Q1 2025 American Electric Power Co Inc Earnings Call
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power First Quarter 2025 earnings call.
Regina: All lines have been placed on mute to prevent any background noise. [inaudible]
Regina: After the speaker's remarks there will be a question and answer session.
Regina: If you would like to ask a question during this time, simply press star then the number one on your telephone keypad [inaudible]
Speaker Change: To withdraw your question, press star one again. I would now 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 first quarter 2025 earnings call. A live webcast of the teleconference and slide presentation are available on our website under the events and presentation section.
Darcy Reese: Joining me today are Bill Furman, President and Chief Executive Officer, and Trevor Mihalik, Executive Vice President and Chief Financial Officer. In addition, we have other members of our management team in the room to answer questions, if needed, including Kate Sturgis, Senior Vice President and Chief Accounting Officer.
Darcy Reese: We will be making forward-looking statements during the call. Actual results may differ materially from those projected in any forward-looking statements we make today.
Bill Fehrman: Factors that could cause our actual results to differ materially are discussed in the company's military and SEC violence. Please refer to the presentation slides that a company this call for reconciliation to GAAP measures . We will take your questions following opening remarks. With that, please turn the slide for and let me hand the call over to Bill.
Bill Fehrman: Thank you Darcy and good morning everyone. Welcome to American Electric Power's first quarter, 2025 or needs call.
Bill Fehrman: We are often exceptional start to the year where we delivered strong results and have advanced our long-term strategy to drive robust growth, enhance the customer experience and achieve positive regulatory outcomes.
Bill Fehrman: We remain committed to investing $54 billion of capital over the next five years and impressive amount close and size to our current market capitalization to meet the needs of 5.6 million customers across 11 states. We are actively managing our supply chain to ensure we deliver
Bill Fehrman: Specifically readily due to current plan tariffs, we estimate that the direct tariff exposure on our $54 billion base capital plan for 2025 to 2029 is minimal at approximately 0.3% [inaudible]
Bill Fehrman: We have a sizeable generation portfolio and one of the largest transmission and distribution distances in the nation. [inaudible]
Bill Fehrman: In fact, AEP owns and operates more 765 KV transmission lines than all other utilities in the United States combined. And we were recently awarded construction to build one of the first 765 KV lines in Texas.
Bill Fehrman: We are enabling extraordinary economic development in high growth states like Indiana, Ohio, Oklahoma, and Texas and Santa benefit from these once in a lifetime opportunities presented by the associative load growth. Trevor will go into this in more detail shortly.
Bill Fehrman: Our story continues to be one of consistency and commitment to delivering for our customers, states, regulators and investors as we center on execution and accountability. And we offer a compelling value proposition to our investors as we target 10 to 12% total annual shareholder return.
Speaker Change: We have a lot of exciting ground to cover today. I'll begin with a recap of our financial results at a high level before turning this strategic growth opportunities ahead and our recent regulatory and legislative successes.
Bill Fehrman: I'll then hand the caller over to Trevor to walk through our financial results in more detail.
Bill Fehrman: Please refer to today's presentation for our quarterly business highlights and achievements starting on slide five.
Trevor: This morning we announced first quarter 2025 operating earnings of $1.54 per share, or $823 million.
Trevor: With the strong performance we are reaffirming our 2025 operating earnings guidance range of $5.75 to $5.95 per share and long-term operating earnings growth rate of 6 to 8 percent.
Trevor: This guidance is reinforced by a balanced and flexible $54 billion five-year capital plan with the potential for incremental investments of up to $10 billion over that same period.
Trevor: As we have communicated in the past, maintaining a strong balance sheet as vital to funding these capital spending needs.
Trevor: Later in the call, we'll go into more detail about AEP's commitment to credit quality and proactive actions we have taken in the first three months of 2025 to address AEP's equity needs [inaudible]
Trevor: As we move forward, we will remain disciplined in sourcing the efficient forms of capital to manage our needs and support of incremental investment opportunities.
Trevor: We remain excited about the significant growth opportunities ahead, including the low growth and many parts of our service territory
Trevor: This growth is not a show me story, it is happening.
Trevor: AEP's total retail low growth has already been favorable over the past few years, primarily driven by commercial customers.
Trevor: And the first quarter of 2025 are commercial low-group, 12.3% compared to the fourth quarter of last year [inaudible]
Trevor: As we look ahead, AEP is extremely well positioned to participate in future growth across our footprint.
Trevor: We see opportunities to invest in critically-dated infrastructure to support increasing electric demand.
Trevor: Our current capital plan includes customer commitments for over 20 gigawatts of incremental load by 2030, driven by data center demand, reshoring, manufacturing, and continued economic development.
Trevor: This incremental 20 gig watt is about a 55% increase over 2024 system-wide summer peak load.
Trevor: As we have consistently said, we are absolutely committed to fair cost allocation associated with this large load group.
Trevor: To that end, we proactively filed the data center, Terrapin, Ohio, and large, low-terrification in Indiana, Kentucky, Virginia, and West Virginia.
Trevor: In the first quarter, we received commission approvals in Indiana, Kentucky, and West Virginia related to large role terrorists.
Trevor: The data senator appearing in Ohio also concluded in January , and we expect to have a commission decision in the second half of this year [inaudible]
Trevor: These are all strong indications of our state's continuing commitment to attracting large loads with their economic impacts on local communities while also protecting our existing customer base.
Trevor: As we have previously discussed, meeting this incredible demand could require incremental investments of up to $10 billion, underpinned by four major drivers.
Larger Logan, some of our bigger service territories
Continued economic development in our states.
Trevor: Investment across the system in our transmission and distribution infrastructure and new generation.
Thank you for watching!
Trevor: One of the reasons we are seeing such growth now is due to investments we made over the past decade to build an advanced 40,000 mile transmission system that can help support current large levels. Our transmission system also includes the nation's largest network of 765 and 345 KB lines.
Trevor: These ultra high-voltage lines position us exceedingly well in attracting hyper-scalers to our system who need consistent, large load bulk power.
Trevor: We also continue to invest in our distribution system, which is one of the nation's largest at approximately 225,000 miles.
Trevor: This includes work to harden infrastructure, build over rebuild poles, conductors, transformers, and other assets, as well as deploy automated technologies for enhanced operational performance.
Trevor: These efforts will help to increase customer satisfaction, strengthen our systems and resilience to weather events, and enhance the efficiency of our operations.
Trevor: Although generation needs increase to meet growing demand, we are engaging with peace stakeholders and making thoughtful investments in new generation to align with their needs and state policies.
Trevor: Our team has worked diligently to develop creative energy solutions that keep our customers' needs top of mind.
Trevor: We have already shared our plans to begin the early site permit process in Indiana and Virginia for small modular reactors for SMRs.
Trevor: And we recently filed integrated resource finance or IRP's in both Arkansas and Indiana.
Trevor: These IRPs, in addition to other planned IRP finalings over the next year in Kentucky, Michigan, Virginia, and West Virginia, will help meet our customers' energies and support AEP's generating capacity obligations, reinforcing our incredible growth.
Trevor: The fact is that the man for power is growing at a pace not seen in decades, and our expansive foot for the enabled us, the significantly participating in this electric infrastructure super cycle.
Now let's give it to some traditional regulatory and legislative updates.
Trevor: In my nine months here at AEP, I have been actively engaged with stakeholders to underscore the importance of our customers and communities and how we work to meet their needs.
Trevor: Building on our meaningful progress in achieving positive regulatory developments in the second half of 2024, where you're also a great start in 2025, with approximately 80% of our related revenue are ready secure for this year.
Trevor: In fact, AEP's first quarter earned ROE for our regulated businesses was 9.3% up from 9.05% at your end. As a reminder, some recent regulatory successes include [inaudible]
Trevor: A recent commission decision of proving construction in Earthhouse, Permian Basin for one of the first 765 KV transmission lines in Texas, opening up tremendous investment opportunities for AEP Texas.
Trevor: PJM Transmission System Upgrades, awarded to AP Affiliates, including Transource Energy and our Transmission Companies.
Trevor: Set some resiliency plans, approved at AEP Texas, and the unanimous settlement reached its wet road Texas.
Trevor: Base Cases Approved in Oklahoma and Virginia, and Recovery of Annual Transmission Experience Approved in Kentucky.
Trevor: In late March, we also filed a new base case in Arkansas requesting a rate increase of $114 million. This task is primarily to align regulatory recovery of certain wind projects.
include your great implementation of the diversions and wagon law projects.
Trevor: Our application includes an R.O.E. request of 10.9% and swept-going to space in order and new rates affected in the first quarter of 2026.
Trevor: Previously, APCO filed its base case in West Virginia while offering securitization of up to $2.4 billion at the tool to mitigate the bill impact of a proposed $250 million base rate increase.
Trevor: The procedural schedule just kicked off last month with intervener testimony and rebuttal testimony you will follow later this month.
Trevor: We are intently focused on reducing regulatory light and have made a number of other timely violence so far in 2025, including the AEP Texas T-Costs and BCRF by Ange of Violence, as well as rough codes annual form renal rate plan of Louisiana.
Trevor: For INM, the team recently filed to acquire an 870 megawatt natural gas plant in 2026, which is located in Oregon, Ohio. That will help INM customers continue to benefit from reliable and affordable resources.
Trevor: We are also working diligently at the legislative level and a number of jurisdictions to advance policy changes to improve both recovery and customer affordability.
Trevor: For example, in Ohio, the recent passage of House Bill 15 positively results in multi-year four-win-looking test-doors for future rate cases.
and Eclips Grandfathering, like which were two behind the meter, feel so contrast. [inaudible]
Trevor: Trevor will go into further detail on the OVEC related impacts.
Trevor: In Virginia, we supported securitization legislation that will both reduce customer build and support critical investments in the system.
Trevor: You can expect to see us continue to work with federal policymakers, regulators and state legislators as we further modernize our energy grip.
Trevor: We firmly believe that the best way to create value for investors is by delivering safe, affordable and reliable energy to our customers and communities. Then we are engaging with stakeholders to support efforts to do just that.
Trevor: I'm increasingly confident in our exciting growth potential, as opportunities to benefit our customers, communities, and investors come into focus
Trevor: And I look forward to building on our track record of value creation in the months and years ahead. With that, I'll turn it over to Trevor who will walk us through AEP's first quarter performance drivers and other financial information.
Thank you, Bill.
Trevor: Today I'll review on financial results for the first quarter. Build on build remarks about our exceptional low growth.
Comments on our credit metrics?
Trevor: Further discussed the recent successful $2.3 billion forward equity issuance that completes our anticipated equity needs to 2029 and addressed our thoughts on federal tax legislation.
Trevor: Let's go to slide 7, which shows the comparison of gap to operating earnings for the quarter.
Trevor: Gap learnings for the first quarter were $1.50 per share, compared to $1.91 per share in 2024.
Trevor: There is a detailed reconciliation of gap to operating earnings for the quarter on slide 26 of today's presentation.
Thank you for watching!
Trevor: In the quarter, due to the passage of Ohio House Bill 15, we recorded a charge of $28 million related to the write-off of previously deferred OVAC costs, which we no longer believe are probable of recovery.
from an operating earnings perspective.
Trevor: and effective upon becoming law this summer, House Bill 15 removes AEP Ohio's ability to recover losses or record gains from the sale of OVAC power.
Trevor: Historical losses recovered from customers were approximately $40 million in 2024. However, we expect the earnings impact going forward to be significantly muted given upcoming capacity prices in PGM.
Trevor: Prospectively, the impact is manageable and less than ten million dollars of earnings on an annualized basis.
Trevor: Let's walk through our quarterly operating earnings performance by segment on Slide 8.
Trevor: Operating earnings for the first quarter total $1.54 per share compared to $1.27 per share in 2024
Trevor: This was an increase of 27 cents per share or about 20% quarter over quarter, highlighting a strong start to the year and creating solid momentum for the rest of 2025.
Trevor: I would note that weather accounted for about 18 cents of the quarter-over-quarter variance.
Trevor: This was driven by the cold weather and most of our service areas experienced in the first quarter of this year [inaudible]
Trevor: which was contrasted with the exceptionally mild weather scene in the same area of 2024. .
Trevor: Looking at the driver's bike segments, operating earnings for the vertically integrated utilities were 66 cents per share, up 9 cents from a year earlier.
Trevor: Positive drivers include in favorable changes in weather and rate changes across multiple jurors' sections
Trevor: The transmission and distribution use of these segments are in 36 cents per share, up 7 cents from last year.
Trevor: Babable drivers in this segment included rate changes driven by rider recovery of distribution investments in Ohio and the base rate case in Texas.
Favourable weather and higher transition revenue. [inaudible]
Trevor: The AEP Transmission Holco segment contributed 44 cents per share, a 4 cents from last year.
Trevor: Our continued investment in transmission assets as new loads are added to our system, remain the key driver in the segment
Trevor: Generation and Marketing produced 14 cents per share of two cents from last year [inaudible]
Trevor: Favorable retail and wholesale margins were partially offset by lower distributed generation margins due to the sale of the on-site partners business in September of 2024.
Trevor: Finally, corporate and other, so I've benefited five cents per share, primarily driven by the timing of income taxes, of which three cents is expected to reverse by the end of the year.
moving to slide nine
Trevor: I want to highlight the significant increases in load we continue to see across our system.
Trevor: As Bill mentioned, the increasing load growth coming to the system is providing the opportunity to add up to $10 billion of incrementally capital over the next five years to our already sizable $54 billion plan.
Trevor: Since our last call, both Amazon Web Services and Google have connected hyperscale data centers to our system in Indiana, representing billions of dollars in customer investments.
Trevor: This comes on top of the existing data center customers in Ohio and Texas who continue to ramp up at double digit pace.
Trevor: We also saw new large industrial load continue to come online in Texas across a variety of customers and industries.
Trevor: All of this puts us on track to nearly triple the pace of our retail sales growth, from 3% in 2024 to almost 9% in 2025.
Trevor: That represents the largest acceleration of load at AEP since the late 1960s, a truly once-in-a-generation opportunity. In fact, we expect that step change in growth to be maintained well into the future. [inaudible]
Trevor: Our current forecast supports annual retail low growth of between 8% and 9% through 2027.
Trevor: That's equivalent to roughly 52 million incremental megawatt hours that we expect to serve relative to our current load of 182 million megawatt hours or nearly at 30% increase.
Trevor: More than upsetting the decline in our residential sales is the massive and sustained increase in demand from our C&I customers
Trevor: Based on our current contracted loads, our C&I sales mix will grow from roughly two-thirds of total retail to nearly three-quarters over the next several years.
Trevor: There is a slide in the appendix that shows a bit more detail on first quarter sales by class [inaudible]
Thank you for watching!
Trevor: Those growth rates are one of the best in the industry, and we have confidence that these lows are going to show up.
Trevor: We have a significant amount of demonstrated and diverse demand across our system.
Trevor: But I think it's also important to highlight what that demand looks like, and how we're incorporating it into our projections [inaudible]
Trevor: You will see on Fly Pen a piece of that demand through some illicit examples of the types of projects we're adding to our system.
Trevor: First and foremost, let's start with the number of overall requests to connect to the system.
Trevor: Across our 11 state operating footprints, we currently have more than 500 existing and potential customers actively requesting to connect almost 180 gigawatts of loads to our transmission system.
Trevor: For context, our system-wide summer peak was just under 37 gigawatts last year, so we have nearly five times that amount active in the queue.
Trevor: Now obviously, we know that not all of the requests will come online, which is why we take great care in using a probability based approach to determine the likelihood of these loads as part of our annual load forecast.
Trevor: So far, we've committed to adding just over 20 gigawatts onto the system over the next five years, which, in the context of our queue, is relatively conservative.
Trevor: Given the dynamic nature of AI driving the surge of data centers and large industrials coming online, we think it's vital to rely on demonstrated customer demand to build out our planning forecast.
Trevor: We believe that best mechanisms to demonstrate the demand are executed contracts backed by financial commissions, including electric service agreements or ESAs and letters of agreement or LOAs, showing how firm these loads really are.
Trevor: Every megawatt in the forecast you see here is supported by LOAs. In addition to LOAs in PJM, 80% of the load growth in this region is also backed by ESAs, which are take or pay contracts.
Trevor: Requiring customers to pay for power as of a certain start date, irrespective of their off-takes.
Trevor: This not only helps confirm that customers' projects are real, but also incentivizes customers to stick to the schedule, reducing the risk to our existing customers and investors from a project not coming online.
Trevor: Our contract terms coupled with a queue that is nearly 10 times the size of our current increased load forecast gets us great confidence that this demand will show up, which in turn, makes us confidence in our $54 billion capital plan with incremental upside. [inaudible]
Trevor: Should any of these projects be canceled or postponed, in addition to the protective, financial provisions in the contracts, our cue means that we have other active customers to slot right into place and take up that capacity.
Trevor: In addition to the demonstrated demand that we're seeing across the system, it is also important to note the diversity in that demand.
Trevor: While data centers are driving a majority of the load groups in the coming years, [inaudible]
Trevor: We are also contracted to add roughly six gigawatts of industrial load across the number of diverse industries including steel, autos and energy.
Trevor: This diversity reassures us that the demand behind our capital plan is solid, and can hold up across several different economic environments, including those with tariff impacts that we may find out seldom over the next several years.
Trevor: Let's move on to slide 11 to discuss AEP's liquidity and commitment to credit quality.
Trevor: Recall that AEP's funding plan supporting our capital spend through 2029 originally included $5.35 billion source from equity.
Trevor: In January , we secured a minority equity interest investment in the Ohio and IONM france goes with KKR and PST investments for $2.82 billion.
Trevor: This deal is value or creatives at 2.3 times rate rate and 30.3 times price to earn it.
Trevor: We expect to close in the coming months and the only remaining item outstanding is Spark Approval, which we fall for on February 3rd [inaudible]
Trevor: In March, we saw compelling opportunities to further de-risk our funding needs through a $2.3 billion for equity transactions, including the green two, that allowed us to capitalize on known market conditions and manage the timing of proceeds.
Trevor: In combination with the expected proceeds from the minority transactions, I am pleased that we now have completed our anticipated equity needs through 2029, associated with our $54 billion capital plan.
Trevor: Moving on to federal tax legislation and specific to transferability impacting FFO.
Trevor: We believe a complete, retroactive IRA repeal is unlikely based on our many conversations with policymakers.
Trevor: This would give us the ability to monetize tax credits in a timing manner and meet our financial
Trevor: However, the minority interest transaction is expected to improve near-term FFO to death by 40-60 basis points, which set us up to be well above our credit threshold and put us on a path to be in the targeted 14-15% FFO to death window.
Trevor: Finally, let's move on to slide 12. Before we take your questions, I wanted to summarize what you heard from us today.
Trevor: First, you heard that we have taken significant actions to de-risk our financial plans through the highly attractive and accretive minority interest transmission transactions, which is expected to close in the coming months.
Trevor: Coupled with the $2.3 billion equity offering completed in late March, prior to the current market
Trevor: These transactions combined complete our anticipated equity needs through 2029 to support our current $54 billion capital plan.
Trevor: Second, you heard that we delivered strong financial results in the first quarter, rowing earnings substantially compared to last year. Positive regulatory developments have set a strong foundation and are paving the way for a successful 2025.
Trevor: Third, you heard about our remarkable low growth story underpin by major economic development activities across our footprints, providing significant investment opportunities in our utilities and creating an attractive growth profile for our investors.
Trevor: We highlighted the regulatory progress on retail tariffs that we've made to enable these low additions to results in a fair allocation of costs and protection for existing customers.
Trevor: Or you heard about our continued focus on the executions of our unprecedented $54 billion capital plan with a potential for incremental investments of up to $10 billion. $50 billion.
Trevor: In summary, our confidence in achieving our 2025 commitments remain strong and we are reaffirming our operating earnings guidance range of $5.75 to $5.95 per share.
Trevor: A long-term growth rate of 68% and targeted FFO to death of 14 to 15% [inaudible]
Trevor: With that, I'm going to ask the operator to open the call so we can take your questions.
Speaker Change: At this time, I'd like to remind everyone in order to ask a question, press star, followed by the number one on your telephone keypad. Our first question will come on the line of Ishar Pourreza with Guggenheim. Please go ahead.
Hey guys, good morning Thank you.
Dave Morning Shark, how are you? [inaudible]
Good morning. Oh, well, very well
Speaker Change: Bill, I know West Virginia is, you know, one of the first race cases you kind of rolled up your sleeves for, you know, after, you know, that prior bad outcome, which obviously predated you. I guess how are conversations going there, especially around securitization? Can you settle this before the mid-June hearings, thanks.
Thank you.
Speaker Change: Yeah, really appreciate the question. We've been having, first of all, at a high level really good luck with a lot of our regulatory outcomes across the system and I'm really pleased with...
Speaker Change: The work that the team has been doing to focus closer in on our local communities and our states and pushing us to do what our states want and in the case of West Virginia
Speaker Change: I'm excited with where we're at, the hearing is scheduled for June .
with the Commission decision later on this year.
We've incorporated securitization as an option to enhance customer affordability.
We've worked with the teams there. [inaudible]
Speaker Change: We believe that this offers a really significant benefit to our customers by...
Speaker Change: Potentially reducing the impact on their bills by almost 75 percent. So I think there's-
Really some interesting opportunities here because that would...
Speaker Change: Essentially decreased the increase we were looking for to around 3.8% So, I'm not telling him.
Speaker Change: But ultimately, the decision rests with the commission and we look forward to working with all the stakeholders to achieve a favorable outcome for everyone and we'll participate in.
Speaker Change: Discussions as they come up, but right now, overall though, I'm very, very excited with how the organization is responding in our states, and I think, as you hopefully listen to all of the positive regulatory outcomes we've had.
Speaker Change: Over the past few months, you'll see that. We're really moving in the right direction, and I'm really excited about where we're happening. [inaudible]
Perfect, fantastic, and then just lastly...
Speaker Change: The 20 gig of what's a load you have out there. We've seen some pullback with at least one hyperscaler in Ohio, Microsoft, I think is the notable, I think in your service territory. I guess how are conversations going with the hyperscalers more specifically? Are you seeing any kind of sense of pullbacks, is trying to get a sense? I don't know. I don't know. I don't know. I don't know.
Speaker Change: Would that customer class specifically, if there seems to be some conflicting data points out there? Would the caveat you guys have the diverse thought, you know, low environment, right? But specific on hyperscalers, thanks.
Speaker Change: Sure, well, of course, overall, our system demand remains really robust, and as Trevor noted, we've got over 500 existing and potential customers that are looking to connect 180 gigawatts of load.
Speaker Change: on the transmission system. And so, despite the fact that Microsoft made a decision to delay their projects.
Speaker Change: Other load coming from data centers or hyperscalers or the industrials for that matter because...
Speaker Change: We've contracted that about six gigawatts of industrial load as well across the system and really given us a diversity that will strengthen the company overall for us going forward and so I think we're in they [inaudible]
Speaker Change: These very economic outcomes. Whether Microsoft is with us or not, we see really significant demand coming forward and we've got plenty of folks who want to jump in if they want to jump out.
Got it. Perfect. Fantastic, guys. Congrats. See you soon.
Speaker Change: Our next question comes from the line of Jeremy Tonnet with J.P. Morgan. Please go ahead.
Speaker Change: Hey, good morning. This is actually Aiden Kelley on for Jeremy. Just focusing on the low growth again. It looks like total retail sales were up around 3.2% first.
Speaker Change: V8.8% 2025 target, and then also with commercial of 12% first 24% target. How do you reconcile like the sales trends we've seen this quarter against your 2025 forecast? Would this imply a strong pick up later in the year? And are there any sensitivities we should think about here in general? No.
Thank you.
Yeah, and thanks for the question. This is Trevor. Thank you very much.
Speaker Change: So I would start by saying the anticipated load growth, particularly the rapid 8-9% increase that we're seeing over the next several years, does open up substantial capital investment opportunities and we expect that to drive consistent and robust earnings growth, especially in the second half of the decade.
Speaker Change: I would say the rapid addition of CNI load really does create additional headroom and further enhances you know customer affordability [inaudible]
Speaker Change: Just kind of as a rule of thumb or an example, the margins from the vertically integrated residential customers are roughly five times larger than those of our data center customers.
Speaker Change: and for our T&D customers, that ratio is almost eight to one. [inaudible]
Speaker Change: So you'll see a little bit of decline in margins.
Speaker Change: As we see some efficiencies on the residential side, but overall this is really just a very positive growth story around CNI and what we're able to do to deploy capital over the long term, so we feel very good about it.
Speaker Change: Got it. That's helpful. Thanks, Trevor. And then just maybe switching gears to kind of the opening remarks on Ohio. Could you just walk through the puts and takes, you know, from shifting away from ESPs into MYPs and, you know, to what extent is this impact your regulatory strategy in the state and future AKs timing in general? No.
Thank you. Thank you. Thank you.
Speaker Change: Sure, well, HP-15 was a legislation that ultimately received approval from both chambers. It has not been sent to the governor yet. We expect that to happen really any day now. Once that happens, the governor has ten days to sign the bill and then we anticipate that the bill will become law.
Speaker Change: Thank you early August , which is 90 days after his approval. My view of this legislation is that it's highly constructive. It supports capital investment growth in Ohio and really actually provides benefits to our customers.
Speaker Change: For us, the main provisions that impact our business, first and foremost, is the new legislation that ends.
Speaker Change: ESP, and it introduces a multi-year forward-looking test year with a true-up mechanism, so that is a significant advantage for us. It promotes timely recovery of our investments, and then, unlike other Ohio utilities,
R transition from ESP 5 to the new construct.
We'll proceed seamlessly with the no gaps in our timing. And so,
Speaker Change: Really looking forward to moving through that transition. It's going to be an incredible advantage for us going forward.
Speaker Change: and then the second piece was the behind the meter components of the legislation. So this legislation, again...
Speaker Change: We're happy with the outcome here. It basically grandfathers the two projects that we had in flight with our bloom energy solution for the data centers that we previously have discussed.
This will preserve those existing agreements and then we have... [inaudible]
Basically, the flexibility to deploy future fuel cell purchases. [inaudible]
Speaker Change: Two other affiliates. And so we're going to continue to offer that as an alternative in our other areas and then make sure that we deliver on our commitments to the two customers that we have in Ohio. And then the third piece of this is is
Speaker Change: The Old Beck issue, and now I'll turn that over to Trevor to describe it, but I think overall it's something that will be able to manage through so Trevor. Yes, terrific, thanks Bill.
Trevor: Yeah, so with regards to the Ovec situation, historically we've indicated that ending the cost recovery would result in roughly a $40 million impact and that's what it's done in years past.
Speaker Change: Again, as we said in our prepared remarks, given the upcoming capacity prices in PJM. [inaudible]
Speaker Change: We expect the earnings impact to be really significantly muted to the tune of about potentially two cents or we said roughly ten million dollars of earnings.
Speaker Change: Probably most likely become law and take effect in mid-August. And so we will get recovery up through that date. And so I think this is one of those things that is really not a huge earnings driver for us and we can deal with this going forward.
Appreciate the color, I'll leave it there, thanks.
Speaker Change: Our next question comes from the line of David Paz with Wolf Research. Please go ahead .
Good morning.
Morning.
Speaker Change: I know you addressed this, I think, on the previous question to a certain degree but maybe the commercial sales in particular for 2025.
See that they're tracking, it was year over year, 12% [inaudible]
Speaker Change: But you're talking a little higher for the full year.
Speaker Change: Just, are you seeing any delays with their specific shaping that you may have about previously that's playing out in terms of just back and loaded for the year for 2025 on commercial sales?
Thank you.
Speaker Change: Yeah, David. So, I think the good thing, and we mentioned this in the prepared remarks, is with the commercial load growth, what we're seeing is a lot of these counter parties are signing the L.O.A.'s and entering into firm contracts with us. And so, these are, again, really...
Speaker Change: Take or pay contracts that are enabling us irrespective of what their load looks like to ensure that they are starting to pay under those contract terms.
Speaker Change: And so while the step-up of 12% is really positive, we continue to see people signing these take-or-pay type contracts
Speaker Change: and I think you'll continue to see additional load coming on over the next several years.
Speaker Change: and so this is all very positive in that regard, but I wouldn't say it's shaped towards the back end or anything to that regards. I think it's really more just a steady increase in commercial load coming on that we have seen over the last several months here.
Thank you for watching!
Okay, so look for 2025, you still need to stay about twenty-two percent [inaudible]
Speaker Change: That's right. You're in 25 versus you're in 24. Okay. Yeah, and then just you just touched on this the previous question and partnership, but will. Thank you.
Will there be a...
Speaker Change: You know, how should we think about the deployment versus what you have before the Ohio law? Understanding it's not, you know, the Ohio market or a PO high market is not there, but will this change any type of the schedule of deployment for the remaining one gig? [inaudible]
Speaker Change: Well, we're in the market to sell those to customers who are interested in this technology. It will not affect at all the the two projects that we have been flight those will go forward as planned and those are well underway. So for the remaining 900 megawatts that we have available to us.
Speaker Change: We do have a number of customers that we're in conversations with and feel optimistic that there may be deals coming down the road. So we'll see where this all heads and certainly report on this more as future calls come this year.
Bill Fehrman: And let me add just one thing Bill, if I could on that. The remaining 900 megawatts is really an option for us. We're not obligated to take those fuel cells and so if we can find...
Bill Fehrman: Capacity and customers to take them. That makes sense, we will do that. But again, we're not obligated to. Yeah, the original hundred megawatts that we did contract are taking care of. Yeah.
Great. Thank you. Yep
Speaker Change: Our next question comes from the line of a Julien Dumoulin Smith with Jeffries. Please go ahead.
I don't know.
Julian DeMullin-Smith: Hey, good morning, team. Thank you guys very much. Appreciate it. Nice we've done here. Just wanted to follow up on the 10 billion upside number here. I just wanted to understand a little bit of what's already approved here? What do you have line of sight even within that 10 billion dollar bucket? It seems like there could be some various pieces there. And then also, what are you waiting for in terms of line of sight to formally introduce that? As you say, it's within the five-year program.
Speaker Change: You comment several different times about the things tied to the low growth and the relative degree of confidence you have on the low growth. So, effectively, what are we waiting for? What are the set pieces there that would enable you the confidence more formally integrated in that plan? Thank you very much.
Yeah, Julien, it's Trevor. Appreciate the question.
Speaker Change: I would say what we're really doing is we're setting the cadence where we want to come out with a formal growth plan on an annual basis and we'll generally do that around
Speaker Change: Call the third quarter call right before we go into E.E.I. Unless there's something material that that would increase that ten billion dollar plan or ten billion dollar potential upside to the fifty four billion dollar plan. We'll be right back in time.
Speaker Change: That being said, I think, you know, it's important to note that the recently awarded 765 transmission lines, for example in Texas, you know, that's roughly one to two billion dollars that's not in the current plan.
Speaker Change: And so as things firm up, we will continue to look at how we manage the overall portfolio spend relative to what our customers needs and what the states want [inaudible]
Speaker Change: and that will impact a large part of what that 10 billion looks like. [inaudible]
I think roughly if you wanted to kind of...
Take a look at that 10 billion. [inaudible]
Speaker Change: We've said publicly that roughly about half of that $10 billion relates to transmission. [inaudible]
Speaker Change: and the remaining is a majority of that is generation projects in the various service territories as we file and look at the various capacity and needs in the states.
Speaker Change: But again, we have great opportunities, not only in ERCOTS, we also have opportunities in PGM and we continue to flesh those out and we'll come with more definitive answers when we roll out our revised five year capital plan in the third quarter.
Dr.
Speaker Change: Got it. Okay. Fair enough. And maybe just to elaborate a little bit further. What is in that?
Speaker Change: 5 billion generation bucket. Can you speak a little bit to, you know, how you think about that versus the load growth numbers that you have? Is it? Is it just about getting line of sight on our fees coming out of anticipated load growth or is there something further within that here? [inaudible]
Speaker Change: No, it's largely what you just said there. It's the RFPs, it's also looking at...
Potential Wind Projects, or other renewable projects in various states. [inaudible]
Speaker Change: It's also related to potentially some combined cycles as we look at what the overall capacity needs are and the generation needs are in our service territory. So these are items that we have a line of site to but we have not firmly committed to yet. [inaudible]
Thank you for watching!
Speaker Change: Oh, actually, this is a clarify. You've got two acquisitions out there, one potentially in Oklahoma and one in Indiana or Ohio specifically. Those are included in the plan and you intend to move forward with those.
Speaker Change: That's right, that's correct. Those were items that were included and we do have, you know, the needs in those states for that generation and so those opposed are in there. Thank you very much.
Thank you for watching!
Speaker Change: Awesome. All right, I'll leave it there. I'll pass it on. Thank you guys very much.
Thank you.
Speaker Change: Our next class comes from the line of Durgesh Chopra with Evercore. Please go ahead!
Thank you for watching!
Thank you, good morning, thanks for giving me time [inaudible]
Speaker Change: It just wanted to start off with the Q1 audience performance, so the reward numbers are higher than where we thought you would end up in the quarter. You mentioned the weather benefits.
Speaker Change: But you also reaffirmed guidance for the year. I appreciate there's three more quarters to go with third quarter being the largest. We just comment on how first quarter turned out, what's your expectation? Are you going into the balance of the year higher than where you expected to be just any color that would be helpful? Thank you.
Speaker Change: Yeah, thanks, Durgesh. So, as you did a highlight, whether was a significant driver, as was some of the rate impacts as we rolled out, the revised rates in certain jurisdictions, but whether was a significant...
opportunity for us in the quarter. And I will say...
You know, that's roughly...
Speaker Change: In line with where we anticipated we would be and we feel very good about...
Speaker Change: Laying out our full-year guidance range and staying within that guidance range, and as you indicated, it's still fairly early with just the first quarter
Speaker Change: But we're going to be very disciplined in our capital allocation. We are looking for ways to ensure we're doing things efficiently at the operating companies as well as at the corporate center to drive efficiencies and to drive affordability for our customers. [inaudible]
Speaker Change: But I feel good about the 575 to 595 guidance range that we put out in the 68% long-term growth rate.
and certainly would anticipate that we would...
Speaker Change: You know, again, talk to that in the second quarter as we continue to see some of the successful regulatory outcomes roll out that we've seen over the last few months here.
Speaker Change: Got it, sounds like things are in track. Okay, then switching gears to just the part.
Speaker Change: Co-location process here, a couple weeks ago, the IPPs came out and sort of suggested Selma Talks. Any color you can share there on what might be happening behind the curtains and timelines for a potential Selma to be tweaked?
This is DJ Swamp.
Speaker Change: Sure, so this go on on the co-location issues we've said many times on this is that we're not against co-location what what we are wanting to make sure is that anyone doing that sort of
of Arrangement Pay, their appropriate fees on the transmission system. And so...
Speaker Change: We're continuing to follow the process at FERC and that's moving forward and...
Speaker Change: We'll continue to be engaged fully, but at the end of the day on this it's really more about ensuring that if you use the transmission system you pay your fair share and so we'll continue to monitor this and see where it goes . . .
Thank you for watching!
Speaker Change: Got it, thanks Bill, thanks Trevor, and congrats on the first start of the year.
Thank you. Thank you guys
Speaker Change: Our next question comes from the line of a Nick Campanella with Bar please, please go ahead
Hey, thanks for all the updates.
Thank you. Good morning.
Henry
Speaker Change: Hey, I just wanted to follow up on the CAPX upside. I'm just curious if you could talk about how you plan on financing the $10 billion if you were to kind of wrap it into the plan into next year. Like do you have?
Speaker Change: Additional levers to pull on the asset sales side or could the securitization of pending West Virginia impact the companies overall equity needs in any way. I guess just you have any levers to kind of mitigate what's been more of a more traditional. I don't know 40 to take you percent of funding across the industry. I'm Aaron.
Speaker Change: Yeah, so Nick, one of the things we did and we set on the year end call in February
Speaker Change: that we had the 5.35 billion of overall equity that we needed over the five-year plan and 2.8 billion of that was taken care of already with the sale of the transgoze.
Speaker Change: And then, given where Bill and I were in March, we anticipated we'd rather take the market we know, and so we went out with the remaining $2.3 billion, which really effectively takes all the equity, the market equity off the table over the five-year plan [inaudible]
Speaker Change: Even if we needed to fund that with some level of growth equity...
Speaker Change: That would be on the back end of the plan because we've already pre-funded a lot of that equity on the 2.8 billion on the sale, and then the 2.3 billion is done under the forward through December 20, 20-6.
Speaker Change: And so when you look at that, we've really taken care of all the equity needs.
Even with the forward. . .
Speaker Change: In really the first two years of the five-year plan, and so if we were to come back and firm up the 10 billion, I think we would really be in a situation where we would not need to issue incremental equity in the near term, and then we will come back at a later time as to how we would fund that.
To some of the points you raised specifically, again...
Speaker Change: You mentioned the securitization and why we believe that securitization is highly beneficial for our customers in modulating the rates. It also allows us to take approximately $2.4 billion of cash and deploy that cash elsewhere.
Speaker Change: and so there's a lot of levers like that and then last year I would say we also would look at potential hybrids that we have out there whether it's junior subordinated debt and I know others in the market have been utilizing those structures as well and so we do have a lot of other levers to pull.
Speaker Change: That being said, I think we do like our assets and from our perspective I don't think you're going to see us sell down any more transmission or anything to that effect, but rather we would look at ways to finance the growth in a very, very shareholder friendly way.
Thank you for watching!
Speaker Change: Hey, that was great color. I appreciate that. Thanks for that. And then just one quick clarification. I know you kind of mentioned in your prepared remarks, your comments on IRA. Is there just any quantifiable exposure, you know, it's transferability that go away with that impact your plans whatsoever? Do you have any exposure there? Thanks.
Speaker Change: Yeah, so I would say again on the whole IRA, walking it back in and I think this kind of gets back to some of the comments we made in our prepared remarks.
Speaker Change: But we really do believe that a complete retroactive repeal of IRA is pretty unlikely, and that if a repeal does occur, we would expect the tax incentives for the existing projects and safe harbored projects that are under construction will be protected in the future.
You know, I think really when you look at this...
Speaker Change: All of AEP's existing tax credits along with really all the anticipated tax credits through 2027 are safe Harvard and would not be impacted by this proposal.
Speaker Change: And so then people have kind of questioned us with regards to the specific dollar amounts and I would say transferability in our plan
Speaker Change: is manageable. It's roughly $200 million currently, and then over the next several years, it averages about $300 million.
Speaker Change: But all of that is really pertains to safe Harvard and pre-IRA projects that are expected to continue to qualify under the transfer ability. So, again, very limited exposure in that regard from the IRA repeal language that's been talked about right now.
Thank you for watching!
Appreciate all those details. Thank you again.
Thanks, Nick. Thank you.
Speaker Change: Our next question comes from the line of a Carly Davenport with Goldman Sachs, please go ahead.
Good morning, thanks for taking the questions.
Speaker Change: Maybe to start, just to follow up Trevor on some of your comments earlier on the margin contribution from Rezi versus C&I customers, can you just talk a little bit about the Rezi dynamics driving not to track negative over the last several quarters here? Is that something you're watching and do you anticipate something shifting there to get you back towards that full year forecast for 25s?
Speaker Change: Yeah, Carly, thanks for the question. And we certainly are focused on residential customers.
Speaker Change: and I think what you're seeing is we do have slight increases in residential actual meter count but what we're seeing is that's being more than offset by
Speaker Change: The decline in throughput on the residential side, mostly from efficiency and people really focusing on the costs to go through a cold winter like we just had. So, from our perspective, I think
Speaker Change: We do watch it. We do see that C&I is adding a lot of growth that is helping to offset that. But again, as I mentioned, you know, you the C&I
Speaker Change: Really margins are a lot less than residential and so we continue to monitor that. But what we need to do is continue to find ways.
Speaker Change: to deliver very high quality service to our residential customers at an affordable price, and then that will continue to be something that will offset some of the efficiencies that they're doing or the use that they're declining in.
Thank you for watching!
Speaker Change: Got it. Great. That's helpful. Thank you. And then could you maybe talk a little bit about the 765?
Speaker Change: KV Permian Opportunity Set, just any color on how we could think about sizing what that CapEx could look like or the timing to deploy it. And is that something that is in the $10 billion of identified upside to the plan?
Speaker Change: A very strong message by the government and regulators in Texas that they foresee a very strong future for the business climate there in the need for energy and the fact that they move to 765.
Speaker Change: is an incredibly strong statement about what they view as their potential in Texas, and so for us.
Speaker Change: Of course, we were the original innovator of 765 back in 1960, and have been building it and perfecting it for...
Speaker Change: for many years and in fact really the only company in the country that has the capabilities to to do this and so we're incredibly well positioned in Texas for this. We're excited about this first project and. [inaudible]
Speaker Change: Firmly believe that it will open up additional ones going forward. [inaudible]
Speaker Change: For this one, we think it's in the one to two billion dollar range and the work on this project will begin.
Speaker Change: in the very near future, and of course it will take some time to deploy, but...
Speaker Change: Overall, the fact that we are the leader in this country for 765 and the fact that Texas is looking at a significant increase in that type of transmission, both well for AEP
Thank you for watching!
Thank you so much for the caller.
Thank you. Thanks, Carly.
Speaker Change: Our next question comes from the line of Andrew Weisel with Scotiabank. Please go ahead.
Andrew Wiesel: Hey, good morning, everyone. Appreciate all the detail on the call here. I've just got one follow-up on the FFO to bet.
Andrew Wiesel: I might have misheard some of what you said in the commentary, but based on the slide, it looks like it was 13.2% on a TTM basis through March. That's down from 14% last year. Can you just talk a little bit about the moving pieces?
Andrew Wiesel: Then of course, as you mentioned, the minority interest cell will add 40 to 60 basis points later this year. That won't quite get you to 14 percent.
Speaker Change: Can you talk about what will get you over the hurdle, so you've got the 100 basis point cushion over this 13% downgrade threshold, please?
Thank you [inaudible]
Yeah, thanks, Andrew [inaudible]
Speaker Change: So, we ended last year at 14% FFO to debt, but that was also prior to the change in methodology with regards to
The Deferred Fuel,
Speaker Change: And that took about 40 to 50 basis points off of that 14% FFO to debt. Now I will say that the deferred fuel, as we're collecting the deferred fuel balances, we're really not putting that or the new methodology does not put that into the numerator.
Speaker Change: That rolls off and will be largely done by the end of 2026.
Speaker Change: So that's where we really were with regards to the deferred fuel and the end of the year. So the 14% was under the old methodology and call it 13.5, 13.6 under the new methodology. And then we're at 13.2 you're right with the trailing 12 months.
Speaker Change: But what we're anticipating is the minority interest transaction will raise that by 40 to 60 bips, so that'll take us to, you know, 13.6 to 13.8% once we close that transaction and then just continued focus on execution around efficient operations and increasing the numerator will be a big part of how we're going to ultimately get into that 14 to 15% targeted range of
Speaker Change: that Bill and I really feel we want to be in so that we can have a level of cushion well above 13% downgrade threshold. So hopefully that gives you a little bit of color.
Speaker Change: Yep, that's very helpful. Okay, great, but then one just to clarify I'm going to clarify.
Speaker Change: of the recent regulatory wins, were they all included in the CAPX plan already? Specifically, I'm talking about the 1.1 billion of transmission from transfer synergy and the 600 million through AEP transcos as well as the Texas Resilience plans. [inaudible]
Speaker Change: to our 575-595. And there's going to always be some puts and takes, but at the end of the day we feel very good about where we are on the 575-595 and the overall 6-8% long-term growth rate.
Thank you for watching!
Okay, I guess...
Speaker Change: My question was were those projects included in the $54 billion five-year plan?
Speaker Change: Yeah, and again I would say there's yes there are some projects that are included there are some projects that fall away so there's always puts and takes but generally yes. Yeah.
Speaker Change: Okay, got it. But you're saying there's flexibility for projects over time, understood? Okay, thank you so much. Absolutely. Yep, thanks.
Speaker Change: And that will conclude our question and answer session. I will now hand the call back over to Bill Ferman for closing remarks.
Bill Fehrman: Thank you. We appreciate everyone joining us on today's call. I'd like to close with just a few summary remarks first. I'm very excited when I think about the opportunities ahead at AEP as we advance.
Bill Fehrman: The long-term strategy to drive growth, enhance the customer experience and achieve positive regulatory outcomes.
Bill Fehrman: We're putting our robust capital plan to work and continue to grow the business across our...
large footprint while delivering shareholder value.
Bill Fehrman: I'd also like to reinforce the incredible support we've had from our board
Bill Fehrman: to keep pushing forward with our plan to really strengthen the balance sheet to improve our regulatory outcomes and execute around what our states want and
Bill Fehrman: I couldn't be more excited to be with this team and see where we're taking the company. So if there's any follow-up items, please reach out to our IR team with your questions. This now concludes our call. Thank you.
Thank you for watching!
Bill Fehrman: Today's conference will be available for replay beginning approximately two hours after the conclusion of this call and will run 3-11-59 PM Eastern Time on Tuesday, May 13, 2025
Bill Fehrman: Or 647-362-919-4 International Collars. A conference ID number for the replay is 7-864-240. This concludes today's conference call. Thank you all for joining. You may now disconnect.
and you