The paragraph is a transcript from the American Electric Power (AEP) First Quarter 2025 Earnings Call. The operator, Regina, introduces the call and hands it over to Darcy Reese, Vice President of Investor Relations. Darcy welcomes everyone, mentions that a live webcast and slide presentation are available, and introduces key executives present, including Bill Fehrman (CEO) and Trevor Mihalik (CFO). She notes that forward-looking statements will be made, with accompanying risks discussed in SEC filings. Bill Fehrman then delivers his remarks, highlighting strong early-year performance, strategic growth initiatives, improved customer experiences, and positive regulatory outcomes.

The company is committed to investing $54 billion over the next five years to serve 5.6 million customers across 11 states, with minimal tariff exposure on this investment. They boast a substantial energy generation portfolio and a large transmission and distribution network, owning more 765kV transmission lines than other U.S. utilities. Recently, they were awarded a project to build a 765kV line in Texas. They are promoting economic development in growing states such as Indiana, Ohio, Oklahoma, and Texas, aiming for a 10% to 12% annual shareholder return. The company reported first quarter 2025 operating earnings of $1.54 per share, totaling $823 million. Future discussions will cover financial results, strategic growth opportunities, and regulatory successes, with further details from Trevor later.

The paragraph outlines AEP's reaffirmation of its 2025 operating earnings guidance of $5.75 to $5.95 per share and its long-term growth rate of 6% to 8%. This is supported by a $54 billion five-year capital plan and potential incremental investments of up to $10 billion. The company emphasizes the importance of maintaining a strong balance sheet and efficient capital sourcing to support growth opportunities, particularly due to the increasing demand in its service areas. AEP has experienced significant growth in commercial load, with a 12.3% increase in the first quarter of 2025 compared to the previous year. Looking ahead, AEP expects further growth driven by increased demand from data centers and other sectors, with plans to invest in infrastructure to support this growth. The company's capital plan anticipates over 20 gigawatts of incremental load by 2030 and commits to fair cost allocation for this increase.

The paragraph discusses the proactive filing and approval of data center and large load tariffs across several states to support economic development and attract large power consumers. This initiative is backed by significant investments, potentially up to $10 billion, aimed at meeting growing demand with improvements in transmission, distribution, and new generation infrastructure. The paragraph highlights the company's advanced 40,000-mile transmission system, which includes the largest 765kV and 345kV lines in the nation, as a key factor in attracting large-scale power users. Additionally, ongoing investments in distribution infrastructure, such as poles, conductors, and automated technologies, aim to enhance operational efficiency, customer satisfaction, and system resilience.

The paragraph outlines AEP's efforts to meet increasing energy demand by collaborating with stakeholders and investing in new generation technologies such as small modular reactors (SMRs) in Indiana and Virginia. The company has filed integrated resource plans (IRPs) in Arkansas and Indiana, with further filings planned for several other states to support energy needs and meet generating capacity obligations. AEP is capitalizing on the growing demand for power, and its strategic engagement with regulators and stakeholders has resulted in positive regulatory developments and financial performance. They have already secured approximately 80% of their rate-related revenue for 2025, and their first-quarter return on equity (ROE) for regulated businesses improved to 9.3% from 9.05% at the previous year-end.

The paragraph discusses recent regulatory successes and initiatives by AEP and its affiliates. These include approval for a 765kV transmission line in Texas and various transmission system upgrades. The company has secured approval for system resiliency plans, rate cases, and transmission expense recovery in several states. It has also filed a base case in Arkansas for a $114 million rate increase to support wind projects, with an ROE request of 10.9%. There are ongoing proceedings in West Virginia concerning a proposed $250 million rate increase, utilizing securitization to mitigate bill impacts. AEP is focused on reducing regulatory lag, making timely filings, and plans to acquire an 870-megawatt natural gas plant in Ohio by 2026 to maintain reliable and affordable energy for customers.

The paragraph discusses the company's legislative efforts to improve energy recovery and customer affordability, highlighting specific policy changes in Ohio and Virginia. In Ohio, House Bill 15 introduces multiyear forward-looking test years and includes provisions for fuel cell contracts, while in Virginia, securitization legislation aims to lower customer bills and fund system investments. The company is engaging with federal and state policymakers to modernize the energy grid, with a focus on delivering safe, affordable, and reliable energy. The paragraph ends with Bill expressing confidence in the company's growth potential before handing over to Trevor, who will discuss financial results, including a successful $2.3 billion forward equity issuance and thoughts on federal tax legislation.

In the recent quarter, AEP Ohio recorded a $28 million charge due to Ohio House Bill 15, eliminating their ability to recover or gain from OVEC power sales, which previously allowed $40 million in customer recoveries. The expected future earnings impact is less than $10 million annually due to PJM capacity prices. Operating earnings rose to $1.54 per share from $1.27 per share in 2024, a 20% increase, largely driven by cold weather. The vertically integrated utilities segment saw earnings of $0.66 per share, while the transmission and distribution utilities segment earned $0.36 per share, both experiencing increases due to favorable weather and rate adjustments.

The paragraph discusses the favorable drivers and financial performance of AEP's segments, noting rate changes, favorable weather, and increased transmission revenue, leading to higher earnings per share. Specifically, the AEP Transmission Holdco segment and generation and marketing showed improvements. Corporate and Other benefited from timing of income taxes. The company is seeing significant increases in load across its system, driven by new data centers from Amazon and Google and industrial growth, allowing for up to $10 billion in additional capital investments. As a result, AEP anticipates retail sales growth to nearly triple from 2024 to 2025, marking the largest acceleration since the 1960s, with expectations of continued strong growth through 2027.

The article discusses a projected increase in energy demand, estimating an addition of about 52 million megawatt hours, nearly a 30% rise from the current load of 182 million megawatt hours. The demand increase is largely driven by commercial and industrial (C&I) customers, with their share of total retail sales expected to grow significantly. Across an 11-state area, over 500 customers have requested connections totaling 180 gigawatts, though not all will materialize. A probability-based approach is used to forecast demand, with 20 gigawatts committed to being added over the next five years. This approach ensures a conservative integration of new loads into the transmission system.

The paragraph discusses the strategy for planning and forecasting the growth in data centers and large industrial projects driven by AI, emphasizing the importance of relying on demonstrated customer demand through executed contracts. It highlights the role of electric service agreements (ESAs) and letters of agreement (LOAs) that ensure financial commitments and project seriousness, reducing risks for existing customers and investors. The company is confident in its $54 billion capital plan due to a robust contract queue and diverse demand, primarily from data centers but also from industrial sectors like steel, autos, and energy. In case of project cancellations, other customers are ready to take the capacity.

The paragraph discusses AEP's funding and financial strategies related to its capital plan through 2029. It highlights the acquisition of a minority equity interest in Ohio and I&M Transcos with KKR and PSP Investments for $2.82 billion, which is expected to close soon pending FERC approval. Additionally, AEP conducted a $2.3 billion forward equity transaction to mitigate funding risks. These actions meet the company’s anticipated equity needs for a $54 billion capital plan. It also notes that these transactions were executed at a favorable price compared to the current share price. Regarding federal tax legislation, AEP believes a retroactive repeal of the IRA is unlikely and expects protections for existing projects which would allow for efficient monetization of tax credits.

The paragraph discusses financial and strategic updates from a company's recent presentation. The company's FFO-to-debt metric is currently at 13.2% but is expected to improve due to a minority interest transaction. This transaction, alongside a recent $2.3 billion equity offering, solidifies the company's equity needs through 2029. The company reported strong first-quarter financial results and positive regulatory developments, setting the stage for success in 2025. It also highlighted growth opportunities through economic development and regulatory progress on retail tariffs. The focus remains on executing a $54 billion capital plan with a potential for an additional $10 billion in investments.

The paragraph discusses the company's reaffirmed financial goals, including their earnings guidance and growth rate targets, and highlights their confidence in achieving these by 2025. It transitions to a Q&A session, where Shar Pourreza from Guggenheim inquires about the progress in West Virginia's rate case, particularly focusing on the possibility of securitization. Bill Fehrman responds positively, noting successful regulatory outcomes and the potential benefits of securitization in reducing customer bill impacts by up to 75%, subject to the commission's decision. He expresses optimism about a favorable outcome and the ongoing collaborative efforts with stakeholders.

The paragraph discusses the strong demand for load on the transmission system, highlighting an impressive pipeline of over 500 existing and potential customers interested in connecting 180 gigawatts. Despite Microsoft's decision to delay some projects, there is no significant reduction in demand from hyperscalers, data centers, or industrial customers. The company has contracted about 6 gigawatts of industrial load, ensuring diversity and strength in its operations moving forward. Overall, the organization's current position and future prospects are viewed positively, with enthusiasm about the regulatory outcomes and the overall robust demand.

The paragraph discusses the current state and future prospects of load growth and capital investment opportunities. Despite a slower load growth in the recent quarter, with total retail and commercial sales up by 3.2% and 12% respectively, compared to higher targets for 2025, there is confidence in significant future demand and earnings growth, particularly in the latter half of the decade. While current earnings are somewhat limited due to lower profit margins from commercial and industrial (C&I) customers, the growing C&I load provides additional opportunities and enhances customer affordability. Residential customer margins are significantly larger, at approximately five times more than data center customers, and the ratio is even higher for transmission and distribution customers.

The paragraph discusses the impact of new legislation (HB15) in Ohio on a company's regulatory strategy and future investments. Aidan Kelly inquires about the shift from ESPs to NYPs and its effects. Bill Fehrman explains that the legislation, which is expected to become law soon, is beneficial as it encourages capital investment growth and customer benefits in Ohio. The new law ends ESPs, introduces a multi-year forward-looking test year with a true-up mechanism, and ensures timely recovery of investments. It also allows a seamless transition from ESP5 to the new structure, offering a significant advantage. Additionally, the legislation grandfathers two existing behind-the-meter projects with Bloom Energy for data centers.

The paragraph involves a discussion between company executives about managing challenges related to the OVEC (Ohio Valley Electric Corporation) issue and its financial impact. Trevor Mihalik explains that ending cost recovery from OVEC historically resulted in a $40 million impact, but future impacts are expected to be much smaller, around $10 million or $0.02 per share, due to upcoming capacity prices in PJM. The change is anticipated to become law by mid-August, after which cost recovery will be carried out until that date. The executives express confidence in managing the situation. Additionally, a question from David Paz addresses commercial sales projections for 2025, which are predicted to increase by at least 12% year-over-year, but suggests some uncertainty or potential delays in meeting higher targets.

In the discussion, Bill Fehrman responds to David Paz's inquiries about commercial sales and load growth projections for 2025. Fehrman highlights the positive trend of counterparties signing take-or-pay contracts, ensuring payments irrespective of load variations. He anticipates a steady increase in commercial load rather than a back-end-loaded growth, projecting a 23% increase by the end of 2025 compared to 2024. Regarding the Bloom partnership and the Ohio market, Fehrman states that the deployment schedule for the remaining one gigawatt will not be affected, and ongoing projects will continue as planned.

The paragraph discusses a company’s conversations with customers regarding the utilization of 900 megawatts of available capacity, emphasizing that there is no obligation to use the fuel cells unless it makes sense to do so. The previously contracted 100 megawatts are already secured. A question from Julien Dumoulin-Smith of Jefferies seeks clarity on a $10 billion growth opportunity and which parts of this have been approved or are in sight, along with what is needed to formally integrate these opportunities into the plan. Trevor Mihalik responds, noting that the company aims to reveal a formal growth plan annually, aligning it with load growth confidence.

The paragraph discusses the company's approach to revising its capital plan, which currently includes a $10 billion potential upside to a $54 billion plan. The revision will likely occur in the third quarter. Recently awarded projects, like $1-$2 billion in Texas transmission lines, are not included in the current plan. The $10 billion potential increase is roughly split between transmission and generation projects, with generation projects largely informed by anticipated load growth and upcoming RFPs, including potential wind and renewable projects. Opportunities exist in ERCOT and PJM, with more details to be provided in the revised five-year capital plan.

The paragraph is part of a financial discussion from a conference call involving company executives. Julien Dumoulin-Smith asks about two potential acquisitions in Oklahoma and Indiana or Ohio, and Trevor Mihalik confirms these acquisitions are part of the company's plan due to generation needs in those states. Durgesh Chopra from Evercore then inquires about the company's better-than-expected Q1 earnings, mentioning weather benefits and rate impacts as factors. Bill Fehrman responds, acknowledging the positive impact of weather and rate changes on their performance and confirms that they are on track to meet their full-year guidance range.

The paragraph discusses a company's disciplined approach to capital allocation, with a focus on operational efficiency and customer affordability. The company expresses confidence in its financial guidance and long-term growth rates, anticipating updates in the second quarter. There is a mention of regulatory outcomes that have been positive. Durgesh Chopra inquiries about the co-location process and its potential settlement, to which Bill Fehrman responds, emphasizing the importance of paying fair fees for transmission system use and following the FERC process. The paragraph concludes with Nick Campanella from Barclays asking about CapEx upside, though no specific details are provided in the text.

The paragraph discusses the company's financing strategy for a $10 billion plan, emphasizing that they have already secured most of their equity needs through previous transactions, such as the sale of Transcos and forward agreements totaling $2.3 billion, covering equity through December 2026. With these measures, the company doesn't anticipate needing additional equity funding in the near term. The potential impact of securitization in West Virginia on the company's equity needs was also mentioned, but the company plans to address any further funding requirements at a later date.

The paragraph discusses the financial strategies of a company, highlighting the benefits of securitization, which allows the company to deploy $2.4 billion in cash for growth. They also consider using hybrid financing options like junior subordinated debt and emphasize not selling more transmission assets to maintain a shareholder-friendly approach. In response to a question from Nick Campanella, Bill Fehrman addresses concerns about the potential repeal of the Inflation Reduction Act (IRA), expressing confidence that a full retroactive repeal is unlikely and that existing and anticipated tax credits through 2027 are safe harbored. The company's exposure to transferability, if impacted by changes to the IRA, is considered manageable, with about $200 million currently and averaging $300 million over the next few years.

In the discussion, Nick Campanella, Bill Fehrman, Carly Davenport, and Trevor Mihalik address the impact of recent regulatory changes on projects eligible for transferability, noting that exposure is limited to certain project categories. Carly Davenport inquires about the negative margin trend among residential (RESI) customers. Trevor Mihalik explains that while there is a slight increase in the number of residential customers, their energy consumption is declining due to efficiency measures and cost-conscious behavior following a harsh winter. This decrease is impacting margins negatively compared to commercial and industrial (C&I) customers, who are contributing more growth. However, C&I margins are lower, prompting a focus on maintaining affordable and high-quality service for residential customers to counterbalance the reduced usage.

The paragraph discusses the excitement around a new 765kV transmission project in Texas, highlighting the strong business climate and energy needs signaled by the Texas government's decision. Bill Fehrman emphasizes that his company, which pioneered 765kV transmission in the 1960s, is well-positioned to leverage this opportunity. The project, estimated at $1 billion to $2 billion, is set to begin soon and is expected to open further opportunities. The conversation then shifts to a financial query from Andrew Wiesel regarding the FFO to Debt ratio, noting a decrease from 14% last year to 13.2% on a TTM basis through March.

The paragraph involves a discussion between Andrew Wiesel and Trevor Mihalik regarding financial metrics and strategies related to their company's FFO to debt ratio. Mihalik explains that they ended the previous year with a 14% ratio under an old methodology. However, a change in methodology concerning deferred fuel reduced this figure by 40 to 50 basis points to about 13.5-13.6%. With a current standing of 13.2% for the trailing 12 months, Mihalik anticipates that a minority interest sale will boost this by 40 to 60 basis points, bringing it to 13.6-13.8%. To ultimately reach a targeted 14-15% range, the company plans to focus on efficient operations to increase the numerator of this ratio, maintaining a buffer above the 13% downgrade threshold. Additionally, Mihalik confirms that recent regulatory wins, including projects from Transource Energy and AEP Transcos, as well as Texas Resilience plans, were already considered in their CapEx plan.

In the paragraph, Trevor Mihalik, the CFO, expresses confidence in their financial plan and projects a growth rate of 6% to 8% in the long term. He acknowledges fluctuations in project inclusion within their $54 billion five-year plan but maintains overall stability. Andrew Wiesel confirms this flexibility in project planning and thanks Mihalik. Bill Fehrman, in his closing remarks, highlights excitement about future opportunities and strategies at AEP, emphasizing a robust capital plan, shareholder value, regulatory success, and strong board support. He encourages follow-up inquiries through the investor relations team.

The conference call has ended, and a replay will be available starting two hours after the call until 11:59 PM ET on May 13, 2025. To access the replay, dial 800-770-2030 or 647-362-9199 for international callers, using the conference ID 786-4240. Participants can now disconnect.

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