American Electric Power Company, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to put yourself in the question queue, please press 1 then 0 on your telephone keypad. If you should require assistance during the call, please press star then 0. As a reminder, this conference is being recorded. I would now like to turn the conference to our host, Vice President of Investor Relations, Ms. Darcy Reese. Please go ahead.

Thank you, Tani. Good morning, everyone, and welcome to the second quarter 2021 earnings call for American Electric Power. We appreciate you taking the time to join us today. Our earnings release, presentation slides, and related financial information are available on our website at aep.com. Today we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for discussion of these factors. Joining me this morning for opening remarks are Nick Akins, our Chairman, President, and Chief Executive Officer, and Julie Sloat, our Chief Financial Officer. We will take your questions following their remarks. I will now turn the call over to Nick.

Okay. Thanks, Darcy. Welcome again everyone to American Electric Power's second quarter 2021 earnings call. Today we report a strong second quarter operating earnings of $1.18 per share versus $1.08 for the same period of 2020. Our second quarter results reflect significant progress in terms of economic recovery throughout AP's service territory with a continued focus on O&M as we navigate through what is hopefully an emergence from the COVID-19 pandemic. Gross regional product has already exceeded its pre-pandemic levels, and employment across AAP's service territory is now within 2% of its pre-pandemic levels after adding over 163,000 jobs in the first six months this year. Increased vaccinations combined with the additional fiscal stimulus from the American Rescue Plan are contributing to the strong demand for goods and services throughout the economy. AAP's normalized retail sales in the second quarter of 2021 were the highest we've seen since the second quarter of 2018. Clearly, we are pleased with the improvements we've seen thus far and will continue to monitor the recovery's progress over the second half of the year. Accordingly, we are reaffirming our 2021 guidance range of 455 to 475 per share and a 5% to 7% long-term growth rate and would be, again, disappointed not to be in the upper half of our stated guidance range as we have previously stated. Julie will be discussing these issues in more detail in her report. Rate case activity across our jurisdictions continues to be active and substantial. In Ohio, we are awaiting an order by the Commission on the settlement reached and filed with the Commission earlier this year. As a reminder, the settlement has broad support from the settling parties, including the Commission staff, the Ohio Consumers Council, industrial companies, commercial companies, and other entities like the Ohio Hospital Association. We expect a decision in the third quarter of this year. Public Service Company of Oklahoma filed a rate case at the end of April. PSO is seeking $115.4 million net revenue increase and a 10% ROE. The following transitions North Central costs from the rider established in the approval into base rates. The case also seeks to continue a distribution rider, recover RTO expenses, and update depreciation rates. Testimony of the parties is due in August with a hearing scheduled for September and an order expected in the fourth quarter of 2021. In Indiana, I&M filed a base rate case on July 1st. The following is based on the future test year model and seeks a $97 million net revenue increase with a 10% ROE. The major items in the case include the recognition of over $500 million in capital investments per year in Indiana, continuation of the transmission tracker, a federal tax rider should those changes occur, and deployment of AMI meters to provide customers more control and insight into their usage. In our SWEPCO jurisdictions, we have rate cases pending in Louisiana and Texas and are preparing a filing in Arkansas for tomorrow, July 23rd. In Texas, a hearing was held in May, and SWEPCO filed its reply brief and proposed findings of facts and law on July 1st. SWEPCO is seeking a net revenue increase of $73 million and an ROE of 10.35%. The following includes investment made from February 2018, accelerated depreciation for three coal plants, an increase in storm reserve, and vegetation management. We expect an order in the fourth quarter with rates relating back to the effective date of March 2021. In Louisiana, a procedural schedule was set with testimony due in the third quarter of 2021 and a hearing in January of 2022. The case seeks a $93 million net revenue increase and a 10.35% ROE. An order is expected between the second and third quarter of 2022. In Arkansas, the case will contain a formula rate plan for subsequent years and consider the retirement of previously announced coal lignite assets. This filing is timed to align with North Central in-service dates and provide a mechanism both for recovery of costs associated with the investment and flow-through of the PTC to SWEPCO customers. We have certificate filings in Virginia, West Virginia, and Kentucky related to investments needed to comply with the CCR and ELG rules on coal plants in the region. We have received an order in Kentucky and an ALJ decision in Virginia denying ELG investments. Final decisions from the Virginia Commission and the West Virginia Commission will be received in the third quarter of 2021. We understand that these are difficult decisions for states to make regarding the future of their generation resources. We'll be working with our commissions to navigate the implications of how each state's decision will affect the ongoing operations of these plants. SWEPCO and PSO continue to make good progress with their commissions to recognize the storm URI expenditures. Julie will cover this in more detail in her comments, but as a reminder, We filed for recovery of a WAC return over five years in Louisiana, Arkansas, and Oklahoma, and we'll do so in the near future in Texas. PSO has filed for a financing authority to explore the securitization option that was established by the legislature. The company's plan to transition its generation fleet and reduce carbon emissions by 80% by 2030 and net zero by 2050 is well underway. In April, We announced new resource plans that include the addition of up to 16,600 megawatts of regulated renewable resources over the next decade. This plan provides a meaningful opportunity to invest in clean energy resources while benefiting our customers and strengthening our communities. Our $2 billion investment in the north central wind facilities is a first and a very significant step forward in this transition, and it provides a solid foundation for our clean energy transformation. The Sundance facility was placed in service in the second quarter, and the Maverick and Traverse facilities remain on time and on budget for completion during the fourth quarter 21 and first quarter 22, respectively. Solicitations also are underway for additional large-scale renewable acquisitions at APCO and SWEPCO, and we expect to issue the RFP to begin to fill the resource needs for PSO in October 2021. Our transmission investments continue to be strong helping our communities prepare for a clean, more efficient and resilient energy future. Our transmission hold code contributed $0.34 per share in the second quarter, up $0.15 from the same period last year. We remain engaged in the various processes at RTOs and FERC as we advocate the need for transmission and more robust comprehensive planning methodologies to ensure that our path to a clean energy economy is as smooth as possible. We also continue to be a strong advocate, like many supportive of achieving net zero targets, for the continuation of the 50 basis point RTO incentive. This important incentive codified in the Federal Power Act is critical to ensuring that needed transmission investment is made as we transition to a clean energy economy. If this nation is to move quickly to a clean energy environment, there must be a resolution and clarity around the important issues of investment return expectations, as well as long-standing issues of transmission siting processes and cost allocation mechanisms. FERC certainly seems to be on the right track as they look at transmission-related planning issues to spur additional development. But, of course, investment-related incentives are important in that equation as well. Okay, now, regarding the strategic process that is ongoing regarding our Kentucky assets, We're on track with the timeline we shared previously to have an announcement of a complete process one way or another by year end. As we have stated previously, keep in mind that we must obtain FERC and Kentucky Public Service Commission approvals before a deal could close, so that could push into 2022. As we focus on reaching a suitable transaction deal, we would announce in 2021 and move forward expeditiously on these two filings in parallel and reach closing as soon as possible. These regulatory approval processes are 180 days for the FERC Section 203 filing and 120 days for the Kentucky Public Service Commission Transfer of Control Review. While this is an ongoing confidential process, progress is being made. It reminds me of the Carly Simon song, Anticipation, and if I paraphrase some of the lyrics, we can never know about the days to come, but we think about them anyway and hopefully you're chasing after some finer day. More to come during the rest of 2021 on what that finer day looks like for ADP. Last but not least, our Achieving Excellence program is a year-over-year effort to maintain our cost discipline. Our efforts year-to-date have largely centered on the returning to the workplace. The vast majority of those that will be in the office are returning in August. Like many employers, we will accommodate remote, hybrid, and onsite work going forward. What was once 100% onsite for our office staff prior to the pandemic will become approximately 24% remote, 43% hybrid, and 33% onsite when we fully return, and that excludes field-level employees, of course. We plan to reap the benefits of reduced travel, less occupied office space, savings on real estate, a broader talent pool, and improved worker efficiency through digitization and automation initiatives that accelerated during the COVID-19 pandemic. As you know, one of the highest priorities involves ensuring AP is active in supporting our communities and serving as a positive voice and force for social justice and advancing racial equality. We have engaged both in community dialogues as well as conversations within the company to promote a deeper understanding and commitment to meaningful change. Our efforts include a renewed focus in our charitable giving to support organizations that are focused on these efforts. Our AAP Foundation has announced significant additional focus on social injustice-related initiatives. These activities not only support the culture we expect within AAP, but also sets an example for our communities and the nation on what could be in this country. So now I'll move to the equalizer chart, and I think you have that with the bubbles of each company. For that, I'll remind everybody we generally target the ROE for the regulated segments to be in the 9.5% to 10% range. The ROEs, we have to keep in mind, though, that we are and have been in the process of thickening the equity layers over the last several years, so we have to take that into account. For AP Ohio, the ROE for AP Ohio comes in at 9.7%. Its ROE is near authorized primarily due to timely recovery of capital investments. We expect the ROE to continue to trend around those authorized levels. And, of course, I mentioned earlier we're waiting on the commission order as well. At APCO, the ROE is coming in at 8.1%. Its ROE was below authorized due to higher amortization primarily related to the retired coal-fired generating assets and higher depreciation from increased Virginia depreciation rates and capital investments. And of course, I've already talked about previously about the Virginia case and where it stands with the Virginia Supreme Court. In Kentucky, the ROE is 5.9%. Kentucky's ROE is below authorized due to loss of load from weak economic conditions and loss of major customers along with higher expenses. In June 2020, Kentucky Power filed A base rate case seeking $65 million revenue increase, an ROE of 10%. Kentucky Power received a file order in its base case rates that went into effect in January of 2021, authorizing an ROE of 9.3% and a revenue increase of $52 million. INM came in at 9.8%. Their ROE is consistent with authorized ROEs, which are 9.8.6% in Michigan and 9.7% in Indiana. Earlier in July 2021, as I mentioned earlier, they filed a new rate case in Indiana, and we'll continue on with that. PSO came in at 7.9%, and it's below its authorized level primarily due to increased capital investment currently made in base rates and hard-anticipated equity due to the extreme February winter weather event, which Julie will be talking about a little bit later. And then, of course, in April 2021, as I mentioned earlier, we filed a new base rate case there as well. For Swepco, the ROE at Swepco is 7.9%. It's below authorized primarily due to increased capital investment, currently not in base rates, and the continued impact of the Arkansas share of the Turk plant that is not in retail rates. And, of course, I mentioned earlier it affects it by about 110 basis points. So we have the three cases in October 2020. SWEPCO filed the Texas case, which we're still awaiting an outcome. SWEPCO also is filing the Arkansas case, and then I mentioned earlier the Louisiana case as well. AEP Texas is at 7.9%. Their ROE is below authorized, primarily, again, to significant level investment in Texas, and the timing of the annual cost recovery filings associated with that investment. As you recall, we have DCRF and TCOS filings that recover on a pretty regular basis. So the expectation is for the ROE to continue to hover around that 8% because of all the investment that's going in that state, but should trend toward 9.4% in the longer term. AEP transmission holdco, the ROE for holdco is at 11%. The ROE is above authorized, primarily driven by higher revenues due to differences between actual and forecasted revenues. The transcos benefit from a forward-looking formula rate mechanism, which helps minimize regulatory lag. So transmission is forecasting to continue to be around that 11% in 2021. So the overall is about 9%, but again, remind you of the equity layers have increased actually pretty substantially over the last few years. So That's one of the tradeoffs that are being made there. Okay, so in closing, we had a strong quarter in the first half of the year. I'm proud of the accomplishments our employees have made in 2021 and the commitment that our team makes day in and day out to the communities we serve, especially during the pandemic and as we come out of this trying time. Our employees continue to focus on maintaining a high level of discipline and controlling cost. and with a buoyant economy on the mend, certainly gives us confidence in the rest of the year in delivering on the mission of consistent earnings and dividend growth expectations that we have produced year after year. If I look at the key areas for AEP to address for the remainder of 21 and into 22, they are to conclude the strategic review of Kentucky, conclude North Central with the appropriate financing, ownership, and recovery, advance our clean energy transition with the 16,600 megawatts of renewable resources, and continue the improvement of our credit metrics in line with our 2022 expectations, which Julie will talk about again. Of course, all of this is grounded fundamentally by safety, cultural, and operational excellence expectations with a focus on execution. If we have any Foo Fighters fans on the call, the Rock Hall is inducting them in this year's class of inductees. They did a song called This Will Be Our Year, which was originally recorded by the Zombies, but it says, now we're there and we've only just begun. This will be our year. Took a long time to come. This is true for AEP regarding our clean energy transition and our execution towards portfolio optimization. With that, I'll turn it over to Julie.