American Electric Power Company, Inc.

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power third quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Darcy Reese, Vice President of Investor Relations. Please go ahead.

Thank you, Eric. Good morning, everyone, and welcome to the third quarter 2023 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 a discussion of these factors. Joining me this morning for opening remarks are Julie Sloat, our chair, president, and chief executive officer, and Chuck Zabula, our chief financial officer. We will take your questions following their remarks. I will now turn the call over to Julie.

Thanks, Darcy. Welcome to American Electric Power's third quarter 2023 earnings call. It's good to be with everyone this morning. Before I discuss our third quarter performance, I would like to introduce our CFO, Chuck Zabula, who will walk us through the results today. Chuck has been with the company for 25 years and has a deep understanding of our business. He's hit the ground running in his new role, and we're grateful for his leadership. Many of you are familiar with Chuck, and I'm confident that you'll enjoy working with him in the CFO role. I'm pleased to share that the execution of our strategy is on track. AP is well positioned to deliver on our robust and flexible five-year $40 billion capital plan with an emphasis on our generation fleet transformation and investments in our energy delivery infrastructure as we meet our customer needs. While our industry continues to transform amid this dynamic environment characterized by more extreme weather, rising interest rates and supply chain constraints, AP has continued to adapt and take thoughtful actions to stay our course. We're keeping the customer at the center of every decision we make while also balancing and listening to our stakeholders who are critical to our success. This quarter, we've made progress on our ongoing efforts to simplify and de-risk our business profile through portfolio management, directing all proceeds of those efforts to the regulated business and to balance sheet management, which I'll speak to in more detail in a moment. We've also been working hard on the regulatory front. I'll provide insight into our success in the addition of renewables to our portfolio and the many positive developments on regulatory and legislative initiatives. A summary of our third quarter 2023 business updates can be found on slide 6 of today's presentation. AP reported strong third quarter operating earnings of $1.77 per share or $924 million. We have a flexible business plan that allows us to deliver on our financial commitments while taking into account mild weather in the first half of the year and the higher for longer interest rate environment. As we actively manage the business today, we're narrowing our guidance for 2023 full-year operating earnings to a range of 524 to 534, while reaffirming the 529 midpoint and our long-term earnings growth rate of 6 to 7%. Moreover, last week, we announced an increase in our dividend, which is consistent with our earnings growth rate and within our targeted payout ratio of 60 to 70%. In a few minutes, Chuck will talk about the support we have for our narrowed 2023 earnings guidance range, which includes O&M management and positive load outlook as we drive economic development within our service territory. While our FFO to debt was 11.4% this quarter, we expect that this metric will improve materially by year end. and fall within the targeted range of 14 to 15% in early 2024. Chuck will also touch on the short path to this balance sheet target. We continue to make progress in our efforts to simplify and de-risk our portfolio. In August, we announced the completion of the sale of our 1,365 megawatt unregulated renewables portfolio to IRG Acquisition Holdings, which resulted in after-tax proceeds totaling $1.2 billion. A summary of this sale can be seen on slide seven. We've also made headway on some of our other asset sales that we previously discussed. A summary of this can be referenced on slide eight. In May, we announced the sale of our New Mexico Renewable Development Solar Portfolio, also known as NMRD. The book value of AAP's investment as of September 30th was $119 million. We're currently on track with our 50-50 joint venture partner, PNM Resources, As we target to close on this transaction in the late 4th quarter of this year, or early 1st quarter of next. We expect to continue the non core business sales processes we have underway as we enter 2024. the sales of our retail and distributed resources businesses were launched in August with book values of 244Million and 353Million dollars respectively as of the end of the 3rd quarter. We expect to reach a sale agreement in the first quarter of next year with an anticipated closing in the first half of 2024. In July, we announced the sales of Prairie Wind Transmission and Pioneer Transmission, our non-core transmission joint ventures. As of the end of the third quarter, AAP's portion of rate base associated with these investments was $107 million. We expect to launch the sales process soon and close in 2024. Finally, related to Transource, while there are no new updates for now, we anticipate completing the strategic review by the end of this year, so please stay tuned. AP's portion of rate base for this particular investment in joint venture was $348 million as of quarter end. Let me shift gears and provide you with an update on our regulated renewables investment plan. The teams remained focused and made solid progress. As you know, we have 8.6 billion of regulated renewables in our five-year capital plan. We now have a total of 6 billion of the investment plan approved and an additional 800 million currently before commissions for approval, with each of these projects providing valuable fuel savings for our customers. More detail on our renewable resource additions can be viewed in the appendix on slides 32 through 34. As we've previously disclosed, both PSO's 995.5 megawatt renewable portfolio for $2.5 billion and SWEPCO's 999 megawatt renewable portfolio for $2.2 billion were approved earlier this year. At a collective $4.7 billion, these two portfolios alone comprise a large component of the approved $6 billion amount I just mentioned. Additionally, in APCO's service territory, we're also pleased to report a positive development. In September, Virginia approved 143 megawatts of owned wind for more than $400 million, building upon APCO's existing 209 megawatts of wind and solar projects that were approved last year, which total approximately $500 million. Moving across our service territory to I&M, we filed to seek approval for recovery of investment in two owned solar projects, totaling 469 megawatts, which represents $1 billion of total investment. We're making progress on this front as we received commission approval last month in Indiana for both the 224 megawatt Mayapple and 245 megawatt Lake Trout solar projects. In Michigan, the Commission approved MayApple back in August and will decide on Lake Trout in the first quarter of next year. We also await a Commission order expected anytime now for the 154 megawatt Rock Falls Wind Farm at PSO for approximately $150 million. Importantly, our regulated renewables plans are aligned with and supported by our integrated resource plans. We have issued requests for proposals for additional owned resources at and with more to come from other operating companies in the near future as we listen, learn and respond to state preferences. I'd like to turn to updates on our ongoing regulatory and legislative initiatives. We've been engaged in efforts across our service territory to close the authorized versus earned gap. Our third quarter ROE came in at 8.7%, driven in part by the unfavorable weather in the first half of 2023 that I mentioned earlier, which depressed this measure by 40 basis points. While this is a modest improvement over last quarter, we are aware that more can be done and more needs to be done on this front. Closing the gap will remain a primary focus into 2024 as we keep federal, state, and customer preferences top of mind, along with meeting the needs of our communities. We remain focused on reducing the gap going into year end while still meeting our earnings guidance. To that end, I'm happy to confirm that we have settlements in place for APCO Virginia's 2020 to 2022 triennial and AP Ohio's ESP5, both cases which were filed earlier this year. We're awaiting commission decisions in these states and Virginia's order is expected in the fourth quarter of this year and Ohio's will likely be issued in the first quarter of 2024. In addition, we filed new base cases in Indiana and Michigan in the third quarter. In both filings, we requested a 10.5% ROE and case drivers included distribution, investment in technology, enhanced reliability, and grid modernization using 2024 forecasted test years. We anticipate the new rates will be in effect next year. The team has been active on the legislative front with Texas legislation passed in June, allowing utilities to file the Distribution Cost Recovery Factor Mechanism, or DCRF, twice per year instead of once per year. This legislation also allows the DCRF mechanism to be used by a utility, even if it has a pending rate case proceeding underway. Consequently, the legislation will help improve AAP's regulatory lag in Texas, to the tune of approximately 50 basis points and earned ROE starting in 2024. In fact, our April 2023 DCRF filing was approved and rates went into effect in September. For Kentucky Power, our June 2023 base case application incorporated a comprehensive rate review, a 9.9% ROE, and a request to allow for the securitization of $471 million of regulatory assets ensuring Kentucky Power's best position to provide safe and reliable service while managing costs. Constructive intervener testimony was filed in October, including support for securitization. By statute, implementation of interim rates is permissible in January 2024. Moving to PSO, you'll recall that in May we reached a settlement with the Commission staff, the Attorney General, and other parties in Oklahoma's PSO base case which included a 9.5% ROE and provided for approval for more efficient cost recovery mechanisms. We implemented the interim rates in June while we await a commission order, which is expected any time now. As you know, the management of fuel cost recovery is a top priority with AP's deferred fuel balance across our vertically integrated utilities shrinking sequentially and totaling $1.2 billion as of the end of the third quarter of this year. We have worked with stakeholders to intentionally adapt our fuel cost recovery mechanisms across our jurisdictions with the objective being to balance cost recovery with customer impacts. The West Virginia fuel proceeding is approaching resolution. Recall in our April 2023 fuel recovery application, we filed two options for consideration. One option amortizes the fuel balance over three years. In the second option, we respectfully set forth for the West Virginia Commission consideration the use of the 2023 securitization legislation to manage our $553 million deferred fuel balance along with securitizing storm cost balances and net plant balances of generation assets. The generation assets are currently embedded in rates and assumed to operate through 2040 and securitizing those assets nearly fully offsets the fuel cost recovery impacts to customers. We appreciate the engagement with all the stakeholder participant parties as we work toward a conclusion in this case by year end and a constructive path forward for West Virginia. More detail on regulated activities can be found in the appendix on slides through 35 through 38. I'm pleased with the progress we've made this quarter and by the great work underway to actively manage the business. deliver on our commitments, and create value for our investors, all while keeping affordability and reliability for our customers at the center of everything we do. We have a strong team in place, and I'm confident that we'll continue to execute on our strategic priorities and advance our capital investment plan to deliver reliable, affordable power to our customers. I look forward to seeing many of you in person at the EDI conference in a couple weeks. At the conference in Phoenix, we'll provide some additional color on our business strategy, share our 2024 guidance and other financial details, including our 2024 through 2028 capital plan and related five-year cash flows. Now, with that, I'll hand it off to Chuck, who'll walk through the performance drivers and details supporting our financial targets. Chuck?