American Electric Power Company, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power Fourth Quarter 2021 Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. If you have a question or a comment at any time, you may queue up by pressing 1 and then 0. Once again, if you have a question or a comment, queue up by pressing 1 and then 0. If you need assistance during the call, press star, zero, and an operator will assist you offline. And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Darcy Reese. Please go ahead.

Thank you, Cynthia. Good morning, everyone, and welcome to the fourth 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, everyone, to American Electric Power's fourth quarter 2021 earnings call. I'm sure you all had time to read the earnings release and have seen all that we were able to accomplish in 2021. You know, as we saw the results of several regulatory-related cases that actually came in after the EI financial last November, AAP has come into 2022 flying high. The lyrics of a song by Lionel Richie and the Commodores, actually the first concert I actually catered backstage when I was younger, Flying High says, I knew we could make it from the beginning. AAP has now moved from 4% to 6% to 5% to 7% to 6% to 7% long-term growth rate because of our purposeful steps to enhance growth opportunities and de-risk the AAP portfolio. This process will continue. We have so much to look forward to in 2022, but for the purposes of today's call, I'm going to start by providing a brief recap of our financial performance, and then I want to talk about the evolution and the next steps we are taking in the execution of our business strategy, as well as the impact on our financing targets as we hone in on both our regulated generation transformation and our energy delivery infrastructure investments. These are continued refinements that we believe will not only allow us to better serve our customers, but will generate enhanced value for our investors as well. Finally, I will provide an update on the various strategic and regulatory initiatives that are already underway. Starting with a recap of our financial highlights, we reported strong results for the fourth quarter, navigating difficult macro headwinds while maintaining our balance sheet and increasing our quarterly dividend. In fact, this quarter was our strongest ever fourth quarter, coming in above consensus estimates with fourth quarter gap earnings of $1.07 per share and operating earnings of $0.98 per share, bringing our gap in operating earnings to $4.97 per share and $4.74 per share year-to-date, respectively. Our strong financial performance in the quarter generated regulated ROE of 9.2 percent with improved equity layers and enabled us to increase the quarter's dividend from 74 cents to 78 cents per share, as announced in October of 21. Our performance rests firmly on the regulatory foundations laid this past year with a series of rate case activity across our jurisdictions. Since EEI, we've received constructive base case orders in Ohio and Oklahoma, and we reached a settlement in Indiana that the commission approved yesterday, and we anticipate shortly finalizing our other base rate cases in SWEPCO and PSO. Our management team continues to make significant headway in our strategic growth plan and transformation. In 2021, the comprehensive strategic review of our Kentucky operations resulted in an agreement to sell Kentucky Power and AP Kentucky Transco for more than $2.8 billion. After receiving the necessary regulatory approvals, we expect this sale to close in the second quarter of 2022, notwithstanding the recent withdrawal of our FERC filing related to the Mitchell operating agreement. The completion of this transaction is expected to net AEP approximately $1.45 billion in cash after taxes and transaction fees, proceeds we will use to invest in regulated renewables and transmission. AEP is building on a strong record of actively managing our portfolio to support our growth as we invest in a clean energy future while delivering increased returns to shareholders. An integral part of our long-term strategy is the prioritization of AEP's regulated investment opportunities and the optimization of our assets. To that end, today we are announcing the elimination of growth capital allocated to the contracted renewables in our 2022 to 2026 forecast, and our intent to ultimately sell all or a portion of our contracted renewables portfolio in our generation of marketing business segment to help fund our growing capital requirements in our regulated portfolio. In making this decision, our team carefully considered the renewable opportunities in the context of our competitive business, existing competition in the space, our ability to efficiently monetize the PTC's ITC tax credits as regulated opportunities come to fruition, the attention needed to manage the size of this business relative to our overall regulated business, and the potential value this business represents to others who are committed to contracted renewable development and operations. We are fully confident that the sale of this portfolio will both simplify and de-risk our business, while allowing us to allocate proceeds and assign additional capital to our regulated business, where we see a meaningful pipeline of investment opportunities to better serve our customers and participate in the energy transition. This shift in direction enables us to recalibrate our 2022 to 2026 capital plan, shifting approximately $1.5 billion of investment capital to transmission and raising it to $14.4 billion of the $38 billion five-year plan. The capital originally allocated to the unregulated generation and marketing segment will drop from $1.7 billion of the $38 billion five-year plan to $400 million. The remaining $400 million in the generation of marketing segment will be largely allocated to maintenance capital and distributed generation assets. Our investment opportunities remain dynamic, and AEP operating companies will continue to develop integrated resource plans and grid enhancement plans over the near and long term in collaboration with stakeholders. This process continues to make substantial progress, as shown on slide 43 of the earnings deck. Overall, we are targeting wind additions of approximately 8.6 gigawatts of solar additions of approximately 6.6 gigawatts by 2030, for which we have allocated $8.2 billion in our current five-year capital plan. The migration from contracted renewables to significant increases in regulated renewables will ensure that AAP maintains the talent and resources to execute this plan. The capital plan also includes $24.8 billion allocated to grid investments. With the changes discussed and the expected completion of the sale of Kentucky Power, we plan on an analyst day presentation soon after the sale is completed to further update on all of these important initiatives. Now shifting gears to our regulated renewables opportunity. AP has a positive record of actively managing its portfolio to support the growth of the company as we invest in our regulated business and renewable generation to transform and build a cleaner, more modern energy system. And we made significant progress on our regulated renewables opportunity in 2021. Our plan is to reduce carbon emissions by 80% by 2030 and achieve net zero by 2050 is well underway. The 998-megawatt Traverse project, the largest single-wind farm built at one time in North America, is in the final stages of commissioning, and we expect the facility to go online soon. The combined investment in the Traverse project along with Maverick and Sundance, which both became operational in 2021, represent investment in renewable energy of approximately $2 billion and will save PSO and Swepco customers in Arkansas, Louisiana, and Oklahoma an estimated $3 billion in electricity costs over the next 30 years. These three projects add 1,484 megawatts of regulated renewable energy to our portfolio, and we recently issued RFPs for renewable resources for 1.1 gigawatts at APCO and 1.3 gigawatts at INM. We expect to make regulatory filings and obtain the necessary approvals for projects selected from RFP processes at APCO, INM, PSO, and SWEPCO. We are truly transforming the energy grid to better integrate renewable resources, delivering the low-cost, reliable energy that our customers rely on, while simultaneously empowering positive social, economic, and environmental change in the communities we serve. And we believe we can successfully enhance shareholder returns in the process. Finally and significantly, I'd like to speak to a few developers that highlight the economic vitality and prospects of the communities we serve. Our economic development team has been focusing on working collaboratively with our states to drive expansion within our service territory. As you know, in January, Intel announced plans to build two new leading-edge chip manufacturing facilities in Ohio for an initial investment of more than $20 billion. Over in West Virginia, Nucor announced in January that it will build its new $2.7 billion state-of-the-art facility in Mason County, West Virginia. Further, TAT Technologies will be moving its thermal components activities from Israel to Tulsa, bringing 900 jobs to the region. In total, our economic development team reported 1,900 megawatts of new load, supporting over 20,000 new jobs announced in 2021 and thus far in 2022. As evidenced by these wins, we are proud to play a vital part in the infrastructure that enables job-creating projects of this kind in our service territories. Moreover, in today's environment, especially in today's environment, as companies in our country focus on energy and supply chain security, our service territory is primed to benefit. We are committed to remaining a good steward for the communities in which we operate as we transition to a clean energy future. Through our Just Transition effort, we support affected communities through a coal plant's retirement by providing job placement services for displaced workers, tax-based replacement and funding sources to support diversification. This Just Transition program has been applied as a model for the country in enabling positive social and economic transitions for affected communities. As I said at the outset, we have a lot to look forward to in 2022. As we recast our capital allocation and de-risk the business, we feel confident in lifting and tightening our earnings growth target range from 5% to 7% to 6% to 7%. It has always been my preference to be in the upper half of the 5% to 7% range, and since we have demonstrated a track record of being able to deliver on these projections year in and year out, we are electing to revise the range to 6% to 7%. Accordingly, we will be lifting our 2022 operating earnings guidance range by 2 cents to 487 to 507 per share, with a midpoint of 497 to reflect the increase in growth rate target range. Lastly, we are increasing our funds from operations to debt target to a range of 14 to 15 percent, from 13.5 to 15 percent, which we mentioned at November EI. Throughout this process and beyond, we will be committed to maintaining a strong balance sheet, We discussed this at November EI and can confirm that our FFO to debt and credit metrics have improved markedly as we expected. Over the past decade, AAP has achieved impressive and sustained long-term growth, consistently meeting and exceeding earnings projections while continuing to raise guidance. Our highly qualified board and management team are executing a strategic plan that leverages AAP's scale, financial strength, effective portfolio management, and diversity of regulatory jurisdictions to deliver safe, clean, and reliable services for our customers while creating significant value for all AAP shareholders. We are also committed to examining and looking beyond the traditional forms of equity to fund the growth going forward, and our track records since 2015 in asset sales have been active and produced accretive opportunities for our shareholders. Our transformation strategy is working, and the investments we are making will continue to support our solid earnings growth and results. AEP stands poised to make great headway in 2022 and continue to capitalize on this momentum. Our organic growth opportunities for the next decade and our consistent ability to execute against our plan make it possible to set our sights high for this year and beyond. Before I hand things over to Julie, I just want to take a moment to acknowledge the unwavering commitment and dedication of our employees. In the midst of another storm-filled winter, our employees have continued to prioritize the safety and security of our customers across all of our jurisdictions. With significant ice storms impacting most of our territory in the past few weeks, I've been truly humbled by their tireless efforts to deliver on our initiatives and provide for our communities. Ultimately, their passion for the work we do is what makes our business so extraordinary. With that, I'll turn things over to Julie, who is going to walk you through the financial results for the quarter.