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At more than 40,000 miles long, the Columbus, Ohio-based company's electricity transmission system is the nation's largest. AEP supplies power to about 5.5 million customers in 11 states.

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F500 2021-204-American Electric Power

One of the largest electric power providers in the U.S., the utility owns more than 40,000 miles of transmission lines. The company provides electricity to 5.4 million customers in 11 states. American Electric Power is based in Columbus, Ohio.

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American Electric Power (AEP) is one of the largest investor-owned electric utility holding companies in the U.S., engaged in the generation, transmission, and distribution of electricity for retail and wholesale customers through multiple operating segments. The company operates an extensive infrastructure, including approximately 225,000 circuit miles of distribution lines and 40,000 miles of transmission lines, and maintains a diverse generation portfolio spanning coal, natural gas, nuclear, hydropower, solar, wind, and battery storage. AEP is executing a five-year, $54 billion capital investment plan focused on expanding and modernizing the power grid, supporting over 20 gigawatts of new power demand expected by the end of the decade.

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American Electric Power (AEP): Company Profile, Stock Price, News, Rankings

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American Electric Power

american electric power

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's American Electric Power Second Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. I would now like to turn the call over to Darcy Reiss, Vice President of Investor Relations. Darcy?

Good morning, and welcome to American Electric Power's second quarter twenty twenty five earnings call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. Joining me today are Bill Furman, president and chief executive officer, and Trevor Mihalik, executive vice president and chief financial officer. In addition, we have other members of our management team in the room to answer questions if needed, including Kate Sturges, Senior Vice President and Chief Accounting Officer. We will be making forward looking statements during the call.

Actual results may differ materially from those projected in any forward looking statement we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We will take your questions following opening remarks. Please turn to slide four and let me hand the call over to Bill.

Thank you, Darcy. Good morning and welcome to American Electric Power's second quarter twenty twenty five earnings call. I'm extremely proud of the effort and dedication that our team has put forward, resulting in significant progress on our strategic objectives of delivering reliable and affordable service to our 5,600,000 customers. Before we begin, I'd like to first recognize three seasoned executives who have recently joined and solidified our leadership ranks. In May, Doug Cannon was named President of AEP Transmission to lead all aspects of our best in class, largest in the nation transmission business, which contributes 55 of AEP's total operating earnings.

Doug comes to AEP after being CEO of Berkshire Hathaway Energy's NV Energy. He understands the pace of play and disciplined leadership I want as we grow this segment of our company. We look forward to benefiting from Doug's deep industry experience and strong leadership as we prepare the business for significant growth and meeting the future demands of our customers. And this month, Rob Bernstein was named General Counsel. Rob comes to AEP after serving as General Counsel at Xcel Energy, but before that he worked with me at Berkshire Hathaway Energy for many years.

He understands the direction I want to head and how we need to get there. This is a pivotal time for AEP and Rob's legal expertise, deep business and utility background coupled with his disciplined leadership and commitment to excellence will serve us well as we continue to navigate complex operational, financial and regulatory landscapes. Finally, Johannes Eckert was named Chief Information and Technology Officer. He joins us after a very successful career at Cox Communications, where he led an expansive team that was incredibly focused on the customer, both internal and external. Johannes will lead our continuing efforts to build an efficient, innovative organization that supports the right technology to meet the ever changing needs of both our customers and the business.

We are proud to welcome these leaders who will report directly to me and support the execution of our long term strategy. Today, I'd like to discuss the ways in which we have advanced on our commitments to grow financial strength, drive operational excellence and deliver constructive regulatory and legislative outcomes. Each is a key priority that our team and I are laser focused on. We have continued to leverage our size and scale to ensure AEP is extremely well positioned for unprecedented growth and value creation. I'll begin with the key financial highlights for the quarter, cover the low growth opportunities ahead and provide additional insight into both federal and state level regulatory and legislative successes that we have delivered since the last earnings call.

Trevor will walk us through second quarter performance drivers and provide additional details surrounding AEP's financial position. Please refer to slide five of our presentation for a summary of today's remarks. Starting with our financial results, AEP delivered the strongest ever second quarter operating earnings in our 100 history. This team delivered operating earnings of $1.43 per share or $766,000,000 I am seeing significant improvement in execution, discipline and regulatory outcomes that is fueling this performance. With added strength to the management team as previously discussed, I fully expect us to continue building on these levels of results.

My confidence in this management team and workforce across AEP is incredibly strong. I see the culture changing to one of accountability, performance and trust in each other and we are fortunate to also have exceptional support from our Board of Directors. Our future is very bright and with strong results halfway through the year, we are now guiding to the upper half of our $5.75 to $5.95 per share operating earnings range. Additionally, with the robust capital plan, we are seeing a continued path and are reaffirming our long term operating earnings growth rate of 6% to 8%. My confidence in our ability to execute is very high.

This is critically important as we look to the future and the growth that is in front of us. Specifically, we are executing on our $54,000,000,000 capital plan and expect to announce a new five year capital plan this fall of approximately $70,000,000,000 The incremental capital can be allocated with approximately 50% to transmission, 40% to generation and 10% to distribution. As we have previously highlighted, there have been several announcements on some seven sixty five kV transmission projects that we will incorporate into our third quarter capital plan update and look forward to providing a robust outlook later this year to support our incredible growth. Moving on to AEP's significant expansion opportunities, we are experiencing transformative load growth across our sizable 11 state footprint. We are excited about the substantial customer interest in AEP service territory and our team is taking a very disciplined approach when thinking about this new load.

We have increased our firm customer commitments and now expect to have 24 gigawatts of incremental load by the end of the decade, up from our previously reported 21 gigawatts, driven primarily by data centers, reshoring and manufacturing and further economic development. I want to emphasize these 24 gigawatts are all backed by signed customer agreements protecting us from changes in usage driven volatility. We believe this amount of committed capacity is differential compared to almost any other utility and we are well prepared to deliver on this for our customers and our states. Beyond the 24 gigawatts, customers are also actively seeking to connect approximately 190 gigawatts of additional load to our system. This is five times our current system size of 37 gigawatts.

Potential customers are drawn to AEP's footprint because of our advanced transmission network capable of delivering consistent large load power. Recall that we own and operate more ultra high voltage 765kV lines than all other utilities combined, uniquely positioning us with the largest electric transmission system in the country. Please turn to the next slide. There is a long list of accomplishments we have achieved this quarter outlined on this page. And to be very clear, we are aligning our business with the goals of our state and federal regulators, legislators and policymakers.

As previously noted, we see significant opportunities to invest in generation, transmission and distribution across our footprint and beyond. In connection with these investments, customer affordability remains top of mind as we consider how to fairly allocate costs related to critically needed infrastructure. Let's walk through a couple of noteworthy accomplishments. First, Ohio has become a recognized hub for data centers and we are actively participating in this growing economic development opportunity. Earlier this month, the Ohio Commission established enhanced financial obligations that data centers will need to undertake to fund necessary infrastructure.

This approved data center tariff provides assurances that there will be reliable electric grid infrastructure to deliver the power we all count on while keeping costs as low as possible for all customers. This approval joins other large load tariffs previously secured in Indiana, West Virginia and Kentucky. AEP has been at the forefront of securing these tariffs that bring down system average costs as we add data center customers, promote certainty around build out while providing customer protections and are a powerful risk mitigation tool for us. Moving on to Oklahoma. Following commission approval in June, PSO purchased the Green Country Power Plant, a seven ninety five megawatt natural gas fire generation facility located in Jenks, Oklahoma.

As customer energy demands rise in the region, this facility will play an important role in delivering reliable power while ensuring grid stability for the communities we serve and supporting the state's economic growth. This plant has been successfully integrated into PSO's operations and is performing well, showing AEP's strength of execution. PSO's And finally, we continue to explore innovative ways to bring tailored power solutions to our customers during this period of massively growing power demand. At AEP, we are at the forefront of innovation and small modular reactors or SMRs are just one option we are considering to provide our customers with safe, reliable and clean baseload energy. We have already shared our plans with you to begin the early site permit process for two potential SMR locations, one in Indiana and the other in Virginia, to support significant load growth in our service territory.

While this represents an exciting opportunity for us, we will continue to be extremely prudent in our capital allocation, protection of our balance sheet and credit metric strength. We are also continuing to pursue deployment of Bloom fuel cells. This is a low risk approach to bridging data center load from first power to ultimate grid connection. We are excited about this innovative solution and are in discussions with various customers about this energy supply option. Demand for power is growing at a pace I have not seen in my forty five year energy career.

This was reinforced just last week with PJM capacity prices clearing above the $325 per megawatt day price cap as we continue to see the need for capacity and energy materially rise. With AEP's generation requirements increasing to support capacity, this gives us confidence in our growing capital plan. A fundamental and core priority of mine is to continually demonstrate to our regulators and customers that we will be highly focused on safety, service, reliability and deliver balanced and constructive regulatory outcomes. I'm proud to say we've made great strides on this front. For example, AEP Texas was recently granted an ERCOT Permian Basin seven sixty five kV transmission project, opening the door for future seven sixty five kV projects.

In addition, system resiliency plans at AEP Texas and SWEPCO Texas received the green light. AEP Ohio secured approval for its Phase three GRIDSMART rider. Kentucky was authorized recovery of advanced metering infrastructure. And as previously mentioned, AEP Ohio received the data center tariff approval, while PSO was granted authority to purchase the Green Country natural gas facility in Oklahoma. These important developments reflect collaborative efforts with our regulators as we find solutions that support existing and future customers.

Additionally, in the second quarter, FERC issued orders agreeing with AEP's proposed treatment of NOLCs within its transmission formula rates, which Trevor will go into more detail shortly. A couple of our operating companies recently filed new base rate applications, including SWEPCO, Arkansas in March and AEP, Ohio in May. We look forward to working with all stakeholders in both of these cases to achieve constructive and balanced outcomes that benefit both our customers and investors. In West Virginia, late last year, APCO filed a base case and offered the option for securitization of up to $2,400,000,000 as a means to help mitigate rate impacts on the proposed base rate increase. We expect a commission order in the third quarter and appreciate the stakeholder feedback we have received during this process as we all continue to focus on customer needs and affordability.

Turning now to AEP's legislative efforts, we have also been working diligently with federal policymakers and state legislatures to deploy large amounts of capital while reducing regulatory lag. Our team has been actively engaged throughout the legislative process leading into the federal budget reconciliation bill signed into law on July 4. The bill contains several tax provisions impacting utilities primarily centered around tax credits for generation assets. To be very clear, the legislation currently supports 100% of AEP's $9,900,000,000 five year capital plan for wind and solar generation, maintaining the required criteria to capture the full tax credits. We are also closely monitoring the July 7 executive order to assess potential impacts on tax qualification.

Even if the U. S. Department of issues new guidance under the order that redefines the beginning of construction criteria, we currently expect that only a few projects at the back end of the plan may need to be reassessed for tax credit eligibility. Keep in mind that while our generation mix may vary, the load growth remains robust and we will need future generation to service the forecasted demand. So any impacted capital would just be reassigned to alternative forms of generation assets at the back end of the plan.

Texas House Bill 5,247, which became law in June, is an incredibly constructive piece of legislation for AEP Texas. This unified tracker mechanism allows utilities that meet certain criteria to submit a single filing each year instead of multiple filings for distribution and transmission investment, essentially eliminating lag, further streamlining the regulatory process and substantially improving the earned ROEs. This is highly supportive of increasing our capital allocation to Texas as we participate in the massive infrastructure build out needed to drive the economic growth in the state. With Ohio House Bill 15 taking effect in August, the new legislation eliminates electric security plans or ESPs and introduces a multiyear forward looking test year with a true up mechanism, which promotes timely and efficient recovery of investments. AEP Ohio's transition from ESPs to this new construct in 2028 will proceed seamlessly without any gap in timing since the current ESP expires concurrently when the forward looking test year rate case will take effect.

This is very positive for AEP Ohio. For Oklahoma and Senate Bill nine ninety eight, PSO views the impacts of this legislation also as very constructive. The ability to defer 90% of all distribution and general plant that goes in service between rate cases as a regulatory asset is intended to encourage investment, reduce regulatory lag and increase earnings recognition. This legislation is also effective beginning in August. I'll close by emphasizing how proud I am of all we have accomplished over the past twelve months.

This tremendous progress would not be possible without the unwavering dedication of the entire AEP team and our Board of Directors. We continue to push our strategic priorities forward and deliver for all of our customers and other stakeholders every day at a dramatically increased pace of play. This is only the beginning and I believe we are just getting started. We will continue to work at a fast pace on our commitments while remaining focused on customer service, operational excellence, financial discipline, sound execution and driving value for our shareholders. I'll now turn the call over to Trevor who will walk us through the second quarter performance drivers and other financial information.

Thanks, Bill, and good morning to everyone. Today, I'll review our financial results for the second quarter, build on Bill's comments regarding our exceptional load growth and then finish with comments on our commitment to the financial strength of the company. Let's start with slide seven, which details our quarterly operating earnings performance by segment. For your reference, there is a detailed reconciliation of GAAP to operating earnings for the quarter on slide 24 of today's presentation. Operating earnings for the first quarter totaled $1.43 per share compared to $1.25 per share in 2024.

This was an increase of $0.18 per share or about 14% year over year, highlighting the solid momentum we have heading into the 2025. This momentum coupled with our proven ability to execute gives us the confidence to guide our operating earnings per share to the upper half of the 2025 range of $5.75 to $5.95 As Bill briefly indicated, we have been working with each of the various regulators in our service territories to align our rate making for the tax net operating losses with the rulings we received from the IRS last year. This quarter, we received a final decision from FERC affirming the appropriate treatment of NOLCs to our transmission formula rates resulting in a $480,000,000 or $0.90 per share increase to GAAP earnings. The tax benefit related to prior years has been excluded from operating earnings. With the resolution of this issue by FERC, we have now transitioned substantially all of our rate making to the required regulatory approach.

Looking at the drivers by segment, operating earnings for the vertically integrated utilities were $0.56 per share, up $0.10 from a year earlier. Positive drivers included rate changes across multiple jurisdictions and increasing load from data centers, which I'll get to in more detail shortly. These items were partially offset by the variance from last year's extremely favorable weather in the quarter and higher depreciation in the current year driven by increased capital investment. The transmission and distribution utility segment earned $0.42 per share, up $01 from last year. Favorable drivers in this segment include rate changes driven by rider recovery of distribution investments in Ohio and the base rate case in Texas as well as continued gains in retail sales from large loads.

These items were partially offset by increased year over year O and M, primarily driven from system improvements and spending on storm related expenses. As Bill mentioned, we had an incredibly impactful legislative session in Texas, most notably the passage of House Bill 5,247, also known as the Unified Tracker Mechanism or UTM. This bill applies to AEP Texas given its inclusion in the Permian plan, participation in ERCOT and the significant amount of capital we anticipate spending throughout the state over the next decade. The UTM basically eliminates regulatory lag and supports increased capital investment in AEP Texas in response to the legislature's goal of developing the electric infrastructure necessary to harden the grid, which is driven by the state's incredible economic growth. In late June, AEP Texas made a notification filing with the commission that they intend to use the UTM process going forward.

The AEP transmission HoldCo segment contributed $0.42 per share, up $03 from last year. Our continued investments in transmission assets as new loads are added onto the system remain the key driver in this segment. Generation and Marketing produced $0.17 per share, up $05 from last year. Favorable energy margins were partially offset by lower distributed generation margins due to the sale of the On-site Partners business back in September 2024. Finally, Corporate and Other was relatively flat over last year, demonstrating our focus on overall cost controls.

Moving on to slide eight. I'd like to speak to some of the significant increases in load that we continue to see across the system. The numbers you see here are the basis behind our existing $54,000,000,000 five year capital plan. Keeping in mind, we expect to increase the capital plan to a new five year spend of up to $70,000,000,000 We're seeing great clarity into this capital growth and we will be ready to lay out the details of our revised capital and financing plans on the third quarter earnings call. The chart to the left depicts how our load story is impacting the second quarter growth.

On a weather normalized basis, we've added more than four gigawatts of incremental peak demand since this time last year, growing from 33.5 gigawatts to 37.6 gigawatts. This increase is largely due to new data centers and other industrial customers coming online in Indiana, Ohio and Texas resulting in a roughly 200,000,000 year over year increase in revenues. This slide highlights the strong relationship between peak demand and revenue. That's because our C and I customer bills are based more on peak demand than megawatt hour sales. Higher peak demand coupled with the contractual minimums built into the latest tariff provisions predominantly in Indiana are driving up revenues.

These demand minimums for large load customers are helping to more than fully offset revenue impacts from energy efficiencies among our residential customers. Turning to the graphic on the right and looking beyond the current quarter, our $54,000,000,000 five year capital plan is supported by 24 gigawatts of contracts that have already signed firm commitments for incremental load through the end of the decade. We will be taking this into consideration as we update our full forecast later this year. These contracts are a combination of letters of agreement or LOAs and long term electric service agreements or ESAs depending on tariff provisions in the jurisdictions in which they're located. To put a fine point on this, we are really one of the only investor owned utilities that not only has incremental load of 24 gigawatts backed by signed LOAs or ESAs, but also has an incremental 190 gigawatts in the interconnection queue actively looking to connect to our system.

This represents an unprecedented growth opportunity that is largely unique to AEP given the size and technological profile of our transmission system. This 190 gigawatt queue consists of requests at varying stages of development and is indicative of the fact that we have substantial unsigned load that is looking to connect. While we continue to see a lot of public speculation about data center load, we have developed detailed internal processes for executing on a firm pipeline of actual growth that we are already seeing come to fruition. Earlier, you heard Bill mention a few of our regulatory successes and several revolved around strengthening and lengthening those tariff provisions. Just this year, we've had large load tariffs approved in Indiana, Ohio, West Virginia and Kentucky that provide financial protections for our existing customers as we invest to serve those new large loads.

Relying on these signed contracts as opposed to more speculative forecasting methods differentiates AEP and gives us confidence that these loads will materialize on our system. Again, now that we have some of the new tariff provisions in place, particularly in Indiana and Ohio, we are working towards getting more of those requests converted into signed agreements that can eventually be incorporated into the load forecast that we will be communicating later this year. Let's move on to slide nine. On the left of this slide, you can see our liquidity summary, which remains very strong at above $5,600,000,000 and is supported by $6,000,000,000 of credit facilities. Our balance sheet is also healthy, reinforced by the recent closing of the 2,820,000,000 minority transmission transaction in early June and our proactive $2,300,000,000 forward equity offering in the first quarter.

As a result, S and P moved AEP's outlook to stable and reaffirmed our BBB flat credit rating. We remain committed to continued credit quality and I want to reiterate that we have fulfilled our equity needs that supports our $54,000,000,000 capital plan from '25 through '29. As previously mentioned, we expect to increase this $54,000,000,000 capital plan to a new five year investment plan of up to $70,000,000,000 We are evaluating upcoming incremental capital spend opportunities and efficiently matching them with optimal financing strategies including items like growth equity and hybrids in support of this capital expansion. We do not have immediate equity needs and maintain near term flexibility as we evaluate all options to efficiently finance our growth. We're also encouraged by favorable legislative developments, constructive regulatory outcomes and our continued focus of disciplined cost management.

Together, these factors support operating cash flow growth and provide a solid foundation to fund incremental capital investment. On the top right table, S and P's FFO to debt metric stands at 14.8% for the twelve months ended June 30 and Moody's FFO to debt metric stands at 13.2% for the same period using their recently revised methodology. Finally, let's move to slide 10 before we take your questions. I'll briefly summarize what you heard from Bill and me today. First, you heard how we delivered strong financial performance in the second quarter, substantially growing earnings at 14% quarter over quarter.

We're guiding to the upper half of our 2025 operating earnings range of 5.75 to $5.95 per share, which is driven by strong year to date results and confidence in our ability to execute for the remainder of the year. Second, you heard that we continue to achieve constructive regulatory and legislative outcomes. This was highlighted by positive developments like House Bill five thousand two and forty seven in Texas and Senate Bill nine ninety eight in Oklahoma alongside solid regulatory execution on several key filings like the approval to build a new 765kV transmission line in Texas, the acquisition of the Green Country generation facility in Oklahoma and the approval of large load tariffs across several jurisdictions. Third, you heard how we've strengthened our balance sheet through the closing of the $2,800,000,000 minority interest transmission transaction on top of the $2,300,000,000 forward equity offering completed late in the first quarter. Fourth, you heard how our remarkable low growth story continues to evolve and contribute to earnings.

How our commitment to obtaining signed contracts and our sizable interconnection queue gives us great confidence that these projects will come to fruition. Also, heard how those same contracts provide financial protection for our investors and other customers. Lastly, you heard about our continued commitment to execute on our capital plan, and we expect to increase our capital plan to a new five year investment plan of up to $70,000,000,000 As we mentioned earlier, we are looking forward to sharing our plan and the associated financing on the third quarter call later this year. It's an exciting time to be in the electric industry and I believe we are extremely well positioned to drive exceptional operational and financial results and deliver value to our customers and shareholders. I'm now going to ask the operator to open the call so we can take some of your questions.

Right. Looks like our first question today comes from the line of Ross Fowler with Bank of America. Ross, please go ahead.

Congrats on a great quarter. Just a couple of questions for me this morning. So first, Trevor, on the indicative CapEx increase to the $70,000,000,000 from the 54,000,000,000 in that five year window that you're thinking about for Q3, How do you or can you give us some color on the financing needs and the options for that incremental $16,000,000,000 And then in addition to that, given that you've got an Ohio Ford test year hopefully coming through the rate case, you've got the universal tracker in Texas, How do you see the impact of this higher CapEx on your growth rate given more real time recovery? Even if the capital is back end loaded back of the envelope math would suggest kind of 100 basis points upside, but how do you think about it?

Yes, Ross. Thanks for those questions. Appreciate it. On the financing on the capital plan, let me just start by saying we have been really proactive in financing the existing $54,000,000,000 capital plan. And as I said in my prepared remarks, since January, we've issued that $2,300,000,000 of equity under a forward and then closed on the $2,820,000,000 minority interest transmission transaction, which essentially took care of all of our current five year equity funding needs.

So by doing this, we really don't have near term equity needs even for an increasing capital plan in the near term. So this gives me a great level of flexibility as we evaluate all options to efficiently finance this plan. But basically said another way, Ross, we've essentially prefunded five years of equity needs in the first six months for the $54,000,000,000 And so again, that gives me some level of flexibility. So when I look at this incremental capital, I'm going to continue to prioritize the balance sheet strength as we explore the multiple options around capital structure including hybrids, growth equity and then again the strong continuing cash flow from operations especially given the favorable legislative developments that we've seen that reduces this regulatory lag. So that will increase FFO and also we're focusing on cost management.

So together with these factors, I think we will come out in the third quarter with our revised financing strategy. But what it really does is gives me a level of leeway in the near term here to do things in the most efficient way. And then to the long term growth rate, you raise a good point here and we're seeing again robust growth from the $54,000,000,000 to this up to 70,000,000,000 But remember last year, we raised our growth rate when we were 6% to 7% and we raised it to six to 8%. And we really believe this incremental load with capital investments in the financing strategy and this positive regulatory and legislative developments really position us well within the 6% to 8% range. I want to see continued progress on operational and financial performance coupled with near term impacts on expanding capital plans before we make any upward revisions to the long term growth rate. I'm really looking to be disciplined as we balance stakeholder interests including strengthening the balance sheet and driving long term growth. These areas I think are critically important Ross and we really are ensuring we're not trying to prioritize one over the other. The great news is we're seeing so much opportunity for positive financial results given this once in a generational growth, But we're going to be disciplined in how we roll out messaging and how we roll out the financing.

That's perfect, Trevor. Thank you. And then one more if I may. Flipping over to Slide 12 and just looking at that ROE trajectory on the left hand side up to the 9.3%, I see AAP Texas is at 8.6%, PSO is at 8.3%. But given we're gonna go to a four test year, hopefully, in Ohio, we're moving to the universal tracker, Texas.

As that lag reduces, you would expect those two to move higher. That's a pretty significant proportion of your rate base. So the overall trajectory of the ROE trend from that nine three should push higher as well if I think about that correctly.

Yeah. I think there's no doubt you will see, I think, an increasing ROE. We've kind of been public about the the fact that with the the UTM in Texas, the objective there is the state is really trying to attract as much capital as possible to this growing needs in the state. And this we've said is going to probably increase our ROEs in AEP Texas by 50 to 100 basis points.

That's fantastic, Trevor. Thank you for the detailed answers. I'll jump back into the queue.

Thank you, Ross. And our next question comes from the line of Steve Fleishman with Wolfe Research. Steve, please go ahead.

Yes. Hi, good morning. Thanks. So just, I guess, first, Bill, you mentioned kind of the SMRs. Maybe you could give a little more color on kind of that plans there and just how you're looking at kind of protecting the risk on that?

Sure. Good morning, Steve. Thanks for calling in. So our focus right now on SMRs is really on the early site permit work. We've got very strong regulatory support, particularly in Virginia, where we're allowed to invest up to $125,000,000 with recovery there to move forward on the site work.

And so we're continuing to go down that path and have the government there be in a very supportive position for us. Similarly in Indiana, there's a positive regulatory environment there for early site investment. And that's really our focus right now is preparing ourselves for the potential down the road. Clearly, if there's an opportunity to do something on behalf of our customers and in partnership with our customers, as I've said many times before, we will make sure that there is extremely strong capital investment protections and that we've got safeguards on our balance sheet and credit ratings and that there's very clear regulatory and government support for anything that would go beyond the early site permit process for us. So very excited about where we're at on our partnership with Virginia, in particular, Governor Yauchen has been incredibly supportive of looking at sites in preparation for what might come.

But for now, the focus for us is on looking at basically at ground and the availability of potential locations and doing that through the government and the state regulatory environment.

Okay, great. And then on the Trevor, on the NOLC that you mentioned, is there any ongoing earnings impact from that change? I know you mentioned the one time.

Yes. The one time is the piece of we recorded in this quarter. There is an impact that we will see later this year. It's it's not gonna be material, but I'll let Kate kind of address some of this as well.

Yeah. So the the one time item was primarily to do with remeasuring the balance sheet. We've said before that we would expect the ongoing impact to be around 3 pennies and that's still how we see that flowing through operating earnings from an annual basis.

Okay, great. And I guess maybe just be good to get an update on the West Virginia case.

The West Virginia case has gone through the regulatory process. We've had extremely good engagement with all the parties. As you know, we did offer up the alternative for securitization in that case And that was seemingly well received throughout the discussions with the stakeholders. All of the work is essentially complete and we're awaiting an order which is expected to come out late August or early September.

Thanks Steve. And our next question comes from the line of David Arcara with Morgan Stanley. David please go ahead.

Hey, thanks so much. Good morning. Reflecting on the CapEx increase that you're signaling here, this is the second one, I guess, eight, nine months ago, you also increased your CapEx plan by 30% at that time. Here, you've got another kind of 30% increase coming. So I guess I'm just wondering, as we look ahead, is this the new normal?

Is there a limit in terms of what you're seeing around CapEx opportunities? Could this could we continue to see further escalation in these five year CapEx plans as you roll them out?

Yes, David. Again, what we're seeing is just tremendous growth on the system. And I want to really kind of emphasize where you take a look at our overall peak summer load is 37 gigawatts. And we've also announced that we have an incremental 24 gigawatts that is signed up to connect to our system under either LOAs or ESAs. So that takes us north of 60 gigawatts on our system size.

And then there's another 190 gigawatts behind that in various stages of development. We know not all of that is going to come online, but even a fraction of that is significant. And so from that perspective, we continue to see opportunity to continue to invest. We're going to be disciplined. But even raising our capital plan from $54,000,000 to up to 70,000,000 is a sizable growth and we want to ensure we're digesting that in a way that is disciplined and ensuring we're also protecting our balance sheet as we're continuing to grow this business.

But the big thing that I want you to take away here is across our 11 state footprint, we've got a large footprint and a lot of economic and other type of activity looking to connect and so a lot of positive.

Yes, absolutely. I appreciate that color. And as you look at the pipeline of data center activity, wondering if you could just give a little color as to where you're seeing it, which states how does that split out among your states and service territories? And just curious, I mean, with such a rush of activity, like what is the wait time? How long does it take at this point to connect new data center load into your system?

Yes. We'll start at sort of a global view of data centers in general. Our area is extremely attractive for data centers. We have ample fiber capacity. We have good supply of water.

And of course, with having the largest transmission system in the country and the seven sixty five kV backbone, we're incredibly well positioned to attract the data centers and couple that with our level of operational excellence and our ability to come up with creative solutions to bridge these data centers over from perhaps early use of fuel cells into grid connect is also very attractive to these customers. And so we've put in very strong protections for our customers through the use of the data center tariffs, which I noted in my comments we have in a number of states. But even with those, we still have an incredible attraction of new data centers wanting to come into the territory. And so as we look at this, we've got an incredible background of backlog of these data centers. Of course, depending on what state we're in, we'll determine what their wait times are.

But again, as we work with them, we're trying to give them innovative solutions so that they can come online quicker. For instance, in Ohio, we've got the two customers, Amazon Web Service and CoLogic that we've done fuel cells with while we work through the interconnection agreements with them, which is probably five to seven years. And I would say that's not unusual in many of our locations as we work through this. But we also have areas of our system that still have available transmission and those sites obviously are being discussed with the customers to allow quicker connections. And so while a lot of our focus is on data centers, we have a lot of other activity going on in our states.

We have a lot of reshoring of manufacturing and we have an incredible amount of economic development of existing businesses that continue to grow that we're dealing with. And so just overall, we're in a tremendously positive place. We've got exceptional opportunities to continue to attract these customers and we're going to do everything in our power to execute on these agreements that we have and get them interconnected as quickly as possible.

Great. Thank you, David. And our next question comes from the line of Jeremy Tonet with JPMorgan. Jeremy, please go ahead.

Just want to pick up on the capital plan, possibly increasing notably here. Talked a bit about funding, but wanted to talk a little bit more if you could there. And just wondering as far as, you know, how you might prioritize funding or how you see asset sales potentially, fitting into, I guess, the pecking order there, particularly with regards to the previous moves to sell Kentucky Power in the past? Just wondering how asset sales fit together versus other funding sources.

Yes. Well, the question. Again, the additional capital for us is incredibly exciting for us. To maybe give you a little bit of a breakdown on that, it's about $2,000,000,000 in the I and M for generation, about $3,000,000,000 in PSO for generation, about 7,000,000,000 in AEP Texas for transmission and then another couple of billion for distribution across the opcos and then a couple of billion across miscellaneous projects. And as we think about that, our focus is really on growth.

I'm not really one to want to sell assets as a strategy. Obviously, we'll look at all alternatives and do what's in our best interest of shareholders. But my focus right now is really looking at the opportunity in front of us and growing this company as best we can.

Got it. Understood. Thanks for that. And I was just wondering within the transmission plans, just wondering if you could expand a little bit on how maybe GETs and Reconducting could factor in and help for speed to market solutions here given data center needs here, particularly given your prior experience with the ACCC conductor and what that brought to the system?

Our transmission team is acting in a forward looking mode looking at various reconditioning projects. We've actually worked with the government and received a number of grants to support reconductor in our system. But again that I would say adds small incremental capacity to the system. What we really need to be looking at is dramatic seven sixty five kV backbone addition across our service territory and was very excited to see Texas come out with their proposed plan to use seven sixty five across the Permian area to really enhance the strength and resiliency of that system. And my view would be that we need a lot more of that into our grid and into particularly PJM, SPP and MISO.

The Reconducting Ideas and some of the more innovative products that are out there are interesting and intriguing, but with the size and scale that we have in front of us, we have to think much, much bigger and get moving on these projects.

Got it. You for that. Just one last question, if I could. In conversation that you presented so far nuclear focuses, seems like more on SMRs versus AP1000. I'm just wondering if you could provide any thoughts I guess on one versus the other and what drives preference?

Well, for us, again, as I said, our fundamental focus right now is on just the sites and working within our regulatory environments and what our states want us to pursue at the moment. As I think about SMR technologies and the AP1000, all of those are really something that even if we started today wouldn't be available until early to mid next decade. I think from a customer perspective as we've had discussions with our customers, I think that there's, I would say, a leaning more towards SMRs only because of the diversity that they offer and that if you have four of those supplying service to a data center and you need to shut one down to refuel, you still have three versus just having the risk of one big unit there. But really for us at this stage, we're focused on sites, we're focused on staying within the regulated environment. We're working with our customers to determine what they would like to do and how they would like to do it.

But again, I think it's really mid to mid next decade before many of these types of things are going to be commercially available in this country.

Thanks, Jeremy. And our next question comes from the line of Nicholas Campanella with Barclays. Nick, please go ahead.

Hey. Good morning, everyone. Thanks for all the updates.

I just wanted to ask just to put one quick follow-up on financing, and I apologize. Just doesn't sound like there's anything near term for equity in either plan, that you need right now and the credit's back to stable, to your point. But just for funding the $16,000,000,000 is there just a percentage of equity that's required that we should be thinking about, whether it's 20% or 40% or I'll just stop there. Thanks.

Yes, Nick. I think we've talked a little bit about this that generally I think in the industry you're hearing people talking in the 30% to 40% of potential equity as you look at CapEx growth. And I think that's within the range of what we would contemplate here. But again, that needs to be refined over the coming months before we roll out the formal plan and and the associated financing given that we have other tools that we will use. And I mentioned that a little bit in my remarks where we have potentially hybrids that we can issue.

And then we also want to see what the near term FFO to debt is with these really positive legislative results. So we always want to be really judicious with any kind of growth equity issuance. But again, I think growth equity when you have this type of robust plan is not something we should shy away from, but it is always something that we will be very judicious with in issuing shareholder equity.

Understood. Very clear. And then just quickly on the sales growth for this year.

I know you guys kind of combined C and I now. Can you just kind of talk about what's driving the shift on the combined view? And then thoughts on fiscal twenty twenty five overall, which I think was just updated lower? Thanks.

Yeah, absolutely. And you did pick up on that. We did combine in the earnings slides that we presented today, the C and I load combined together. And really there are several reasons for this. One, I think it's more in line with how others in the industry present the load on a C and I basis.

Also, I think it's also more reflective of our business that there is a growing convergence between how some commercial and industrial customers are classifying themselves. And that's particularly true also between some of the crypto versus the data centers. And then also the financial protections in the contracts for the data centers, we kind of believe that those are that commercial load associated with is more akin to an industrial load. So from that perspective, I think it it makes more sense, and it's it's better presentation for our our investors to see it as as one combined load. And and overall, what you're seeing is load increasing overall on the entire system on a throughput basis.

So very positive in that regard across the whole retail load.

Okay. And then just 25, I think, was lower. Is that is that still coming from that segment? Or just I know that there's a ton of growth in the future, but just the '25, I believe, Chris, correct me if I'm wrong, is is lower. So, I was just hoping you could address that as well.

American Electric Power (AEP) Q2 2025 Earnings Call Transcript

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