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    AEP
    Earnings call· Dec 2024(Q4 FY24)

    AMERICAN ELECTRIC POWER CO INC AEP

    Feb 13, 2025 Source

    Executive summary

    American Electric Power Q4 FY24 — Strong Load Growth and Capital Plan Execution

    American Electric Power delivered strong Q4 and full-year 2024 results, propelled by substantial load growth from data centers and economic development across its service territories. The company reaffirmed its 2025 EPS guidance and long-term growth rate, underpinned by a robust $54 billion capital plan and an additional $10 billion in potential incremental investments. Strategic portfolio management, including a $2.82 billion transmission asset sale, is enhancing financial flexibility to fund these growth opportunities while maintaining a strong balance sheet.

    Highlights

    5

    • Full-year 2024 operating earnings reached $5.62 per share, representing a 7% increase from $5.25 per share in 2023.

    • Reaffirmed 2025 operating earnings guidance of $5.75 to $5.95 per share and affirmed a long-term operating EPS growth rate of 6% to 8%.

    • Announced a minority interest transaction for Ohio and I&M transmission assets for $2.82 billion, valued at 2.3x rate base and 30.3x P/E.

    • Experienced significant commercial load growth of 12.3% in Q4 and 10.6% for the full-year 2024, primarily driven by data centers.

    • Identified up to $10 billion of incremental capital investment opportunities beyond the current $54 billion capital plan.

    Concerns

    2

    • Generation & Marketing segment operating earnings decreased by $0.11 per share year-over-year, impacted by asset sales, higher income taxes, and lower retail energy margins.

    • FFO to debt is expected to temporarily dip by 40-60 bps due to a revision in Moody's deferred fuel calculation, though it will remain above the 13% downgrade threshold.

    Guidance & targets

    6
    CategoryTargetConfidence
    Operating Earnings
    $5.75 to $5.95 per share
    high materiality
    High
    Long-term Operating Earnings Growth Rate
    6% to 8%
    high materiality
    High
    FFO to Debt
    14% to 15%
    high materiality
    High
    Capital Plan
    $54 billion
    high materiality
    High
    Incremental Capital Investment Opportunity
    Up to $10 billion
    high materiality
    Medium
    PJM Transmission Project Approvals
    Expected approval
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Vertically Integrated Utilities
    Operating earnings increased due to positive rate changes in multiple jurisdictions (notably Virginia and Indiana) and a return to relatively normal weather in 2024 compared to mild weather in 2023. These gains were partially offset by higher depreciation and O&M expenses.
    Operating earnings increase: $0.16 per share YoY
    		———$2.63 per share
    Transmission & Distribution Utilities
    Operating earnings improved due to increased rates in Texas and Ohio, higher transmission revenue, favorable year-over-year weather changes, and higher normalized retail sales. These were partially offset by increased property taxes, depreciation, interest expense, and O&M.
    Operating earnings increase: $0.21 per share YoY
    		———$1.51 per share
    AEP Transmission Holdco
    The increase in operating earnings was primarily driven by continued investment in transmission assets to support new loads on the system.
    Operating earnings increase: $0.08 per share YoY
    		———$1.51 per share
    Generation and Marketing
    Reduced contribution was primarily due to the sale of universal scale assets in Q3 2023, higher income taxes, and lower retail energy margins. These negative impacts were partially offset by lower interest expense and higher wholesale margins.
    Operating earnings decrease: $0.11 per share YoY
    		———$0.48 per share
    Corporate and Other
    Saw a benefit driven by lower income taxes and O&M, partially offset by higher net interest expense.
    		———$0.03 per share

    Operational metrics

    24
    Operating Earnings
    $1.24$0.01 improvement vs. prior year
    Q4 FY24

    Fourth quarter operating earnings.

    Operating Earnings
    $5.62Up $0.37 (7%) vs. $5.25 per share in FY23
    FY24

    Full year operating earnings.

    Incremental Rate Changes Impact on Q4 Operating Earnings
    $0.22
    Q4 FY24

    Impact from incremental rate changes across multiple jurisdictions.

    Commercial Load Growth
    12.3%YoY
    Q4 FY24

    Driven by data center demand.

    Commercial Load Growth
    10.6%YoY
    FY24

    Driven by data center demand.

    System-wide Data Processing Load
    1.3 millionNew high
    December 2024

    Reflects growing data center demand.

    Industrial Load Growth
    402,000
    FY24

    Resilient industrial load growth.

    Industrial Load Growth
    5%
    FY24

    Strong growth in Texas.

    Available Liquidity
    $4.6 billion
    Current

    Strong liquidity position.

    Original Equity Needs
    $5.35 billion
    5-year period

    Equity needs laid out last year at EEI.

    Equity Needs Remaining After Transmission Sale
    $2.5 billion
    Remaining 4 years

    Remaining equity needs after the $2.82 billion transmission asset sale.

    DRIP Contribution to Equity Needs
    $500 million$100 million per year
    5-year period

    Contribution from the Dividend Reinvestment Plan.

    Equity Needs Remaining After Sale and DRIP
    $2 billion
    Remaining 4 years

    Manageable remaining equity need after accounting for the transmission sale and DRIP.

    ATM Issued
    $400 million
    YTD

    Amount issued under the At-The-Market program.

    ATM Remaining Capacity
    $1.3 billion
    Current

    Remaining capacity under the At-The-Market program.

    Transmission Sale Accretion
    1.7%
    Average to plan

    Accretion on average to the plan from the Ohio and I&M minority interest transaction.

    Transmission Sale EPS Accretion
    $0.11 to $0.12
    Full year basis

    EPS accretion from the Ohio and I&M minority interest transaction.

    Transmission Assets Retained Post-Sale
    95%
    Post-close

    Percentage of AEP's total transmission assets retained after the minority interest transaction.

    Net Cash Proceeds from Asset Sales
    $0.5 billion
    2024

    Proceeds from the sale of New Mexico Renewable Development solar portfolio and distributed resources business.

    Distribution System Length
    225,000
    Current

    One of the nation's largest distribution systems.

    Fuel Cell Projects Filed
    100
    Current

    First two customer projects using fuel cell technology filed for approval with the Ohio Commission.

    PSO Green Country Natural Gas Facility
    795
    Planned

    Filed for approval.

    SWEPCO Hallsville Natural Gas Plant
    450
    Planned

    Filed for approval.

    SWEPCO Welsh Natural Gas Conversion Project
    1,053
    Planned

    Filed for approval.

    Industry KPIs

    6
    MetricValueDetails
    Ffo to debt14%%
    Retail sales growth10.6%%
    Regulatory rate base growth—
    Rto market structure reviewPJM approval expected
    New gas generation builds upgrades795MW
    Contracted large load capacity esas loas20GW

    Orderbook & backlog

    6
    Customer Commitments for Incremental Load20 GW2030

    Driven by data center demand, reshoring, and manufacturing.

    Data Processing Load Contracted to Begin ServiceNearly 5 GW2025

    Almost 25% increase from 2024

    Backed by signed customer financial obligations and take-or-pay contracts; accepted by certain RTOs (e.g., PJM).

    Commercial and Industrial Load Additions ContractedMore than 20 GWEnd of decade

    Roughly half in ERCOT and the other half spread across PJM companies.

    Hyperscale Data Center Load AddedAlmost 450 MWDecember 2024

    In Ohio alone, from AWS and Meta.

    Data Processing Load Contracted to Come OnlineNearly 1 GW2025

    In Indiana, including AWS and Google.

    Incremental Transmission Awards Opportunity$4 billion to $5 billionNear term

    In AEP's 3 primary RTOs, recently approved or expected to be approved.

    Deals & partnerships

    4
    KKR and PSP InvestmentsSale of minority interest in Ohio and I&M transmission business$2.82 billion

    AEP will still retain 95% of its total transmission assets post-close. Filed for FERC approval.

    New Mexico Renewable DevelopmentSale of solar portfolio and distributed resources business$0.5 billion

    Transaction closed in 2024.

    Bloom EnergyPartnership related to fuel cells for large customers

    Enables large customers to quickly power their operations while the grid is built out. Fuel cells can serve as backup generation. AEP Ohio filed for approval of the first two customer projects totaling 100 MW using this technology.

    U.S. Department of EnergySupport for early site permit process for Small Modular Reactors (SMRs)

    Exploring two potential SMR locations, one in Indiana and the other in Virginia, with a focus on appropriate risk sharing.

    Capital programs

    3
    Multi-year Capital Planunderway$54 billion
    Funding: Responsibly financed from a position of strength
    Start: 2025

    Benefit: Support customer needs, enhance reliability, deliver on growing energy demand

    Robust capital plan reinforcing long-term operating earnings growth rate.

    Distribution Infrastructure InvestmentunderwayMore than $13 billion
    Start: Current

    Benefit: Harden/replace poles, conductors, transformers; deploy automated technologies (AMI, Grid smart); improve reliability, reduce outages, strengthen system resilience, reduce O&M costs

    Investment across distribution infrastructure to better meet customer energy needs and improve customer service.

    Incremental Capital UpsideevaluatingUp to $10 billion
    Start: Current

    Benefit: Additional transmission, distribution, and generation infrastructure

    Potential incremental investment driven by growing demand, not included in the current $54 billion capital plan. Includes $4B-$5B in transmission awards and remainder in T&D and generation.

    Risks & headwinds

    4
    Regulatory Outcome for West Virginia Rate CaseCommission decision expected Q3 2025

    Potential base rate increase

    Mitigation: Offering securitization as a concept to help mitigate the proposed base rate increase; collaborating with stakeholders for a positive outcome.

    Regulatory Decisions on Data Center TariffsCommission decision by Q3 2025 for Ohio; near future for Indiana and West Virginia

    Potential for unfavorable rulings

    Mitigation: Proactively filed data center tariffs and large load tariff modifications; aiming for fair cost allocation to new load drivers to protect existing customers.

    SMR Technology Risk SharingLong-term

    Unquantified risk from first-of-a-kind technology

    Mitigation: Laying groundwork for SMRs only with appropriate risk sharing to protect shareholders and customers.

    Moody's Deferred Fuel Calculation Revision Impact on FFO to DebtCurrent year (2025)

    40-60 bps drop in FFO to debt

    Mitigation: Expected to roll off by 2026; FFO to debt will remain above the 13% downgrade threshold; commitment to strong balance sheet and credit metrics.

    What to watch in Q1 FY25

    3

    PJM Transmission Project Approvals

    Q1 2025
    CurrentJoint planning agreements announced
    TargetPJM approval received

    Why it matters

    Approval of these projects would represent upside to the current capital plan, driving future growth.

    We expect PJM approval in the first quarter on those projects. And so again, as Trevor noted, all of those, if they would come to fruition, would be upside.

    Q&A highlights

    6

    Inquired about the sustainability of FFO to debt targets and the strategy for financing the remaining $2.5 billion equity need after the transmission asset sale.

    Management confirmed targeting FFO to debt in the 14-15% range, acknowledging a temporary dip due to Moody's deferred fuel calculation but staying above the 13% threshold. For the remaining $2 billion equity need (after DRIP), options include securitization, hybrids, and potential judicious equity issuance for growth.

    “But we'll also utilize hybrids or other equity-like instruments. And then if we need to issue equity, we could do that, and I'm not opposed to issuing equity for growth, and we have a growth plan that is incredible here, especially articulating around that incremental $10 billion, but we want to be very judicious with issuing equity, but we think there's a lot of different levers that we can pull, securitization, hybrids and then potentially, over the longer term, if we had to issue incremental equity, we would consider that.”

    asked by Shahriar Pourreza (Guggenheim Partners) · answered by Trevor Mihalik

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Focus and Leadership Transition

    Bill Fehrman, in his first 6 months as CEO, expressed excitement about AEP's value proposition and commitment to execution and accountability. He highlighted efforts to streamline the leadership structure, eliminate management layers, and improve procurement processes. The company introduced Trevor Mihalik as the new CFO, an industry veteran, and acknowledged Chuck Zebula's 25 years of service ahead of his retirement.

    02

    Portfolio Management and Capital Rotation

    AEP announced a minority interest transaction for its Ohio and I&M transmission business with KKR and PSP Investments for $2.82 billion. This transaction, expected to close in H2 2025, is highly accretive and allows AEP to rotate capital into customer-benefiting investments. Additionally, the company recycled $0.5 billion in net cash proceeds in 2024 through the sale of its New Mexico Renewable Development solar portfolio and distributed resources business.

    03

    Future Growth Drivers and Distribution Investment

    AEP's future growth is driven by large load (including data centers, reshoring, and manufacturing), economic development, and investments in transmission and distribution infrastructure, and new generation. The capital plan includes commitments for 20 GW of incremental load by 2030. Over $13 billion will be invested over the next 5 years in distribution infrastructure to harden assets, deploy automated technologies, and improve reliability and customer service across AEP's 225,000 distribution miles.

    04

    Innovative Customer Solutions and SMR Exploration

    AEP is actively pursuing innovative solutions for growing energy demand, including a partnership with Bloom Energy for fuel cells. AEP Ohio has filed for approval of the first two customer projects using this technology, totaling 100 MW, to enable rapid power-up for large customers. The company is also exploring Small Modular Reactors (SMRs), supporting early site permit processes in Indiana and Virginia, with a focus on appropriate risk sharing for this emerging technology.

    05

    Regulatory Engagements and Generation Plans

    AEP is engaged with stakeholders across its 11 states to deliver on commitments, aiming to improve earned ROEs and increase equity layers. The company achieved constructive base rate case outcomes in Indiana, Michigan, Oklahoma, Texas, and Virginia in 2024. AEP has also filed for approval of new natural gas facilities in PSO (795 MW) and SWEPCO (450 MW plant, 1,053 MW conversion), alongside ongoing RFPs and future Integrated Resource Plan filings to meet capacity obligations.

    AI-generated summary of the company’s earnings call. Not investment advice.