American Electric Power Company, Inc.

We are maintaining that momentum and delivering strong results for the first quarter of 2022, with operating earnings for the first quarter coming in at $1.22 per share, or $616 million. Earlier this year, we made a number of refinements to our strategic initiatives and financial targets. We raised our 2022 operating earnings guidance range and increased our long-term earnings growth rate, and we have hit the ground running in 2022. Today we are reaffirming our 2022 full-year operating earnings guidance. As a reminder, we are guiding to a range of $487 to $507 per share for 2022 with a $497 midpoint, and we also reaffirm our long-term earnings growth rate of 6% to 7%. As you'll recall, we announced several significant developments in connection with last quarter's earnings. In addition to lifting our 14% to 15% FFO to debt targeted range, We announced the decision to sell all or a portion of contracted renewable assets within the unregulated business. The announcement of this strategic divestiture allowed us to recalibrate our five-year capital plan of $38 billion with a $1.5 billion shift to transmission and the elimination of growth capital in the contracted renewables business. We are already seeing the positive impacts of these initiatives in quarter one. and we look forward to continue to execute in these important areas throughout the course of the year. We also expect to maintain positive momentum in our economic outlook as we work collaboratively with states to drive economic expansion in our service territory. There is more to come on all that, but I first want to take a step back and highlight some of the other proactive work our team has done. As macro trends continue to affect our industry and the economic landscape at large, We are focused on de-risking our platform and elevating our strategy to enhance shareholder value. For example, given lingering global supply chain issues, we are diversifying our mix of suppliers in order to reduce the impact on our capital investment plan. As a result, AP has experienced minimal customer or business disruptions to date. With these significant initiatives underway and a track record of thinking creatively, it is truly a team effort and we are lucky to have one of the most talented teams in the business. Regarding Kentucky, we expect to complete the sale of Kentucky Power and AP Kentucky Transco to Liberty in the second quarter of this year. A regulatory timeline of the sale is on slide seven of today's presentation. In 2021, we announced a comprehensive strategic review of our Kentucky operations, resulting in an agreement to sell those assets for $2.846 billion enterprise value. Both parties have been steadily working to obtain the necessary approvals to complete this transaction, which is in the public interest. The Kentucky Public Service Commission hearing was held on March 28th and March 29th. We know that Liberty is well positioned to serve Kentucky customers and are confident our employees in Kentucky will continue to thrive within an organization that prioritizes safety and operational excellence. Based on the statutory requirements, we continue to expect to receive a decision from the Commission on the sale transfer no later than May 4th. FERC approval on the sale transfer is also in process. Earlier this week, FERC notified us of a need for more information in the 203 transfer application. This request is not unusual, as FERC looks to ensure its record is complete by seeking additional information. We do not believe this request will impact the closing of the deal in the second quarter. Once a decision is made by the state level next week, we will provide the requested information back to FERC. We'll plan to ask FERC to abide by the original approval timeline to ensure Kentucky customers receive benefits from this transaction in a timely manner. Another significant regulatory milestone for the transaction is gaining approvals on the Mitchell Operating Agreement, which are a condition of the final sale transfer. Both Kentucky and West Virginia are aware that updated Mitchell operating agreement approvals are needed to put in place the commission orders on environmental compliance issued 2021. The Kentucky Public Service Commission hearings were held on March 1st and March 30th, and the West Virginia Public Service Commission was held on April 7th. Parties providing options allowing flexibility for both states to collaborate and reach a common agreement as Kentucky continues to wind down interest in Mitchell Plant post-2028. We expect to receive Commission decisions on the Mitchell agreements on an expedited basis in May of this year. We plan to file the related FERC application after State Commission approvals. Throughout this process, we have established a strong record of benefits of this transaction, most notably the clear and measurable customer benefits that we see. Okay, now moving on to the contracted renewable asset sale. During our fourth quarter earnings call in February, we announced the decision to sell all or a portion of our unregulated contracted renewables portfolio to simplify and de-risk the company and allow us to focus on our regulated business. Our portfolio consists of 1,600 megawatts of unregulated contracted renewables, the sale of which will help facilitate the investment of 16,000 megawatts of regulated renewables through 2030. In the last couple of months, we have made significant progress on this opportunity, including working with an advisor, preparing outside consultant reviews of the technical and market aspects of our portfolio, and evaluating our sales strategy and timing. Interest in the sale of the portfolio has been robust. The sale provides a unique opportunity to acquire a large operating wind portfolio complemented with some solar operations as well. We expect to launch the sales process sometime during the second half of 2022, likely in the August-September timeframe, and can be accelerated or deaccelerated as needed. Additionally, we are pleased to announce we have signed a term sheet to sell most of our wind and solar development portfolio, including five sites which are located in Southwest Power Pool. We have also executed an agreement to sell a solar development site here in Ohio. Financial details of these upcoming sales are confidential. and will not be disclosed, but demonstrate our commitment toward that execution. The reallocation of contractor renewables capital is assumed in our guidance, but utilization of proceeds is not yet reflected in guidance or our multi-year financing plan. We will seek to maximize transaction proceeds in the sale, avoid dilution, and direct the proceeds to investments in our regulated business as we continue to enhance the transmission infrastructure and move forward with our generation fleet transformation. Looking ahead, we will continue our track record of optimizing the portfolio and reallocating capital to our regulated business, where we continue to see a meaningful long-term opportunity for growth. AEP is making significant progress as well in our transition to a clean energy future. In fact, we already have several initiatives underway in line with our sustainability goals and through our regulated renewables execution. Details can be seen on slides 8 and 9. In March, we commissioned our third and final north central wind site, Traverse Wind Energy Center, which is the largest single wind farm built at one time in North America and one of the largest wind facilities worldwide, completing the $2 billion trifecta investment that includes Sundance and the Maverick Wind Energy Centers. Combined, they are providing 1,484 megawatts of clean energy to our customers in Arkansas, Louisiana, and Oklahoma. North Central will save customers an estimated $3 billion in electricity costs over the next 30 years. In March, we also issued a request for proposal at I&M for 800 megawatts of wind and 500 megawatts of solar. Additional RFPs are in process simultaneously at APCO, PSO, and SWEPCO, with expected in-service dates of 2024 to 2025. We expect to make a regulatory filing in the second quarter of this year related to the SWEPCO's June 2021 RFP. These are long-term investments, not just for our business and our local communities, but for the global environment as well. Through our current state of coal retirements, we are progressing towards our target of an 80% carbon emissions reduction rate by 2030 and net zero by 2050. Achieving this goal is an integral part of our long-term strategy to prioritize regulated investment opportunities and transition our generation portfolio. Our plans are very well thought out. Continue the movement to a clean energy economy, but remain firmly grounded in the principles of resiliency, reliability, and affordability, while recognizing the value of a diverse portfolio of resources particularly given today's world of energy-related volatility. Last year, we set regulatory foundations in a series of rate cases across multiple jurisdictions. Regulated ROE as of March 31st, 2022, is at a steady 9.2% as we continue to work through regulatory cases and focus on reducing authorized versus actual ROE spreads. I&M obtained commission approval in February on our Indiana base case settlement. oral arguments of APCO's 2020 Virginia-based case appeal were held in March at the Virginia Supreme Court with an anticipated final decision this year. We expect to see Commission decisions as well on SWEPCO's rate cases this year in both Arkansas and Louisiana, and look forward to keeping you informed on that progress, too. Related to FERC, we commend the Commission for moving forward with proposed reforms to transmission planning and cost allocation. FERC's proposed rulemaking aligns with our goals of developing a more robust, reliable, and flexible grid of the future that ultimately reduces cost to customers and strengthens economic development in the communities in which we serve. We believe many of these reforms are needed to build the infrastructure necessary to transition our generation fleet in the most efficient and cost-effective way possible and achieve our carbon reduction goals. We look forward to continuing to work collaboratively with the Commission on this and any subsequent rulemakings and with the RTOs on implementing any new requirements. At the conclusion of our fourth quarter call, I told you all that AEP stood poised to make even greater headway in 2022, and I think it's fair to say we are making good on that promise. Capitalizing on our momentum from 2021, we have continued to execute against our strategic objectives steadily and successfully. As we think about what's next for this year and beyond, we hope to further modernize our energy grid in order to supply reliable, cleaner, low-cost resources for all the communities we serve. We will also consider further asset rotation through the lens of de-risking and simplification, and we'll evaluate any and all value-added potential activities as we focus on our regulated business. As I've said before, AEP is in a very unique position. The largest transmission system, one of the largest renewables build-outs, and a diverse territory to adjust from the risk of supply chain, load forecast, regulatory risk, et cetera, AEP is the very definition of consistency and opportunity. We at AEP, as well as our shareholders and customers, hold ourselves accountable on the continual execution of all of these strategic objectives. To paraphrase a big hit by the police, every breath you take, every move you make, every step you take, we'll be watching AEP. And as our CFO would say, we've got this. Julie?

Thank you, Nick. Thanks, Darcy. It's good to be with you this morning. Thanks for dialing in, everyone. I'm going to walk us through our first quarter results, share some updates on our service territory load, and finish with commentary on our credit metrics, liquidity, as well as some thoughts on our guidance, financial targets, and recap our current portfolio management activities underway. So let's go to slide 10, which shows the comparison of GAAP to operating earnings for the quarter. GAAP earnings for the first quarter were $1.41 per share, compared to $1.16 per share in 2021. There's a reconciliation of GAAP to operating earnings on page 16 of the presentation today. Let's walk through our quarterly operating earnings performance by segment on slide 11. Operating earnings for the first quarter totaled $1.22 per share, or $616 million, compared to $1.15 per share, or $571 million in 2021. Operating earnings for the vertically integrated utilities were 59 cents per share, up 5 cents. Favorable drivers included rate changes across multiple jurisdictions, normalized load, and O&M. These were somewhat offset by increased depreciation, lower off-system sales, and wholesale load. I'd like to take a second to talk about O&M and depreciation in particular. Because of a change in accounting related to Rockport Unit 2 lease at I&M, We'll see approximately a $0.05 contribution of favorable O&M consequence offset by $0.05 of unfavorable depreciation in each quarter of 2022, but no consequential earnings impact. And to be clear, this is entirely consistent with the 2022 guidance details we posted in our investor presentations earlier this year. More to share on load performance here in a minute, so hang with me on this. The transmission and distribution utilities segment earned $0.30 per share, up $0.07 compared to last year. Favorable drivers in this segment included rate changes in Texas and Ohio, normalized load, and transmission revenue. Offsetting these favorable items were unfavorable O&M and depreciation. The AEP transmission whole-coast segment contributed $0.34 per share, down a penny compared to last year. investment growth was favorable by three cents offset offset by two cents of mainly property taxes driven by the increased investment and a penny of income taxes this is in line with the guidance that we provided to you earlier this year you'll recall that our 2022 guidance had this segment down by eight cents year over year as a result of the 12 cents of investment growth being more than offset by the annual true up that will occur in the second quarter and some unfavorable comparisons on the tax and financing side as you know This segment continues to be an important part of our 6% to 7% EPS growth. Generation in marketing produced $0.03 per share, down $0.03 from last year. The improvement in wholesale margins was more than offset by lower retail margins and reduced generation. You may recall that Storm Uri had an unfavorable impact on wholesale margins in the first quarter of 2021. Finally, corporate and other was down a penny per share, driven by increased O&M, lower investment gains, and unfavorable interest. These were offset by favorable income taxes. The lower investment gains are largely related to charge point gains that we had in the first quarter of 2021. Turning to slide 12, I'll provide an update on our normalized load performance for the quarter. In a general sense, the AP service territory is extremely fertile for economic growth right now. In fact, as of the first quarter, our load has officially fully recovered from the pandemic recession and has now transitioned into the expansionary phase of this business cycle. Starting in the upper left corner, normalized residential sales increased by eight-tenths of a percent compared to the first quarter of 2021. This growth was composed of growth in both customer counts and weather normalized usage for the quarter. While results were mixed by operating company, the strongest residential growth was in the AP Texas service territory, which was partially influenced by the year-over-year comparison given the customer outages driven by Storm Uri in the first quarter of 2021. A final data point to share regarding residential sales is that our first quarter sales were still 1.1% above their pre-pandemic levels over two years after the pandemic began. This is driven by a number of factors, including higher numbers of people who are able to work remotely that used to work in offices prior to the pandemic. Moving to the right, weather normalized commercial sales increased by 4.2% compared to the first quarter of 2021. While the growth in commercial sales is spread across every operating company and most industries, the largest increase in commercial sales is coming from data centers, whose load was up 33% compared to last year. In addition, we continue to see strong recovery in the sectors most impacted by the pandemic, such as hotels, schools, and churches, while real estate has been booming throughout the entire pandemic. AP's normalized commercial sales in the first quarter were 2.5% above their pre-pandemic levels, which shows that we've gone beyond recovery and are now in full expansion mode across the territory. If I can now focus your attention on the lower left corner, you'll see that industrial sales posted another very strong quarter, up 5.6% compared to last year. Industrial sales were up at most operating companies and many of our largest sectors in the first quarter. We experienced double-digit growth in a number of key industries this quarter, including chemicals manufacturing, oil and gas extraction, petroleum and petroleum products. We also saw robust growth in primary metals manufacturing, coal mining and food manufacturing. Having said that, first quarter industrial sales are still 1.6% behind their pre-pandemic levels. However, we have a large number of customer expansions that are expected to come online later this year and still fully expect to eclipse our pre-COVID industrial sales levels in 2022. We can continue to be confident in our full year 2022 guidance for normalized retail load. While we certainly did not anticipate the Russian invasion in Ukraine when we developed the 2022 forecast, I'd like to remind you that AAP's service territory is uniquely positioned to benefit from higher energy prices given the concentration of energy production that is located throughout the AAP footprint. Energy producers in our footprint have responded to higher energy prices, which has resulted in increased economic activity throughout the service territory. Finally, when you pull it all together in the lower right corner, you'll see that AP's normalized retail sales increased by 3.2% for the quarter. As I mentioned earlier, our load has gone beyond recovery mode and is in full expansion mode. For the quarter, every operating company posted higher normalized sales than last year. Furthermore, our first quarter retail sales were 1.5% above their pre-pandemic levels, so 50 basis points above pre-pandemic levels. To use a sports analogy, I would say our load performance in the first quarter was in the zone. There are many factors outside of our control that could influence our results. I want to stress that the positive load story we shared with you today is largely the result of intentional efforts by our employees to promote economic development as a part of our long-term strategy to strengthen the communities that we serve. We're fully aware of the increased uncertainty that exists in the macroeconomy, but have put in the work that it takes to ensure that we continue to see growth in our service territory going forward. So let's go over to page 13 to check on the company's capitalization and liquidity position. On a gap basis, our debt-to-cap ratio increased 60 basis points from the prior quarter to 61.5%, primarily due to an increase in equity from our issuance of AEP common stock in March, which is consistent with our 2022 guidance as the $805 million of equity units we issued three years ago converted to equity. Let's talk about our FFO to debt metric. Taking a look at the upper right quadrant on this page, you'll see our FFO to debt metric stands at 13.7% on both a Moody's and a Gap basis, which is an increase of 3.8% and 3.9% respectively from the prior quarter. The metrics are calculated off of the 12-month rolling FFO total, so the increase in FFO to debt is mainly a result of the fact that the cash flow dragged from February 2021 Winter Storm URI has now dropped off the cash flow from operations calculation. This improvement has significantly narrowed the gap toward achieving our FFO to debt target range of 14% to 15%. As we stated on the last earnings call, we anticipate trending toward this target range as the year progresses. Let's take a quick moment to visit our liquidity summary on the lower right side of slide 13. Our five-year, $4 billion bank revolver and two-year, $1 billion revolving credit facility support our liquidity position, which remains strong at $3.8 billion. Switching gears, our qualified pension funding increased 1.6% during the quarter to 106.4%. The rise in interest rates that decreased plan liabilities was a primary driver for this quarter's gain in funded status. Let's go to slide 14. This quarter has provided a solid foundation for the rest of 2022, and we're reaffirming our operating earnings guidance range of $4.87 per share to $5.07 per share. We continue to be committed to our long-term growth rate of 6% to 7% that we updated on our last earnings call. We're working through the Kentucky Power sale to Liberty and expect to close in the second quarter. And as Nick mentioned, we've signed an agreement to sell a solar development site in Ohio and have entered into a term sheet to sell five additional solar wind and solar sites and SPP on the unregulated side of the business. Additionally, we're preparing to market the unregulated contracted renewables portfolio in the second half of this year and are receiving a significant amount of interest on this. Beyond the portfolio optimization activities underway, we remain focused on the fundamentals, which are executing on the regulated renewables plan, disciplined capital allocation, and securing positive regulatory outcomes. Before we break, I want to mention one last thing before we get to your questions, and that's to remind everyone that we have not yet set the date. We will be hosting an investor conference sometime in late September or early fall time frame to give you a broader AEP update. We surely do appreciate your time and attention today. With that, I'm going to ask the operator to open the call so we can hear what's on your mind and answer the questions that you have.

Certainly. Ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, you may press 1, then 0 at this time. And it'll be one moment for our first question. It comes from Julian Moulin-Smith at Bank of America. Please go ahead.