with this transaction.
Speaker Change: that, you know, I kind of got the benefit of stepping into after Chuck and Bill had kind of solved that issue, that it really takes a lot of the pressure off of 25 right now.
Speaker Change: But again, you know, my commitment is to, you know, be in a situation certainly where we would be above our downgrade thresholds.
Speaker Change: And this plan, fortunately, as we've got it right now, with the $2.8 billion, even with a deferred fuel adjustment mechanism, keeps us above the 13%, and, you know, it puts us in a good position going forward. But, again, a lot of moving parts around the growth.
Speaker Change: and that's what we're excited about right now is this incremental growth opportunity.
Got it. I appreciate that discussion. Thanks. Thanks, Charles.
Thanks again.
We'll move next to Nick Campanella at Barclays.
Nick Campanella: Hey, good morning, and congrats to Trevor. Welcome to Columbus. And, you know, Chuck, if you're in the room, congrats on your retirement, too.
Thank you. Thank you.
Nick Campanella: So, hey, I just wanted to, just a couple follow-ups. When you announced the transmission sale, you kind of said it's 1.7% accretive.
like on average to the plan and
Nick Campanella: Can you just talk about the flexibility that that that offers you as you work to kind of add this capital to the plan and strengthen the balance sheet and, you know, I guess where I'm heading is like when we get to the end of this year like is this transaction lengthening the six to eight or do you expect kind of a step higher?
at the 1.7% level. Thanks.
Nick Campanella: Yeah, so Nick, you know, to kind of convert that into an EPS, you know, that's that's roughly 11 or 12 cents of
Nick Campanella: on a full-year basis that this transaction is accretive but again it depends on the timing of when we close it during the year and so that will kind of you have to take that into consideration as it gets towards the end of the year on what that really does.
Nick Campanella: My view is, I think we put out the range of $5.75 to $5.95.
Nick Campanella: and, you know, we'll be, at this point, in that range.
Nick Campanella: with the transaction and in a good shape with regards to credit. So again, probably the later it goes into the year, the less impact it has on 25 with regards to the accretion.
Nick Campanella: but it more really does help with where we're going to be on the credit metrics.
Speaker Change: Right, okay. And then just, how are you kind of thinking about further portfolio management at this point? I mean the transmission sale is a great data point and I definitely note like kind of the clear focus here on Indiana, Ohio, and Texas and just do you guys still see opportunity to kind of prune things in the portfolio if it's accretive to your plan?
Speaker Change: Yeah, you know, again, I think on any type of M&A, we wouldn't really speak to it, but I tell you, the thing that we're most excited about...
Speaker Change: is investing $54 billion at one time's rate base. And if you think about that, you know, that's basically the size of our market cap right now.
with a potential upside of an additional $10 billion.
Speaker Change: Our view is, we want to get scale and scope, and we believe we're growing this business. And, you know, we think we've got great footprints over a large area that helps us to mitigate risk.
Bill Fehrman: And so at the end of the day, you know, I look across the portfolio and believe we've got a really good footprint relative to our competitors. And so I'm very, very positive about what I've stepped into here and feel that this is really good. But Bill, I'm not sure if you want to add anything on this.
I think, again, as Trevor noted, we've got
Bill Fehrman: a tremendous opportunity in front of us and as a company
Bill Fehrman: We are going to drive ourselves to be the biggest and the best energy infrastructure company in this country. I mean, again, it's in our name. We're American Electric Power. We're going to power America. And as Trevor noted, the opportunity and...
Bill Fehrman: is almost unlimited for us going forward, and I have very strong confidence that we're gonna be able to deliver and execute.
Bill Fehrman: All right, that's great excited to see it and have a great day. Thank you. Thank you. Thanks
We'll move next to Carly Davenport at Goldman Sachs.
Carly Davenport: Hey, good morning. Thanks for squeezing me in. Maybe just one quick one from me. Just as you think about the generation needs across the portfolio to accommodate this load growth, I know you referenced some of the gas filings at PSO and SWEPCO in the opening comments. Can you just talk about the status of procurement of key equipment like turbines to execute on those plans?
Thank you very much.
Carly Davenport: Sure, I appreciate the question. We have a very strong generation plan that has been developed within AEP and
A bit of it also predated me with regards to
Carly Davenport: looking at strategies around procuring turbines, procuring transformers, and other key equipment.
Carly Davenport: I'm very confident in the plan that the team has. Our procurement strategy is strong and we have a lot of activity out in the market right now. We're doing RFPs for a number of our states.
Carly Davenport: We have significant IRP activity going on. And obviously there's a growing energy demand out there, which is really why we're leading the efforts in the industry to try to find solutions for them, like...
Carly Davenport: in the near-term bloom and in the longer-term SMRs and so we'll be all over this. I'm confident in our team and I'm confident in the fact that we're going to deliver what our states want from a generation plan and clearly as the year goes on we'll be providing more updates in that area.
Speaker Change: Great. Thanks so much for the caller. I'll leave it there.
Thank you, Carly.
Speaker Change: Thank you for watching. Please subscribe to my channel. I hope to see you again soon.
Speaker Change: And we have time for one more question and that question comes from Julian DeMoulin-Smith at Jeffries.
Thank you for watching!
James Ward: Hi team, it's James Ward on for Julian. How are you?
Yeah, good. Good morning.
Speaker Change: Morning. Yeah, thanks for for fitting us in here at the end. Very thorough Q&A covered pretty much all the questions that we had. Did have one that was remaining, which was just on the ATM that you filed.
Speaker Change: It mentioned that $400 million had been already issued in combination with the $2.8 billion of net cash proceeds that we'd expect to receive, you know, to see receive in the second half of the year.
Speaker Change: Do those two meet your 2025 equity needs, or should we assume any further usage of the ATM in 2025, or is it just a 26 and beyond tool?
Speaker Change: Thank you. Yeah, look, as I said, you know, James, we're continuing to evaluate all of that. The good news is we do have access to the $1.3 billion that's remaining under the ATM, and we can always hit that if we need to.
Speaker Change: But again, right now, I think we've got a very positive situation that we will be
Speaker Change: you know, getting the $2.8 billion coming in later this year. And then as we look to the $10 billion growth opportunities here, you know, we will continue to evaluate that. But I think, you know, largely you've got it right with with the ATM in place.
Speaker Change: and what we're doing with the DRIP program and the cash coming in and the securitizations that Potentially could come to fruition by the end of this year. We're in good shape
Speaker Change: Gotcha, gotcha. Really quick follow-up there. I guess from the $2.55 billion that you had, less $500 million or so for the DRIP, $100 per year, the $1.7 for the ATM.
Speaker Change: That 350, it would seem kind of perfect for a JSN or some sort of equity content or equity-linked security. So I guess that kind of fits with what you've described. Is that a reasonable way to think about it? And then I just had one more on the 10 billion.
Speaker Change: Yeah, no, I think absolutely you're thinking about it correctly. There's a lot of levers for us to use.
here as we continue to look at things.
Speaker Change: And so, again, it's a very positive with the $2.8 billion.
Speaker Change: and then securitizations and other equity-like instruments are all very positive and then, if need be, we do have that $1.3 billion ATM, but again, we're in good shape here.
Speaker Change: Terrific. The last one I'll leave you with, I know that you've answered one or two questions already on the 10. Just wondered if there was a rule of thumb, you know, a couple years ago at EEI, the talk was all about 30% or 50% or whatever percent of incremental CapEx. And I get there's certain thresholds. If you get a billion of the 10, it's a different scenario than if you get all 10 of the 10.
Speaker Change: But any rule of thumb you can give us on a high level, thinking about the amount of equity or equity-like portion that you'd be looking to finance of that incremental capex versus debt financing.
Speaker Change: Yeah, the biggest thing that I would say is we're excited to roll that out.
Speaker Change: you know, in a normal cadence on our third quarter call. And, again, there's a lot of moving parts that we're managing here, and we were going to finance it in the most efficient way possible to ensure we can continue to meet the needs of our customers, but also to deliver on value to our shareholders, and that's what we're very focused on.
Thank you so much. Appreciate it. I appreciate it.
Speaker Change: Thank you for watching. Please subscribe to my channel. I hope to see you again soon.
Speaker Change: And that concludes our Q&A session. I will now turn the conference back over to Bill Fehrman for closing remarks.
Speaker Change: and so far so good. Thank you all for joining us. Have a great day. Good luck. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Speaker Change: Thank you. We appreciate everyone joining us on the call today. I'd like to close with just a few summer remarks.
Speaker Change: First, very exciting times are ahead for AEP as we put our robust capital plan to work, as you've heard, and continue to grow the business while delivering shareholder value.
Speaker Change: Second, I'm very confident we can unlock the incredible value in this company by advancing our long-term strategy and providing safe, affordable, and reliable service across our large footprint.
Speaker Change: And then third, Trevor and Darcy will be hitting the road, actually, in March, meeting with many of you and discussing AEP's very strong and comprehensive value proposition.
Speaker Change: And finally, if there are any follow-up items, please reach out to our IR team with your questions. So, thank you again for joining us today. This concludes our call.
and entering the conference ID of 1-33-6080 followed by pound.
Speaker Change: The replay will be available until Thursday, February 20, 2025 at 1159 p.m. Eastern Time. Thank you for your participation. You may now disconnect.
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