American Electric Power Company, Inc.

Welcome to the American Electric Podcast Second Quarter 2022 Earnings Conference Call. At this time, your telephone lines are in a listen-only mode. Later, there will be an opportunity for questions and answers. If you would like to ask a question, please press 1, then 0 on your phone. You'll hear an indication you've been placed in the queue, and you may remove yourself from the queue by repeating the 1, then 0 commands. If you're using a speakerphone, we ask you to please pick up your handset before pressing any buttons and to make certain your phone is unmuted. Your conference call is being recorded. Now to the conference call. Over to your host, Vice President of Investor Relations, Darcy Reese. Go ahead.

Thank you, Alan. Good morning, everyone, and welcome to the second quarter 2022 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 a 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. Thank you.

Okay, thanks, Darcy. Welcome, everyone, to American Electric Power's second quarter 2022 earnings call. AFE continues to make progress on the strategic initiatives we announced earlier this year, with strong execution against our plan resulting in another solid quarter. Later in the call, Julie will walk you through our second quarter performance drivers, including the strong load increases we're experiencing in our territory, as well as provide additional details surrounding our financial position. But I'll start with the key financial highlights for the quarter. We'll then move to an update on our Kentucky operations sale process and timeline. I will also spend time discussing the progress we are making in our transition to a clean energy future as we simplify and de-risk our business profile by divesting unregulated renewable assets while maintaining focus on a responsible generation fleet transformation and regulated renewables execution. I will close by providing some additional insights into our ongoing regulatory activities, including our transmission business. We are very pleased with our positive momentum this quarter, delivering operating earnings of $1.20 per share, or $618 million. We are moving full speed ahead toward the increased operating earnings guidance range and long-term earnings growth rate we provided during our fourth quarter 2021 earnings call, and we are reaffirming both financial targets this quarter. As a reminder, we are guiding to an operating earnings guidance range of 487 to 507 per share for 2022 with a 497 midpoint and a long-term earnings growth rate of 6% to 7%. We are also continuing to ensure we are best positioned for value creation as we navigate the macro trends impacting our industry and the broader economy. We are working with states to drive expansion in our service territory while considering global economic uncertainty, inflationary pressures, and, of course, customer bills. We are also diversifying our mix of suppliers to minimize supply chain disruptions for our customers and business while also lessening the impact on our capital investment plan. We know that timing of the closing of the sale of Kentucky Power and AAP Kentucky Transco to Liberty is top of mind. and we have been working with Liberty to obtain the approvals necessary for closing this summer. A regulatory timeline of the sale can be found on slide seven of today's presentation. We are pleased to report the Kentucky Commission approved the key milestone in the transaction with an order approving the sale transfer in early May. As we have discussed previously, a prerequisite in our contract with Liberty for closing the sale is the approval of new Mitchell operating agreements by both the Kentucky Public Service Commission and the West Virginia Public Service Commission. While we received the related Mitchell orders from the Kentucky Commission on May 3rd and the West Virginia Commission on July 1st, the two states approved the operating agreement with different formats and some divergent post-2028 plant provisions. However, Through the two proceedings, both commissions have indicated an ability to use the existing agreement as a basis to operate the plant going forward and accomplish their differing expectations for investment and operations. For that reason, on July 11th, we made a compliance filing in West Virginia and filed an update with Kentucky providing an alternative way to move forward with Mitchell operations in the near term. We informed both commissions that we will operate under the existing agreement and manage the new operational focus of the two commissions through the operating committee. In the absence of any new agreements, the existing Mitchell operating agreement is still in effect, and we believe no additional regulatory approvals should be required. Since regulatory approval of the new Mitchell operating agreements is a prerequisite in our contract with Liberty for the closing, in the absence of such proposal, we are working with Liberty on a commercial solution for Mitchell-related operations, and both parties remain optimistic that about reaching a resolution and closing the transaction. At this time, the only regulatory matter currently pending is the 203 application at FERC related to the sale transfer, which FERC is currently considering. We are in the final stages of the Kentucky operations sale process and expect to close this summer. Moving to our unregulated renewable portfolio, in May, we closed on the sale of five unregulated development sites located in the Southwest Power Pool area, marking the successful divestiture of the majority of our wind and solar development assets. As we mentioned last quarter, we have also signed an agreement to sell a solar development site in Ohio, with that transition close expected also in the third quarter. In addition, we are in discussions with an interested party for the sale of our Flat Ridge II wind farm ownership, consisting of 235 megawatts, simplifying the resulting portfolio for our upcoming auctions. These milestones demonstrate our commitment to continued execution. As we announced during our fourth quarter earnings call in February, we are selling our unregulated contracted renewables portfolio in order to simplify and de-risk the company and facilitate investment in our regulated businesses. We are in the final stages of preparation of the marketing materials for the auction and expect an official launch of the process no later than early September. After the removal of Flat Ridge II, the portfolio consists of 1,365 megawatts of contracted renewable assets consisting of 1,200 megawatts of wind and 165 megawatts of solar, geographically diversified throughout the U.S. There has been robust inbound interest in the portfolio, and we expect the process to proceed quickly. As a reminder, utilization of contracted renewable cell proceeds is not yet reflected in our multiyear financing plan. We remain focused on maximizing transaction proceeds and directing additional capital to our regulated businesses, where we have meaningful pipeline of investment opportunities to better serve our customers as we push toward a clean energy future and enhanced transmission infrastructure. As always, we are open-minded and will evaluate all value-additive potential activities as we focus on our regulated businesses, where we see meaningful long-term opportunities for growth. AEP continues to make significant progress in our transition to clean energy resources through our regulated renewables execution. Details regarding the specific actions we are taking can be found on slides 8 and 9 in today's presentation. We are also firmly grounded in our principles of resiliency, reliability, and affordability while recognizing the increasing value of our diverse resource portfolio against the backdrop of energy-related volatility. SWEPCO It's taking steps to secure renewable resources, making regulatory filings in May in Arkansas, Louisiana, and Texas to own three renewable turnkey projects totaling 999 megawatts. This $2.2 billion investment is currently reflected in our five-year $38 billion capital plan. SWEPCO expects to issue another RFP in the near term consistent with its RFP for energy and capacity needs. APCO's 409 megawatts of owned solar and wind resources were approved by West Virginia and Virginia, marking an $841 million capital investment that is also included in our current capital plan. Requests for a proposal are in process in APCO, INM, and PSO, with expected in-service dates in the year-end 2024 and 2025 timeframes. We also expect to make regulatory followings to acquire additional renewable resources prior to year-end 2022. Finally, the U.S. Supreme Court ruling at the end of June related to the federal EPA's regulation of greenhouse gas emissions will not require any changes to AEP's current generation and compliance planning. Our generation fleet transformation plans are well on track. We remain fully committed to our target of an 80% carbon reduction emission reduction rate by 2030 and net zero by 2050, and we are proud of the work well underway at AEP to help us achieve this goal. Reaching these targets is foundational to our long-term strategy, and we believe we are on the right path toward prioritizing regulated investment opportunities and transitioning our generation fleet. Turning now to a brief update on our regulatory activity, Our regulated ROE as of the end of June 2022 is 9.2%. We continue to work through regulatory cases and maintain our focus on reducing our authorized versus actual ROE spreads. Additional regulatory activity in the quarter includes a commission order received in May on Sweatco's Arkansas rate case, including a 9.5% ROE marking a net revenue increase of $28 million and a capital structure of 55% debt to 45% equity. We are also expecting a decision on SWEPCO's Louisiana rate case in the third quarter. Oral arguments related to APCO's 2020 Virginia-based case were held in March 2022 at the Virginia Supreme Court with an anticipated final decision later this year. FERC recently initiated several rulemaking proceedings related to transmission planning, cost allocation, generation interconnection to the transmission grid, and extreme weather preparedness. We support the Commission in these actions and are in full support, full agreement that reform is needed to build the infrastructure necessary to transition our generation fleet in the most efficient and cost-effective way possible, while also helping achieve our carbon reduction goals. These proposed rules align with AP's objectives of developing a more robust, reliable, and flexible grid of the future that ultimately reduces cost to customers and strengthens economic development in our communities. Before I turn it over to Julie, I want to take a moment to thank our team for the incredible work that they are doing as we execute against our strategic objectives and deliver for our stakeholders. You know, what's going on today at AEP is a perfect blend of the execution of Bachman-Turner Overdrive's Taking Care of Business with the edge of Prince's Let's Go Crazy, in a good sense, of course. We have an incredible market position, a bold mission, and the foundation in place to achieve our goals and deliver on our vision of further modernizing our energy grid in order to supply reliable, cleaner, low-cost resources for all the communities we serve. As we think about the future and the next chapter of AEP, We're excited to share more about our plans for the AP's upcoming analyst day on October 4th in New York City. We will provide additional details soon and look forward to seeing you there. Julie, over to you.