American Electric Power Company, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power fourth quarter 2022 earnings call. At this time, all parties are in a listen-only mode. Later, we will conduct a question-and-answer session. To ask a question, you'll want to press 1 and then 0 on your telephone keypad. If you should require assistance, you can press star 0. And as a reminder, this conference is being recorded. I'd now like to turn the call over to our host, Ms. Darcy Reese. Please go ahead.

Thank you, Brad. Good morning, everyone, and welcome to the fourth quarter 2022 earnings call for American Electric Power. We appreciate you taking time today to join us. 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 Julie Sloat, our President and Chief Executive Officer, and Ann Kelly, our Chief Financial Officer. We will take your questions following their remarks. I will now turn the call over to Julie.

Thanks, Darcy. Welcome, everyone, to American Electric Power's fourth quarter 2022 earnings call. I'm happy to be here with all of you this morning, and I'm pleased to be joined by our recently appointed CFO, Ann Kelly, who joined our team in late November. So here we go. We're making great progress. and have a lot to share with you today, starting with the financial performance of our fourth quarter and year. I'll provide updates on our Kentucky operation sale, unregulated renewable sale, and retail business strategic review. I'll also provide insight into our progress on the regulatory and legislative front as we work to implement important new initiatives to ensure our customers' and communities' needs, which are met in turn, and drives our high-quality investment proposition. Finally, I'll conclude with an update on our generation fleet transformation as we continue to invest in regulated renewables and our energy delivery infrastructure. A summary of 2022 highlights and our focus for 2023 can be found on slides six and seven of today's presentation. As you know, we have a long history of consistently delivering and exceeding our earnings guidance, and 2022 is no exception. I'm very proud of the dedication and accomplishments of the entire AEP team over the past year. While we finish the year strong, I can promise you we're just getting started. Our robust financial plan continues to yield results. We delivered strong fourth quarter 2022 operating earnings of $1.05 per share, bringing our full year 2022 operating earnings to $5.09 per share. We also increased our quarterly dividend from 78 cents to 83 cents per share, which we announced back in October. AP's teamwork-driven performance in 2022 has established a strong foundation from which we can reaffirm our 2023 full-year operating earnings guidance range of 519 to 539, all while mitigating inflationary cost pressures. supply chain pressures, and higher interest rates, as well as constructively navigating regulatory and legislative frameworks. Formula rates in several of our state jurisdictions and in our high-growth transmission business help us to manage increased interest expense and higher costs. Importantly, as we keep customer affordability top of mind, we are actively working with our states on the economic development front to drive expansion in our service territory, and we are incorporating efficiencies and expense containment into our rate recovery filings to continue to help offset the impact of increased cost pressures. As a matter of fact, the economic development efforts over the past several years are proving to be appreciably beneficial. Ann will talk about normalized load in a few minutes, but to illustrate my point, I can tell you that normalized industrial sales were up 4.5% largely as a result of those efforts. not to mention the added benefit of attracting jobs, residents, and other cascading upside to our communities, all of which helps to manage customer rates given the bigger denominator. We value our stakeholder relationships, and we made steady progress on the regulatory front over the past year, including achieving constructive base rate outcomes in Arkansas and Swapco, Texas, and a favorable Supreme Court appeal related to Virginia's last rate case, and the securitization of winter storm Uricos in Oklahoma. Our resulting earned regulated ROE as of December 31 was 9.1%, which suggests we still have work to do on this front. And I'll talk about our regulatory activities that we have underway to address this. So hang with me for a few minutes and I'll get there. AP is leading the transition to a clean energy economy as we engage in one of the largest generation fleet transformations in our industry. In 2022, our 1.5 gigawatt north central wind portfolio became fully operational with the completion of the Traverse Wind Farm project, which marked the beginning of our clean energy fleet transition. We'll continue to execute on our fleet transformation strategy with the opportunity to add approximately 17 gigawatts of new generation resources between 2023 and 2032 to while mitigating fuel cost volatility and creating a more diverse resource portfolio to benefit our customers. This will significantly contribute to AP's reduced carbon emissions profile and put us on a path to achieve our upgraded net zero goal by 2045. Importantly, the recent passage of the Inflation Reduction Act provides support for our clean energy goals, and this will extend our investment runway as we continue to address the needs of our generation fleet. Since assuming the role of president and now CEO, I've prioritized simplifying and de-risking our business profile, which has become a core standard by which we evaluate our business activity. By actively managing our portfolio and demonstrating a clear commitment to the successful execution of initiatives and transactions, we continue to deliver significant benefits to our stakeholders. As you are very much aware, we are working diligently to complete the sale of our Kentucky operations to Liberty. You can find the related regulatory timeline on slide eight in the presentation today. As an update, AP and Liberty followed the blueprint provided by the FERC order and filed a new FERC 203 application on February 14th of this year, requesting a shortened comment period and expedited approval to meet the contractual April 26th, 2023 transaction close date. Immediately after the filing was made, FERC issued a notice incorporating a shortened 45-day comment deadline related to the application. The shortened comment period is a good sign signaling the Commission is open to considering our application on an accelerated basis. AAP and Algonquin are in regular communication discussing various aspects of the transaction, the path forward, and our partnership. We're mindful of the April 26 date and the stock purchase agreement and are cognizant of the tight timeframe given the March 31 comment period deadline. The objective of both AEP and Algonquin remains clear, and that's to close the transaction. And both parties are firmly committed to moving forward and bringing forth the benefits of this transaction to customers. Related to our unregulated contract renewables portfolio, after strong buyer interest, we're pleased with our announcement made yesterday for the sale of our 1,365 megawatt portfolio to IRG Acquisition Holdings, which is a partnership owned by Invenergy CDBQ, and funds managed by Blackstone Infrastructure. A summary of the sale can be seen on slide 9 of the presentation today. We're currently targeting a second quarter 2023 close. The utilization of the proceeds from the sale is now reflected in our updated multi-year financing plan on slide 39, and the transaction proceeds will be directed to support our regulated businesses as we enhance the energy delivery infrastructure and transform our generation fleet. Our near-term focus remains closing on our two pending sale transactions, Kentucky and our unregulated renewables. Once both of these transactions are complete, we plan to revisit the equity needs in our current multi-year financing plan. As we've been clear in the past, we will use the asset sales to responsibly eliminate equity while maintaining a strong balance sheet. No change in messaging on this. And that's important that I reiterate that. No change in the messaging. Finally, in October 2022, we announced the strategic review of our retail business. We're looking at this business to determine how or if it fits with the current AAP portfolio, and we'll keep you updated on our progress. We're expecting to complete the strategic review in the first half of 2023. Let me touch on our regulatory and legislative initiatives that we have underway. We remain focused on reducing our authorized versus actual ROE gap. As I mentioned earlier, our 2022 earned regulated ROE was 9.1%. Our 2023 earnings guidance range assumes a 9.4% earned ROE, and we are already making progress in that direction. In January, we reached a settlement and gained commission approval for our Louisiana base case, which allows us to reestablish a formula rate plan. As we advance through the year, the team will be active in completing our current base case in Oklahoma and rider recovery of the 88 megawatts of the Turk plant which is not currently in Arkansas rates. We also filed an electric security plan in Ohio, which will take us into 2024. Let me shift gears and provide you with an update on our deferred fuel recovery efforts that are currently underway. As we've previously shared with you over the past several months, we've made adjustments to our traditional cost recovery methods in a number of our states to allow for recovery while spreading the cost out for our customers to make them more affordable. In West Virginia, we continue to pursue approval of the pass-through of fuel costs under the Fuel Clause. We also intend to propose an alternative path to recovery of these costs under proposed legislation. If approved, that would allow us to securitize these costs and minimize customer impact. The West Virginia Commission recently instructed its staff to finish its prudence review of the 2021 and 2022 fuel costs. The state legislature continues to move the securitization legislation forward with the commission chair recently testifying in support before the lawmakers. I'll conclude my remarks with an update on our regulated renewable strategy and execution. Our capacity needs continue to drive us forward on the regulated renewables front, and we continue to work with our regulators, policymakers, and other key stakeholders to ensure a durable and sustainable transition to a clean energy economy in our vertically integrated states. The recently enacted Inflation Reduction Act will help us advance our goals in this area and will provide additional value to our customers as we seek to acquire resources consistent with our plan. We've made considerable progress on SWBCO's 999 megawatt renewables application, which represents a $2.2 billion investment for AP. Parties filed a unanimous settlement in Arkansas on January 27th for a portfolio of owned wind and solar resources. A hearing was held in Texas in January, and we continue to have constructive settlement dialogue with parties in Louisiana, and the hearing date has been formally extended to March 21 to accommodate this. We look forward to receiving the Commission's orders, which are expected in the second quarter of 2023 for Arkansas and Louisiana, and the third quarter of 2023 for Texas. In November of 2022, PSO made a regulatory filing in Oklahoma to own 994 5.5 megawatts of solar and wind projects representing a $2.5 billion investment. A procedural schedule was issued last month, which includes a hearing date in April and an expected commission order in the third quarter of this year. Separately, we're also seeking to acquire the 154 megawatt Rock Falls Wind Facility in Oklahoma from EDF. FERC approved this acquisition on February 16th, and we're pursuing rate recovery of this investment through the ongoing PSO base rate case. The Rock Falls project is already in service and will provide immediate capacity for PSO's customers. Our regulated renewables goals are aligned and supported by our integrated resources plans. In accordance with those plans, we issued requests for proposal in 2022 for wind, solar, and other resources at APCO, I&M, and once again at SWEPCO. We anticipate making the related regulatory filings to acquire additional resources under these RFPs throughout 2023. We continue to see rapid changes in our industry and increasing need and demand from customers and communities across the United States. At the end of 2022, as I prepared to assume my new position at AEP, the team and I dedicated a considerable amount of time and energy to determining how AEP would continue to deliver safe, clean, affordable, and reliable energy and how we could deliver this energy faster and more efficiently to our customers while generating enhanced value to our stakeholders. Our long-term earnings growth rate of 6% to 7% is underpinned by a robust $40 billion capital investment plan for 2023 through 2027, which includes $15 billion in transmission and $9 billion in regulated renewables investments. As evidenced by our fourth quarter and full year 2022 performance, AAP has had a longstanding track record of consistently delivering on our strategic objectives, our transformation strategies working, and the investments we're making continue to support our positive earnings growth and results. Please join me in welcoming Anne to her first AEP earnings call. I'll leave you in her very capable hands as she provides insight and perspective into our performance drivers for 2022 and the details supporting our financial targets. Anne?