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F500 2021-204-American Electric Power

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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

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the American Electric Power Third Quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star then the number one on your telephone keypad. If you'd like to withdraw your question at any time, press star one again. Thank you. I'd now like to turn the call over to your host for today, Darcy Reese, Vice President of Investor Relations. You may begin.

Good morning and welcome to American Electric Power's Third Quarter 2025 earnings call. A live webcast of this teleconference and slide presentation are available on our website under Events and Presentations. Joining me today are Bill Fehrman, Chair, 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 Sturgess, Senior Vice President, Controller, 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 six and let me hand the call over to Bill.

Thank you, Darcy, and welcome to American Electric Power's Third Quarter 2025 earnings call. I'm happy to be with everyone this morning. This is a transformative moment for our industry, and I'm proud that AEP is standing out among our peers as one of the fastest growing, high-quality, pure play electric utilities. Over the last year, and to ensure AEP is extremely well situated for unprecedented growth and value creation, we have welcomed several new proven leaders. We have made significant changes to the organization to grow financial strength and deliver constructive regulatory and legislative outcomes, while at the same time driving accountability and operational excellence. I believe this is a different AEP from the past.

Our winning team is executing at an accelerated pace of play to grow this incredible company and deliver results for our customers and shareholders as we invest significantly in infrastructure across high-growth regions in our impressive 11-state service territory, align our business with state and federal goals, achieve positive legislative and regulatory outcomes, and leverage our size and scale to manage costs and supply chain pressures. For example, AEP is one of the best positioned utilities in the industry, with 8.7 GW of gas turbine capacity currently secured from major manufacturers and a high-voltage equipment agreement in place with a key industry player. As a result of our tremendous progress and the rapidly growing opportunity in front of us, we are extremely excited to announce our new increased long-term operating earnings growth rate of 7%-9% for 2026-2030, with an expected 9% CAGR over the five-year period.

This impressive growth rate is driven by one of the largest capital plans in the industry, $72 billion, which is underpinned by massive system demand and supported by a balance sheet demonstrating strong credit quality. There's a lot to be excited about at AEP, and in my remarks today, I will provide an overview of our strong financial results and outlook before speaking to the drivers behind our growth trajectory, our recent regulatory and legislative progress, and our focus on affordability for customers. An overview of our new financial plans and key messages can be found on slide six and seven of our presentation. We are pleased to share that AEP reported third quarter 2025 operating earnings of $1.80 per share or $963 million.

These results, in combination with our strong financial performance in the first half of the year and ability to execute, give us confidence in reaffirming our 2025 full-year operating earnings range of $5.75-$5.95 per share, while guiding to the upper half of this range. We are also unveiling our 2026 operating earnings guidance range of $6.15-$6.45 per share, which is an approximate 8% increase based off the 2025 guidance range midpoint. In a few minutes, Trevor will walk through third quarter performance drivers and provide additional details surrounding our outlook for 2026 and beyond. Electricity demand growth is happening, and we are seeing it play out across the country in real time. Regions with concentrated data center and industrial development, including AEP's footprint, are emerging as clear winners.

Large annual capital budgets from hyperscalers totaling hundreds of billions of dollars reinforce the conviction, strength, and staying power of this demand growth. At a high level, AEP's revised long-term earnings trajectory has been updated to reflect the strong load growth we are experiencing across the communities we serve. We project a system peak demand of 65 GW by 2030 within our diversified service territory, especially in Indiana, Ohio, Oklahoma, and Texas. This growth is fueled by data centers, reshoring of manufacturing, and further economic development, which we expect to create jobs in local communities and maintain affordability as our load grows by almost 76% in the next five years. The 65 GW AEP system-wide projection now includes 28 GW of contracted load additions on top of our existing 37 GW system.

These incremental 28 GW, up from our formerly reported 24 GW, are backed by energy service agreements or letters of agreement, protecting us and our customers from changes in planned usage. I also want to emphasize that it is critically important that costs associated with these large loads are allocated fairly and the right investments are made for the long-term success of our grid. For that reason, we have secured commission approvals for data center tariffs in Ohio and large load tariff modifications in Indiana, Kentucky, and West Virginia, with pending tariff filings in Michigan, Texas, and Virginia. These baselines are designed to protect other customers from bearing the costs of grid improvements required to meet the energy demands of large load customers.

As you can see on slide eight, we have unmatched transmission scale and expertise, and large load customers are drawn to our footprint because of AEP's advanced transmission system. Through innovation, we pioneered the modern 765 kV transmission system in North America. These are the highest voltage lines that form the backbone of the transmission network. We have over 60 years of expertise in design, construction, and operation of assets like these, and many current industry standards and practices for 765 kV transmission were developed by AEP. Today, AEP owns and operates in excess of 2,100 miles of these ultra-high voltage 765 kV transmission lines across six states, representing 90% of the 765 kV infrastructure in the U.S.

This is more 765 kV lines than all other utilities combined, uniquely positioning us with the biggest electric transmission system in the country to attract customers who need large volumes of consistent and reliable power. Building on this, AEP was recently awarded 765 kV projects in the Urquhart Permian Basin and through the PJM Regional Transmission Expansion Plan, setting us up well for future growth opportunities. These transmission awards were included in our new $72 billion capital plan spanning over the next five years. By combining AEP's vision for a modern, reliable grid and our partnership with a major energy infrastructure equipment provider, we can accelerate the development of 765 kV projects that are essential to meeting future reliability, resiliency, and energy delivery needs.

Turning to slide nine, we are focused on operational excellence to advance service and reliability interest in each of the states we operate in, while achieving constructive outcomes that are good for our customers and our shareholders. AEP's operating company leadership is changing how we run our businesses, and we are working diligently with legislators and policymakers for constructive outcomes. I personally have been actively engaged and met with regulators and leaders across all 11 states that we have the privilege of serving to better understand each of their needs and priorities. In addition to better serving our customers, all of these efforts will help us to reduce regulatory lag and improve forecasted regulated ROEs to 9.5% by 2030. This will support operating cash flows as we drive forward with $72 billion of infrastructure investment while maintaining affordability.

In 2025, we have been involved in the passage of constructive state legislation. Some of these positive legislative outcomes include Ohio House Bill 15, which establishes a new regulatory framework with a multi-year forward-looking test period with truer provisions for AEP Ohio rate cases, Oklahoma Senate Bill 998, which authorizes the deferral of plant costs placed in service between rate cases at PSO, and Texas House Bill 5247 that allows for a single annual unified tracker mechanism to recover depreciation and carrying costs associated with capital investments at AEP Texas. The improvement in the customer experience and stakeholder relationships also results in positive regulatory outcomes as we put power in the hands of our local leaders to build financially strong utilities in the communities we serve. Our operating companies continue to advance ongoing base rate cases, including AEP Ohio, Kentucky Power, and SWEPCO in Arkansas and Texas.

We look forward to working with stakeholders to achieve positive and balanced outcomes that benefit both our customers and investors. As an update on the case that APCO filed late last year in West Virginia, we are pleased that the commission issued an interim order with full approval of the $2.4 billion securitization proposal, which will enable the redeployment of capital throughout our business, while at the same time driving affordability to our West Virginia customers. However, we are not finished with the recent base case order in West Virginia. There is more work to be done, as evidenced by APCO's reconsideration filing made last month centered around adjustments to the authorized ROE, capital structure, and rate base. We continue to have conversations with state leaders regarding fair financial returns as they desire to attract more capital and make West Virginia an energy hub.

Moving on to resource adequacy, electricity demand growth is putting pressure on reliability, and this new demand is driving the need for generation diversity, including significant generation additions or retirement delays. I will highlight several recent key developments that help support AEP's generation resource adequacy needs and reinforce grid stability for our communities. In August, parties reached a unanimous settlement on INM's acquisition of the 870-megawatt combined cycle natural gas generation facility in Oregon, Ohio. This follows commission approval of Green Country, which is PSO's 795-megawatt natural gas-fired facility in Jenks, Oklahoma. In September, generation resource filings were submitted by INM for up to 4.1 GW and by PSO for approximately 1.3 GW.

Earlier this month, APCO filed an integrated resource plan in West Virginia for roughly 5.9 GW of resource needs over the next 10 years, outlining our strategic approach to meeting future energy and capacity requirements through a balanced approach. In summary, additional capacity is needed to ensure the availability of continued reliable power for both current and future customer needs, while providing more efficient and timely regulatory approval processes. AEP is well positioned to be a significant player in meeting these generation needs. Beyond these filings and in line with our history of innovation, we continue to explore generation solutions for the benefit of our customers during this period of massive demand. We previously announced our participation in the early site permit process for two potential small modular reactor or SMR locations, one in Indiana and another one in Virginia.

As we evaluate these exciting opportunities, our moving forward with SMR considerations will require strong capital investment protections, safeguards for our balance sheet and credit metric strength, and clear regulatory and governmental support. Finally, as seen on slide 10, I would like to reiterate that our team is keenly focused on customer affordability as we advance our $72 billion capital plan over the next five years. We are mitigating residential rate impacts through affordability levers, including incremental load growth, rate design, continuous focus on O&M efficiency, and financing mechanisms like securitization. Earlier this month, AEP also closed on a loan guarantee from the U.S. Department of Energy related to upgrading 5,000 miles of transmission lines. The loan backs projects that enhance reliability while also supporting economic growth in our states and reducing bill impacts for customers.

As we ramp up our investments in this electric infrastructure supercycle, more of the incremental costs are assigned to commercial and industrial customers who are driving the increased investment. We forecast residential customer rates to increase on the system average by approximately 3.5% annually over the five-year period. This is relatively mild and below the five-year historical average inflation rate of over 4%. Wrapping up, we have had an extremely busy and productive year so far, with the entire team working at an unmatched pace to deliver results for all stakeholders. We are investing substantially to meet an extraordinary moment in our industry, engaging with our regulators and state leaders to deliver on their key policy objectives, and taking concrete steps to keep customer bills affordable.

I have great confidence in our strategy and team, and I am excited about the opportunities ahead as we drive growth and create value for our investors. With that, I will now turn the call over to Trevor, who will walk us through the third quarter performance drivers and provide details surrounding our incredible financial growth outlook.

Thank you, Bill, and good morning, everyone. I'm excited to share several key updates with you today. I will begin with a review of our third quarter and year-to-date financial results, followed by an in-depth look at our newly established long-term operating earnings growth rate of 7% -9%. Building on Bill's comments, I will also highlight the exceptional load growth we are seeing, supported by the updated $72 billion five-year capital plan. Finally, I will wrap up with remarks on our financing strategy. Let's now walk through our financial results, starting on slide 12. Operating earnings for the third quarter totaled $1.80 per share, compared to $1.85 per share in the same period last year. This change primarily reflects the impact of the prior year's sale of the onsite partners' distributed resources business within generation and marketing.

Turning to slide 13, year-to-date operating earnings totaled $4.78 per share, up from $4.38 per share in 2024. You will see that this represents an increase of $0.40 per share or approximately 9% year-over-year. This strong year-to-date performance was mainly driven by favorable rate changes across multiple jurisdictions, strong transmission investment execution, and continued benefit from load growth. Notably, we saw significant commercial and industrial load growth of nearly 8% on a rolling 12-month basis as of September 30th, 2025, compared to the same period last year. Recall, a majority of our large load customers are under taker pay contracts, which I'll address in more detail shortly. Additional information on our sales performance can be found in the appendix. These positive drivers were partially offset by increased spending on system improvements, depreciation tied to higher capital investments, and interest expense.

Similar to the quarterly results, our year-to-date performance in the generation and marketing segment reflects the prior year sale of the distributed resources business. While this transition led to a lower contribution from the segment, it was meaningfully offset by favorable energy margins, which helped support overall results. Our strong year-to-date results provide us with the confidence to guide to the upper half of our 2025 operating earnings range of $5.75-$5.95. Please turn to the next slide. We have established our 2026 operating earnings guidance range at $6.15-$6.45 per share, with a midpoint of $6.30. This reflects nearly an 8% increase over our 2025 guidance midpoint and is fully aligned with our newly introduced long-term operating earnings growth rate.

As Bill mentioned earlier, we are excited to announce our increased long-term operating earnings growth rate of 7%-9% annually from 2026 to 2030, with an expected CAGR of 9% over the five-year period. We anticipate growth to be in the lower half of the range for the first two years and at or above the high end of the range in 2028, 2029, and 2030. This outlook is supported by our exceptional load growth fundamentals, highlighted by 28 GW of incremental and contracted load backed by energy service agreements or letters of agreement. This unprecedented demand serves as the foundation of our expanded $72 billion capital investment plan, positioning us to deploy the critical infrastructure needed today while actively shaping the energy infrastructure landscape of tomorrow, building a more reliable, resilient grid of the future.

Turning to slide 15, we're illustrating American Electric Power's strong load forecast for the period from 2026 to 2030. There are three defining characteristics I'd like to emphasize. Our load growth forecast is big, conservative, and drives our capital strategy. First, it is big. In this quarter alone, approximately 2 GW of data center load came online, roughly equivalent to two large-scale nuclear power plants. For the 28 GW of forecasted additions, this is equivalent to almost doubling our current system. Customers behind this growth are substantial, with approximately 80% coming from data processors, including large hyperscalers such as Google, AWS, and Meta. These are well-capitalized global firms with sustained demand profiles. The remaining 20% is driven by new industrial customers. These include major projects such as Nucor Steel Mill in West Virginia and Cheniere's LNG facilities in Texas.

Together, these diverse customer groups form a strong foundation of long-term partnerships in infrastructure development, driving substantial energy demand and economic growth to the communities that we serve. Second, it's conservative. Our forecast is not a theoretical model. It's built on signed contracts. From roughly 190 GW of customer interest, we have distilled this down to 28 GW of executed financial commitments. We have evolved our contracting strategy to sign full taker pay agreements earlier in the development cycle, helping us to filter out speculative load. Commission-approved tariff reforms have strengthened these contracts, especially in our vertically integrated businesses, where generation investments must be tightly aligned with the real demand to protect customer rates. Finally, this load forecast is the foundation of our capital plan. To serve this growth, AEP must deliver more than 100 million megawatt-hours of incremental power annually by 2030.

Meeting this demand will require a scale of capital investment that sets a new benchmark for AEP. I will walk through the details of our large capital plan on slide 16. Our $72 billion five-year capital plan represents a more than 30% increase over our previous plan. Over two-thirds of this investment is directed towards transmission and generation, supporting the extraordinary load growth I mentioned earlier. In addition, nearly a quarter of the plan is focused on strengthening our distribution network, including system enhancement programs and other grid modernization efforts that are critical to improving reliability and performance for our customers. This capital plan drives a five-year rate-based CAGR of 10%, with nearly 90% of the investment recovered through reduced lag mechanisms, including formula rates, forward-looking test years, and capital riders and trackers.

Importantly, we are applying a ruthless capital allocation lens to every dollar we deploy, ensuring that each investment is aligned with customer needs, regulatory efforts, and long-term shareholder value. This disciplined strategy allows us to prioritize high-impact projects and maintain financial strength as we execute at scale. Let's turn to slide 17 to discuss our high-growth transmission business. As Bill Fehrman mentioned earlier, large load customers are drawn to our footprint because of AEP's world-class transmission system, particularly our ultra-high voltage 765 kV backbone. Our unmatched expertise in the design and construction of ultra-high voltage transmission continues to secure major projects, positioning AEP as one of the industry leaders best equipped to meet and capitalize on the accelerating AI-driven demand. Transmission is a core engine of value creation for AEP. In fact, more than 50% of our projected 2026 operating earnings will come from this high-growth business.

Looking ahead, our transmission rate base is expected to exceed $50 billion by 2030, generating substantial shareholder value through a highly constructive regulatory framework. Next, I will cover our five-year financing plan on slide 18. This plan is built on strong cash flow from operations, driven by disciplined investment execution, favorable legislative and regulatory developments, and a continued focus on cost management. It supports robust liquidity, with only about 25% of our outstanding debt maturing to 2030. In addition, we remain committed to returning capital to our shareholders through consistent dividend growth. A key component of the plan includes a modest amount of growth equity totaling $5.9 billion. In fact, we have limited near-term equity needs, with over 80% of the growth equity projected to be issued during the back half of the five-year plan.

This financing plan is designed with flexibility in mind, enabling us to evaluate and deploy the most efficient financing tools to support our capital expansion. Over the planned horizon, we are targeting an FFO-to-debt ratio of 14%-15% for both S&P and Moody's. We currently exceed our FFO-to-debt target with S&P at 15.7% this quarter, and comparatively, we are above our 13% downgrade threshold at Moody's. We expect to be near our 14% target with Moody's by the end of 2026 and in the targeted range for the remainder of the plan. Additional details on our third quarter FFO-to-debt metrics can be found in the appendix. Before we open the line for your questions, let's turn to slide 19 and recap the key takeaways from today's discussion, each one reinforcing why we're so energized about AEP's future as a high-growth, high-quality, pure play electric utility.

First, we have delivered exceptional financial performance year to date, which gives us the confidence to guide to the upper half of our 2025 operating earnings range of $5.75-$5.95. This reflects not only disciplined execution as we leverage our size and scale, but also the strength of our streamlined organization, which is driving accountability, operational excellence, and results. Second, we formalized our large $72 billion capital plan, driving a 10% five-year rate-based CAGR with nearly 90% of investment recovered through reduced lag mechanisms. We're applying ruthless capital discipline to ensure every dollar deployed delivers on customer priorities, regulatory alignment, and long-term shareholder value. Third, today we introduced an increased long-term growth rate of 7%-9%, with growth expected to be at or above the high end of the range in the final three years of the plan.

This marks a strategic step forward in our outlook grounded in real accelerating demand. Fourth, our earnings growth is underpinned by strong load growth, driven by our ultra-high voltage transmission backbone that continues to attract new customers into our footprint. This growth outlook is not only substantial, but it's also conservative, and it forms the foundation of our $72 billion capital plan. Fifth, affordability and balance sheet strength remain central to our strategy as we execute our multi-billion dollar capital plan with discipline. We are forecasting average system residential customer rates to increase at approximately 3.5% annually through 2030, well below the five-year average rate of inflation of 4%. This reflects our commitment to ensuring cost stability for our customers as we invest in the system.

At the same time, our financing strategy is grounded in strong cash flow from operations, with over 80% of growth equity projected to be issued during the back half of the plan. This approach is intentionally designed to support disciplined capital expansion through efficient financing while maintaining financial strength and flexibility. Our momentum is further supported by constructive legislative and regulatory progress as we continue to empower local leadership and build financially strong utilities in the communities we serve. These efforts are expected to reduce regulatory lag, trim the gap between earned and authorized ROEs, and support strong operating cash flows. I am truly excited to be part of this journey. I firmly believe AEP is one of the most compelling companies in our industry, uniquely positioned to lead, grow, and deliver in today's transformative environment.

With a clear strategy, the strength of our size and scale, disciplined execution, and unmatched infrastructure capabilities, we are well equipped to seize the opportunities ahead with confidence and create significant value for our stakeholders. We appreciate everyone's time today and your interest in AEP. We look forward to seeing many of you at the EEI conference in the next couple of weeks. I will now ask the operator to open the lines so we can take your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, please press star one again. Thank you. Our first question comes from the line of Ross Fowler from Bank of America. Your line is open.

Morning, Bill. Morning, Trevor. Thanks for the great update today. Just a couple of questions. If I'm looking at slide 14, that looks like a pretty big earnings step up as I look at the CAGR going out on the bars in 2028. Can you just kind of maybe, Trevor, walk through the drivers of that? As part of that, maybe the schedule and timing of the Ohio rate case filing or under the new construct, how should I be thinking about that?

Yeah, thanks, Ross, and I appreciate you joining today. We do see a lot of the earnings being driven by the capital plan, and certainly in the middle part of the plan in 2027 and 2028 is when the most CapEx gets deployed. We're seeing the capital plan peaking at about $17 billion in the middle part of the plan, and that's really what's driving a lot of the increase in the earnings for that step up in that period. The other thing is, as you say, we've also gotten some positive legislative and regulatory outcomes that will manifest itself in that part of the planning cycle, and that includes the forward-looking test year in Ohio. Certainly, HB 5247 in Texas is a huge benefit to attracting capital to the state and having us deploy capital, which also is helping to narrow the gap around ROEs.

Also, SB 998 in Oklahoma is another piece of legislation that also is helping narrow the gap. Those are where you see that little bit of the step change, and I know it's been a little unorthodox with regards to how we have put out the growth rate, saying that we would be at below the midpoint of the growth rate in the first couple of years of the plan. In fact, you can see us going from the midpoint of the 585 to the 630 in 2025-2026. We're pretty confident of being at or above the high end of the range in the back three years of the plan, and that's why we also put that 9% CAGR out there for the overall earnings.

Yeah, that's very fair, Trevor. Thank you for that detail. I guess, as I look at slide 18, you're talking about this $5.9 billion of equity in the plan. How are you thinking about the composition of the business? Do you think there's more potential for minority stake sell downs, or how should I think about addressing that equity need over time?

Yeah, I'll take the equity, and then I'll let Bill address where he thinks we are with regards to potential any other sell downs. What we've tried to do is recall that we've said that we anticipate between 30% and 40% equity with regards to increasing the capital plan. When we laid out the $18 billion increase in the capital plan, this is roughly, call it, 33% of growth equity. The good news is because we've been very proactive under the $54 billion existing capital plan with both the asset sale in the Transcos this year, as well as issuing the equity for the full five-year plan, we really have a situation where a lot of that growth equity is now in the back end of the plan.

What we will do is we're showing an ATM in 2026 of, call it, roughly $1 billion, and then we don't need equity for a period of time in the middle part of the plan. As we get to the back end of the plan, we'll either do an ATM or potentially a block equity deal in the back end of the plan. I think this is very indicative of us saying we will issue equity to fund growth and great growth at that across the system. Bill, do you want to take the question on any further sell downs?

Yeah, thanks, Trevor, and good morning. As Trevor noted, we're very encouraged by very favorable legislative and regulatory developments across our states, and our continued focus on disciplined cost management is going to continue to be a major effort of ours to support FFO. At this time, we're not planning any asset sales to fund the plan going forward, but obviously, we'll continue to assess things as they come up.

That's fantastic. Guys, thank you. We'll see you soon down in Florida.

Our next question comes from a line of Shar Pourreza from Wells Fargo. Your line is open. Shar, your line is open for questions. Our next question comes from a line of Steve Fleishman from Wolfe Research. Your line is open.

Yeah, hi. Thanks. Congrats. I guess maybe Trevor, on the 2028-2030, the part where you're kind of 9% or better, is there some type of shaping to that over those periods? Does it accelerate higher, or is it just pretty consistently 9% or better those years?

Yeah, Steve, I think where we are is it kind of gets back a little bit to Ross's question as we see the earnings step up in the mid part of the plan. I would say what we're feeling pretty confident about is that giving the guidance where we said of 2028, 2029, and 2030, we will be at or above the high end of the plan. I think you can assume that that is pretty flat as of this point. The good news is we continue to see a lot of growth, and we're excited to roll out this new plan. 2028, 2029, and 2030 are out quite a ways with regards to the plan, and it still gives us potential to see incremental deployments.

We continue to sign LOAs and ESAs, but right now the way we've got it modeled, and again, this gets back to my mantra of make sure that we're very confident in the numbers we put out and deliver on those numbers. This gets back to the under promise and over deliver. From my perspective, by saying that we're at or above the 9%, you can assume that that's pretty flat in those three years at or above that 9%.

Just clarification, can you clarify what the difference is between an LOA and an ESA?

Yeah, so really, an LOA, or letter of agreement, is generally a first step before you get to an ESA. Both have financial obligations, but an ESA, an energy service agreement, tends to be more binding. That being said, I will say down in Texas, in ERCOT, we only sign LOAs and not ESAs. From that perspective, we want to make sure that when we talk about that 28 gigs, we're very confident in that because they're all under LOAs or ESAs. In Texas, where there is no ESA, we feel very good about those LOAs that are getting signed down there. As we distill down from that 190 gigs and when we continue to scrub that, that ultimately generates the 28 gigs of incremental load growth.

There are some LOAs that are executed that are not included in that 28 as we continue to negotiate and work through to ultimately get to an ESA. Again, it gets back to my points in the prepared remarks where I said that it's real and it's conservative on the 28.

Okay. Last question, maybe for Bill on just the, you mentioned something about a partnership with an infrastructure provider. Could you maybe give more color there and just the turbine orders? I think those are somewhat new. Kind of when do those come in and any update on Bloom? Just all your different partnerships and supply chain. Thank you.

Thank you, Steve. We're in the process of putting in place long-term supply framework agreements for the major equipment components that we'll need to deliver on the plan. The good news for us is that we have in place significant agreements for turbines and for the high voltage transmission transformer equipment that we need. I'm very comfortable with where we sit. The team's done a nice job of positioning us well to deliver on this. As I noted in my comments, I've added a lot of strength into this management team, particularly from Berkshire, who are very skilled at delivering multi-billion dollar capital programs and bringing them in to deliver. I'm quite comfortable with where we sit both on the management talent and on the major equipment that we have.

On Bloom, we're still working with potential customers to deploy the additional megawatts that we have with them and look forward to hopefully having more to report on that, perhaps by EEI.

Our next question comes from a line of Jeremy Tonet from JPMorgan. Your line is open.

Just wanted to look through the plan roll forward a little bit more as it relates to dividends. I was just wondering if you could talk a bit more specifically on what you see the DPS CAGR over that time period being, particularly in the back part of the plan.

Yeah, Jeremy, I appreciate that question. What we've really done here is we just got out of our board meeting, and our board did recently raise the dividend by 2% going into this next year. We're also signaling that we are going to be at a 50-60% payout ratio. The reason for this is because we have this robust capital plan, and deploying capital is critical right now during this period of growth. What we've done is in the plan, we've assumed that the dividends are really increasing by the number of shares outstanding. We would make recommendations to the board. As you know, this is a board discretionary item, and the board would ultimately make the decision as to where we're going with the dividends.

That said, certainly the discussion that we had with the board was they are supportive of us growing the dividend over a period of time. I will say this marks 115 consecutive years of American Electric Power paying a dividend, and we have had continued dividend growth over the last, call it, decade or so. This is something that we really look at as part of the overall total shareholder return, and getting value back to our shareholders is both the dividends as well as the growing earnings over that period of time. I would say in conclusion, the board is very committed to our dividend and getting a dividend that has a yield as well as a payout ratio that is well within the industry norms. We did moderate it a little bit and made that recommendation to the board, given the 30+% increase in the capital plan.

Got it. That's very helpful. Thank you. I just wanted to come back to the EPS CAGR if I could one more time to put maybe a finer point. When you're referring to the high end of 2028 through 2030, is that year over year or CAGR? Basically, is this a CAGR off 2026, or is this year over year from 2027 into 2028?

Got it. Very helpful. I'll leave it there. Thank you.

Your next question comes from the line of David Arcaro from Morgan Stanley. Your line is open.

Morning. I was wondering if you could maybe just give a bit more of a sense of how the conversations are going with data centers and constraints on the system that you're seeing. I guess I'm curious, you know, are you able to keep up with the transmission capacity needs for data centers to handle all of this load growth? What's the wait time to connect that you're having to discuss with these customers? Is it fair to characterize a lot of this transmission CapEx that you're adding to the plan here? Is that opening up additional capacity to bring in these new customers? Wondering how that all kind of balances right now.

Yeah, thanks for that question. Really, really excited about where we sit in this regard. As we've noted in here, the increased incremental load growth projected through 2030 is the 28 GW, up from the 24 that we talked about before. That demand growth is roughly 80% tied to data centers in the commercial class and about 20% tied to the industrials. Breaking that up a little more, about 75% is related to transmission and distribution, while 25% is tied to the vertically integrated utilities. As I look out across the RTOs, roughly half ends up in ERCOT, 40% in PJM, and about 10% in the SPP.

As we look at where we sit to connect these customers, clearly we're working with them to site where we have available transmission today to help them with their ramp-ups in the manner in which they want to run their side of the business. In other cases, we're working with them to put in place behind-the-meter solutions. Obviously, Bloom's a part of that in certain cases, but we also have other strategies that we're deploying to support the data centers. For me, this company is all about serving our customers and trying to figure out a way to get them connected as quickly as they can. As we build out the transmission system, of course, that's going to open up additional opportunities to perhaps bring on more of that 190 GW. In the meantime, as Trevor noted, we're very focused on reporting what we have signed.

We're going to under promise and over deliver in this area, but I couldn't be more excited with where we sit across our service territory. We are in, I would say, the catbird seat with regards to connecting data center load. The 765 kV transmission network that we have provides us with an extreme competitive advantage for where these folks are trying to site. I just see an amazing future ahead of us in this area.

Okay, excellent. Yeah, that's helpful. I was wondering if you could characterize your strategy or your thoughts on the generation side as well for vertically integrated utilities. Just how do you manage the balance between how you're thinking about renewables serving this new load versus gas? That's basically the question. As you see, you've talked about peak load for sure, but you're seeing energy demands across the entire system and, of course, peak as well. Yeah, what's the balance there between renewables versus gas on the generation side?

We're focused on doing what our states want as their energy policy. As we go across our major states and work with the customers in those locales, we'll move forward with the types of generation planning that they want. That, of course, gets sorted out generally through the integrated resource plans that we submit. If you look at our major states, obviously, they're very much driven by gas at this point in time. That said, a number of our customers are still heavily interested in renewables. We have a little over $7 billion in our capital plan for the deployment of renewables to support those customers. We're going to continue to go down that path and make sure that we're balanced between what the states want and what our customers want.

I feel very confident in our team that we have the capability to be able to deliver whatever approach those customers want to have in the states that they're located.

Your next question comes from Julien Dumoulin-Smith from Jefferies. Your line is open.

Hey, good morning, team. Nicely done. What a difference the year makes, huh?

Absolutely. Wow. Dream team here. Look, let me frame the two questions. One, going back to the direction Steve was pressing you guys with respect to cadence. I mean, if you're accelerating towards the end of the plan, naturally you'd ask, how does that trend beyond the current plan? If I can cite evidence here, your peers in Indiana put out a growth rate that extends beyond 2030 at this point. How do you think about what you're seeing shape up, whether it's commitments for further ramp beyond 2030 and/or just being able to process some of that load in the longer term, right? I know that folks are trying to get in the queue quickly, but certainly some of that's just going to take longer to process and drive growth beyond that period of time.

How do you think about that 2031, 2032 if there was anything to say preliminarily?

Yeah, so Julian, I appreciate the question. This kind of gets back again to what I had said earlier, that what we want to do is be very confident in the numbers that we put out and deliver on those numbers. That's why I think this 9% CAGR and saying that in 2028, 2029, and 2030 we'll be at or above the high end of the range, we have a great deal of confidence in that. What I want to do is ensure that we are going to deliver on what our commitments are over the next five years. As we continue to see opportunities roll in, we will revise that on an annual basis.

That being said, I did intimate that of the 28 GW that we say we see and are under firm LOAs and ESAs, there is some additional opportunity to see continued load growth on the system as we convert some of the LOAs that are currently being discussed and signed before they get to ESAs to come on. What I don't want to do is put something out there that I don't feel very confident that we can deliver in. That's why I'm very positive and comfortable with where we are on the five-year and again saying that we're at or above that 9%. I don't want to try to sculpt that beyond or where that is in the 2028, 2029 period. That's why I told Steve that we're going to be fairly flat in that area at the 9% or above.

What we're seeing is just incredible growth across the system right now, and that has been accelerating. I think that will carry into the years beyond.

If I can come back to it and ask it in a slightly different manner, with respect to the current five-year outlook, obviously you have a lot of folks knocking on your door, right? You've got this 28, as you described, that you've got under contract. To what extent could you actually see positive revisions further as you convert some of the interest into more of those LOA ESA term sheets? Is that conceivable, or do you think, given what you understand about your system, that you know what, look, this is pretty locked in and we frankly have a pretty rigid ability to accommodate more in this five-year period?

Yeah, look, Julien, I think we're excited about, just like you said at the very opening comment here, what a difference a year makes and what we've been able to do within this one year as we continue to see this mass amount of growth on the system. I know that some people say that we should be somewhat cautious in talking about the 190 GW that are backing the 28 GW, and those are in various stages of discussion. Again, we feel very good about that 28 because of the 190 GW behind it. I think that really could color your view as to where we are on the growth for the system. Is it conservative, given that you've got 190 GW in various stages of discussion? Even if only a fraction of that were to come online, it's still a pretty compelling story from where we are today.

Yep, absolutely. All right, guys, I appreciate it very much. I'll leave it there. Thank you.

Your next question comes from Carly Davenport with Goldman Sachs. Your line is open.

Hey, good morning. Thank you for taking the questions and for all the updates today. Just a follow-up on some of the comments that you've been making on the LOAs versus ESAs. Are there LOAs outside of Texas that are in the plan, and then is there a defined term or gating factor for the LOAs that are included in the 28 GW versus those that are not?

Yeah, there are some LOAs outside of Texas. In PJM, what we have is 100% of the increase is under LOA, and then almost 80% is under ESA. Likewise, in SPP, 100% is under LOA, and then a piece of it is under the ESAs. In ERCOT, of course, everything is under LOA. What I want to emphasize though is these LOAs do have financial commitments associated with them, and that's why we have so much confidence in the 28 GW, Carly.

Got it. Great. Thank you for the clarity on that. Just on the new transmission budget, curious what that assumes on the PJM open window opportunities. Is the most recent window sort of baked in there, or is that a source as you think about potential upside opportunities on the transmission piece of the business?

Yeah, Carly, I would say we've taken into consideration into the five-year capital plan everything that we know with regards to existing transmission that we feel pretty confident about. Again, we continue to see opportunities around incremental investments in the transmission system, maybe not under new transmission lines, but certainly the continuation of the rebuilding of some of the infrastructure. The PJM opportunities are built into this five-year capital plan.

Your next question comes from Nick Campanella from Barclays. The line is open.

American Electric Power (AEP) Q3 2025 Earnings Call Transcript

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