The paragraph is an introduction to the American Electric Power's Third Quarter 2024 Earnings Call. The conference operator, Danica, opens the call and introduces Darcy Reese, Vice-President of Investor Relations, who welcomes participants and provides information about the earnings release and related materials on their website. Darcy announces that forward-looking statements will be made and refers to SEC filings for potential risks. She introduces the key speakers, Bill Fehrman, the President and CEO, and Chuck Zebula, the CFO. Bill opens with an introduction, mentioning it's his first earnings call as CEO, and outlines the topics he will discuss, including results, strategy, and regulatory updates, before handing over to Chuck for financial details.

The author, who has a career background in the utility and energy business, recently joined AEP as CEO after working at Berkshire Hathaway Energy. They have met with stakeholders, including governors, regulators, and the AEP team across 11 states. The CEO sees opportunities to improve reliability, cost efficiency, and technology use. AEP's transmission system forms a significant part of its earnings. The CEO reports third-quarter 2024 operating earnings of $1.85 per share and narrows the annual earnings guidance to $5.58 to $5.68. They also introduce a 2025 earnings guidance range of $5.75 to $5.95.

In the paragraph, the new CEO of AEP outlines the 2025 earnings guidance, emphasizing growth in regulated utilities, despite lower contributions from the generation and marketing segment. The CEO commits to improving performance by 2026 through optimization and restructuring. AEP aims to enhance customer service and stakeholder relations, focusing on reliability, vegetation management, and infrastructure upgrades. AEP reveals a new long-term earnings growth rate of 6% to 8% from a 2025 base, supported by an increased $54 billion capital plan for 2025-2029, offering further potential for $10 billion in additional infrastructure investments to meet load growth.

The paragraph discusses the company's investment plans and financial strategies, emphasizing an expected 8% rate base CAGR and a projected annual increase in customer rates of less than 3% from 2025 to 2029. The company aims to maintain a strong balance sheet to support capital growth, exploring asset monetization if beneficial, and detailed plans are available in an appendix. Organizational changes have been made to improve efficiency, with direct reporting lines for key roles and a streamlined leadership structure to enhance decision-making and performance.

The paragraph discusses AEP's strategic focus on growth, financial strength, and customer service, driven by data center demand leading to commitments for 20 gigawatts of load additions by 2029. AEP has updated its load growth forecast through 2027, noting significant commercial load growth, particularly in Ohio, Texas, and Indiana. To support this growth while ensuring affordability and fair cost allocation, AEP has filed various tariffs and a complaint with FERC. The company emphasizes that fair cost distribution is critical for benefiting all stakeholders. Additionally, AEP aims to enhance customer service by leveraging technology to improve service reliability, reduce outages, and transform processes for greater efficiency and accountability.

The paragraph discusses a company's strategy focused on regulatory integrity and collaboration with states to balance renewable and traditional energy sources, while ensuring affordability and reliability. The company emphasizes aligning its structure to meet state preferences and improving returns on equity (ROEs). Recent regulatory achievements include settlements in Texas and Oklahoma, with approved ROEs, and pending decisions in Virginia. The company aims for positive regulatory outcomes by working closely with stakeholders to advance system reliability and security.

APCO has refiled its base case in West Virginia, proposing a 10.8% ROE and offering securitization to mitigate a proposed $250.5 million rate increase. This involves $2.4 billion of undepreciated plant balances and various expenses, potentially reducing the rate base by $1.9 billion. The company aims to redeploy capital based on the Commission's securitization preference but has not included this in its five-year plans, emphasizing it as an alternative for minimizing customer impact. The initial filing rejection led to increased internal checks and leadership changes. Additionally, SWEPCO updated rates for Louisiana and Arkansas, and I&M is planning RFPs for 4,000 megawatts of generation resources to meet new load demand, with regulatory filings expected in 2025. There is progress, but further regulatory work is needed.

The paragraph discusses AEP's ongoing efforts to engage with regulators and invest locally to meet state-specific outcomes, highlighting progress made in transforming the business over the past three months while acknowledging more work ahead. It mentions an update on a legal matter involving discussions with the SEC over a $19 million loss contingency recorded in the third quarter, with no further comments on the active investigation. The speaker expresses confidence in AEP's growth potential and commitment to providing reliable and affordable service. They look forward to discussing financial plans at an upcoming EEI event. Chuck Zebula then takes over to discuss third-quarter results, noting a GAAP to operating earnings comparison.

In the third quarter, GAAP earnings were $1.80 per share, slightly down from $1.83 per share in 2023, but year-to-date earnings rose to $4.35 per share from $3.62 last year. Operating earnings for the third quarter were $1.85 per share, or $985 million, up from $1.77 per share, or $924 million, in the same period last year. The vertically integrated utilities segment saw an increase due to rate changes and higher retail sales, despite higher depreciation and O&M costs. The transmission and distribution utility segment also grew due to rate changes and higher transmission revenue, while the AEP transmission Holdco and generation and marketing segments experienced modest increases. However, the Corporate and Other segment faced declines due to higher interest expenses and taxes. A detailed reconciliation of these earnings is available in the company's presentation.

The paragraph reports a significant year-to-date increase in operating earnings, with a rise from $4.02 to $4.38 per share, marking a 9% growth. Weather-normalized retail sales have grown by 2.1% in Q3, continuing a 14-quarter trend of load growth, with an overall 2.9% increase year-to-date. Residential sales have declined but are compensated by a 10.1% rise in commercial sales due to developments in data centers and AI. Industrial sales also grew, driven by investments in energy, manufacturing, and primary metals, with a notable 5% growth in Texas. Forecasts for 2025 suggest an 8.3% sales increase, led by double-digit commercial growth, particularly in Ohio, Indiana, and Texas, with major gains predicted in AEP Ohio, AEP Texas, and I&M commercial sales.

The paragraph discusses projected growth in industrial sales, driven primarily by economic development in Texas, with an expected increase of 1.6% next year. This growth is supported by large energy and manufacturing projects with signed financial commitments and take or pay contracts, ensuring customers pay for a minimum power amount. An estimated 20 gigawatts of additional load is anticipated by the end of the decade, marking a 60% increase in peak load since last year's 35-gigawatt summer peak. This increase is expected to boost consistent retail growth above 8% over the next three years, primarily fueled by significant commercial and industrial load expansions, especially in Ohio, Indiana, and Texas. This growth marks a significant and transformative period for the company.

The paragraph discusses AEP's financial metrics and forecasts. The FFO to Debt Metric increased to 14.7%, and the debt-to-cap ratio slightly decreased to 62.1%. Moody's plans to alter its treatment of deferred fuel impacts, but AEP's credit view remains stable, exceeding the downgrade threshold of 13%. AEP aims to maintain an FFO-to-debt range of 14% to 15%. Liquidity is strong with $5.5 billion and $6 billion in credit facilities. The pension fund is stable at 99% funding. AEP tightened its 2024 earnings guidance to $558-$568 per share and completed a sale for $320 million. The 2025 earnings guidance range is set at $575-$595 per share, reflecting a 4% growth from 2024's midpoint.

The paragraph outlines a company's financial strategy and projections for 2025, emphasizing growth in regulated businesses and lower contributions from the generation and marketing segment. The company anticipates improved performance in its utility segment by aligning with regulators and targets a long-term growth rate of 6% to 8% from the 2025 guidance midpoint. This growth is underpinned by a $54 billion capital plan, primarily focused on wires and new generation, leading to an expected five-year rate base CAGR of nearly 8%. The forecast, detailed on Slide 14, involves equity and portfolio optimization, and tax credit monetization. The company plans to decouple its dividend growth from earnings growth, aiming for a lower dividend payout ratio of 55% to 65%.

The paragraph discusses AEP's financial strategy and future growth plans. They aim to retain additional cash flow to support capital plans and growth while ensuring competitive shareholder returns. Access to capital markets and maintaining an investment-grade balance sheet are essential. In a call, Shar Pourezza from Guggenheim Partners inquires about potential growth beyond the 6% to 8% rate, specifically in cost management and customer commitments from data centers. William Fehrman acknowledges the focus on cost reduction, mentioning a voluntary separation plan to counteract inflation and the hiring of a transformation expert to streamline operations and enhance management efficiency.

The paragraph discusses the company's efforts to streamline operations by reducing bureaucracy and improving efficiency. It mentions the goal of generating 20 gigawatts of power, with 12 gigawatts planned for the first three years. The company has a $54 billion capital plan and sees significant growth potential. They need to raise $5.35 billion in equity, potentially through asset sales or instruments that provide equity credit. The company is also looking to decouple dividend growth from earnings growth to lower the payout ratio.

The paragraph discusses the company's approach to improving regulatory relations and financial performance for its utilities. They are looking into various monetization opportunities and foresee needing equity support by 2025. In response to Steve Fleischman's question about earned returns, William Fehrman mentions aiming for a 9.1% return on equity for regulated utilities. He emphasizes the importance of understanding and meeting state regulators' goals to improve relationships and potentially achieve better outcomes, including returns on equity. Additionally, the company plans to enhance customer service by investing in distribution infrastructure, vegetation management, and reducing outage times.

In the paragraph, the speaker discusses their efforts to improve relationships with regulators in seven states over the past three months. They mention their recent filing in West Virginia, expressing dissatisfaction with their previous filing's quality and noting internal changes made to address these issues. They emphasize the importance of improving business returns. In response to Steven Fleischman's question, William Fehrman confirms that the company's credit situation is stable, temporarily below the 14 to 15 target but above the 13% downgrade threshold. Jeremy Tonet from JPMorgan inquires about data center tariffs in Ohio, and Fehrman explains that the proposal aims to prevent existing customers from being negatively impacted by increased data center loads, suggesting that data centers should cover the costs they impose on the system.

The paragraph discusses ongoing settlements involving a data center coalition and other parties, aiming for a resolution by early December. The speaker emphasizes the desire to incorporate data center growth into their Ohio system without negatively impacting existing customers, drawing on past experience with data centers. Jeremy Tonet inquires about a joint venture (JV) proposal involving AEP, FirstEnergy, and Dominion related to a transmission project. William Fehrman praises the partnership, led by Antonio Smith, and highlights the collaborative effort to effectively bid on transmission projects proposed by PJM, expressing optimism about their potential success.

The discussion revolves around the G&M segment of a business, with a projected decrease in contributions of about $0.24 for 2024 and 2025, indicating a significant change. Despite this, there is an anticipation of improvement in other business lines and a focus on transmission projects. The potential for asset sales is acknowledged, but specifics will be disclosed at appropriate times. Jeremy Tonet and David Arcaro raise questions about the performance and future prospects, including the 2026 EPS outlook and the G&M earnings contribution, which may imply a sale or exit from those businesses. William Fehrman addresses these inquiries, suggesting there might be some misunderstanding due to unclear slides.

The paragraph is a conversation during a discussion on future investments and capital expenditures (CapEx) with a focus on incremental new generation, primarily gas, and related requests for proposals (RFPs). William Fehrman notes ongoing gas projects and the potential for economic development in states like West Virginia. David Arcaro from the audience expresses understanding and appreciation, while Julien Dumoulin-Smith seeks clarification on expectations for the G&M segment post-2025. The conversation emphasizes the excitement about upcoming opportunities and further insights expected at the EEI meeting.

In the paragraph, William Fehrman discusses the potential opportunities for adopting 765kV transmission lines across various regional transmission organizations (RTOs), including ERCOT, PJM, and SVP. He highlights a significant opportunity for AEP, particularly in the Permian area in Texas, estimating a $4 billion to $5 billion potential in this sector. Fehrman notes that AEP's experience and expertise in building and operating 765kV infrastructure provide a competitive advantage. He expresses excitement about engaging with other regions like MISO as they seek to enhance their energy transmission capabilities.

In the paragraph, William Fehrman discusses the utility's efforts to moderate its Return on Equity (ROE) to 9.1, despite an accelerating load. He clarifies that there is no purposeful reason for this adjustment but mentions the need to improve ROE by working closely with regulators. They also aim to reach a 9.3 ROE when including the transmission component. The utility is focused on enhancing customer service and reliability, particularly after addressing past issues in West Virginia. Fehrman emphasizes their commitment to improving customer service and has updated the board on these plans. Following his comments, Nicholas Campanella from Barclays asks about generation and working with regulators, mentioning the potential role of gas and nuclear in meeting higher load demands.

The paragraph discusses William Fehrman's perspective on integrating nuclear power into AEP's strategy. He acknowledges that while many customers are pursuing nuclear projects, they are long-term endeavors. AEP is committed to working with customers and developers on small modular reactors but emphasizes the need for extensive risk mitigation, involving federal and state governments, customers, and AEP. Fehrman mentions monitoring various nuclear developments in Canada, Romania, and at TVA. AEP is ready to deliver if there's demand from customers and states, and Fehrman is optimistic about a few designs passing the regulatory process. Nicholas Campanella further inquires about AEP's growth and potential for increased capital expenditure.

The paragraph features a discussion about financial growth projections, specifically in a 6% to 8% range based on a 2025 midpoint. Charles Zebula expresses that while the growth will adhere to this range, it won't be strictly linear, suggesting fluctuations year by year. Nicholas Campanella finds this clarification helpful. Carly Davenport from Goldman Sachs asks about the increased capital plans for transmission and whether opportunities in PJM represent additional growth beyond the current plan. Zebula confirms that these opportunities are indeed potential additional benefits not yet included in the existing plan and mentions pursuing about $10 billion in transmission and new generation projects across multiple regions, including PJM, ERCOT, MISO, and SPP.

In the article paragraph, Charles Zebula discusses dividend growth in relation to long-term earnings growth, indicating an intention to decouple dividend growth from earnings growth. The company is targeting a payout ratio of 55% to 65%, down from the previous 60% to 70%. Currently, the payout ratio is around 63% to 64%. This adjustment aims to maintain a competitive total shareholder return. Andrew Wiesel asks about the timeline for reducing the payout ratio to around 60% and whether dividend growth will align with the 6% to 8% earnings growth rate. Zebula explains that any changes will be gradual as the board makes decisions. Additionally, Wiesel inquires about equity, specifically regarding a $100 million annual dividend reinvestment program (DRIP), and notes that asset sales or other strategies might reduce the need for it.

In the discussion, Charles Zebula addresses questions about equity and funding strategies over the next few years. He emphasizes the need for equity support in 2025 and 2026 to meet credit metrics and suggests looking at last year's financial shape for guidance. He does not provide specifics on the share count for 2025 but mentions potential follow-up discussions. William Appicelli from UBS inquires about the role of tax credits in funding. Zebula explains that the utilization of tax credits is primarily for funding purposes, is neutral to earnings, and amounts to about $300 million annually from 2025 to 2027. He notes potential larger credits in later years with solar projects.

In the article, William Appicelli and Charles Zebula discuss the sales outlook for the residential sector, noting a trend of reduced usage despite increased customer counts in certain states, likely due to factors like people returning to work, inflation, and energy efficiency measures. They anticipate a stabilization in usage. William Fehrman addresses colocation issues, emphasizing that users of the transmission system should pay for it to prevent cost shifts to other customers, stating their concerns as the issue progresses through the FERC decision-making process.

In this excerpt, the conversation centers around the principle that users of the transmission system should pay for it. Charles Zebula and Anthony Crowdell discuss the Return on Equity (ROE) improvements, suggesting that they should be factored into expectations for the coming year, with regulated utilities and Transco anticipated to reach specific percentage ranges. The load growth driven by data centers is acknowledged as a significant factor, though there are challenges in connecting these large customers quickly due to supply chain and labor issues. The company is working on solutions to meet the demand in a timely manner.

The paragraph discusses a company's long-term strategy to connect data centers to its system, while noting no significant supply chain issues projected at this time despite high demand. Anthony Crowdell from EEI and Ryan Levine from Citi pose questions. William Fehrman assures confidence in load forecasts due to signed contracts and ongoing economic development discussions. Levine also inquires about the impact of potential federal tax rate changes on free cash flow and credit, as well as exposure to tariffs concerning their generation buildout plan.

In the paragraph, William Fehrman mentions the need to assess the platform of the new administration over time. Ryan Levine thanks him for addressing the questions. Darcy Reese wraps up the call, noting that the Investor Relations team is available for further inquiries. The operator concludes by providing the replay information for the conference call, including a toll-free phone number and playback ID, and announces the end of the call.

This summary was generated with AI and may contain some inaccuracies.