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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

Hello, everyone. Thank you for joining us, and welcome to the American Electric Power third quarter 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. This call is scheduled to last approximately one hour. I will now hand the conference over to Andy Gurgol, Vice President of Investor Relations. Andy, please go ahead.

Good morning, and welcome to American Electric Power's third quarter 2026 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 Fehrman, Chairman, President, and Chief Executive Officer, and Trevor Mihalik, Chief Financial Officer. In addition, we have other members of our management team in the room, including Kate Dixon, Senior Vice President, Controller, and Chief Accounting Officer, and Darcy Reese, Vice President, Investor Relations. 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 reconciliation to GAAP measures. We will take your questions following opening remarks.

Please start on slide five as I hand the call over to Bill.

Thank you, Andy, and good morning, and thank you for joining us for our third quarter 2026 earnings call. In my remarks this morning, I'll briefly cover our third quarter results before turning to the unique advantages of AEP's portfolio and outline how they are driving sustained outsized growth and differential value for both customers and shareholders. A summary of our updated strategic outlook and financial plan can be found on slides five and six. To be very clear, AEP is extremely well-positioned to capitalize on the opportunity ahead through what I would consider a best-in-class leadership team, strong relationships with state political leaders and regulators, intense focus on financial performance, balance sheet strength, and exceptional execution-driven accountability across the entire organization.

Combined with the size, scale, and diversification of our portfolio, AEP provides reliable and affordable electric service, delivers the growth investments our customers need, and creates substantial long-term value for our shareholders. Today, we are pleased to introduce a new long-term expected annual operating EPS growth rate of 9%-11% for 2027 through 2031. We also expect a compounded annual growth rate of greater than 10% through 2031 based on the original 2026 guidance midpoint. This outlook is supported by a $100 billion five-year capital plan, one of the largest in the industry, anchored by significant and durable investments in the safety, reliability, and resilience of our system, particularly across generation and transmission.

In support of this growth, this past quarter, we finalized commercial agreements for both the Wyoming fuel cell project and the 765 kV transmission build in Piketon, Ohio, allowing us to incorporate both into the updated capital plan. Construction is well underway on the Wyoming fuel cell project, which is underpinned by a 20-year power purchase agreement with Google. The Piketon Project is supported by a 20-year offtake agreement with SB Energy, which will fund the project cost and is backed by a highly rated investment-grade counterparty. With construction expected to begin in the first quarter of 2027, we have secured substantially all of the rights of way and plan on submitting the required regulatory filing shortly. We are also pleased to share that AEP reported third quarter 2026 operating earnings of $2.23 per share, or $1.2 billion.

As a result, we now have confidence to expect full-year operating earnings to be at or above the high end of our recently increased 2026 guidance range of $6.25-$6.55 per share. Given the visibility we have in our growth and confidence in our execution plans, we are excited to share 2027 and 2028 operating earnings guidance ranges of $6.75-$7.05 per share and $7.40-$7.70 per share, respectively. Year-over-year, the midpoints of these ranges imply an approximate 9.5% increase based on the original 2026 guidance midpoint. Later in the call, Trevor will walk through third quarter performance drivers and provide additional details regarding our updated financial plan and long-term outlook. Please turn to slide seven. The U.S. utility sector is experiencing an unprecedented surge in electric demand, and AEP is right in the center of this opportunity.

Given the scale of contracted and committed load across our service territory, we expect demand on our system to more than triple by 2031, created by substantial economic development activity throughout our footprint. What sets AEP apart is not simply the scale of that growth, but where it is occurring. The 11 states we operate in generate roughly one quarter of U.S. GDP and are attracting significant investment from data centers, manufacturing activity, and energy infrastructure. These trends are driving a durable increase in electricity demand and creating substantial opportunities for long-term infrastructure investment. Importantly, the states served by AEP pair robust business fundamentals with supportive state political leadership, constructive regulation, and strong investment recovery mechanisms. The combination of compelling demand growth, constructive regulation, and transparent cost recovery frameworks position AEP to capitalize on this growth opportunity and reflects the characteristics that investors continue to reward with premium valuation.

Turning to slide eight, AEP's scale, expertise, and leadership in transmission, particularly 765 kV infrastructure, provide a sustainable and increasingly valuable strategic advantage. We own and operate the nation's largest transmission network, which positions us to capture significant organic growth opportunities while offering customers a differentiated single provider solution across multiple RTOs and states. AEP pioneered the 765 transmission system in North America and has spent more than six decades refining the capabilities, expertise, and institutional knowledge required to efficiently operate and expand this infrastructure at scale. That experience continues to drive innovation today. As an example, our engineering team has recently developed new proprietary designs that materially reduce both tower height and right of way requirements, allowing 765 kV infrastructure to be deployed with physical characteristics largely in line with 345 kV transmission, but deliver six times the electricity.

These types of innovations reinforce our ability to deliver transmission solutions more efficiently, support growing customer demand, and create differentiated value for our customers, communities, and shareholders. Please turn to slide nine. One of the most compelling aspects of our growth strategy is that it simultaneously supports both investment and affordability. As new large load customers connect to our system, they contribute incremental revenues that help offset fixed costs for existing residential customers. Supported by fully executed take-or-pay ESAs, we estimate that this could now generate up to $21 billion of benefits for existing residential customers across our vertically integrated utilities over the life of the contracts. This is up from $16 billion discussed on AEP's prior earnings call. This creates a powerful virtuous cycle in which economic development and load growth support customer affordability. We are already seeing this dynamic play out in real time.

In Indiana, new large load growth enabled us to file a second rate decrease this past quarter. In short, growth, when managed responsibly, can benefit both customers and shareholders. I would now like to briefly address AEP's early-stage nuclear strategy. Last week, we announced a development agreement with two exceptional companies, X-energy and Amazon, to evaluate a potential small modular reactor project in Indiana, which is the only early-stage nuclear project we are currently advancing. Importantly, the agreement with X-energy and Amazon is limited to development activities and feasibility work requiring minimal investment by AEP. Any potential project would need to successfully progress through multiple stage gates before a final investment decision is made. The earliest that could occur is sometime in 2030, subject to meeting clear strategic and financial objectives.

As we have consistently stated regarding our approach to nuclear development, we remain highly disciplined to ensure that we are protecting our existing customers, shareholders, and balance sheet. Please turn to slide 10. This has been an extraordinarily productive year so far for AEP as we continue to execute with urgency to serve our customers and capture what we believe is a once-in-a-generation growth opportunity. Our scale, diversification, and exposure to some of the most attractive growth markets in the country position AEP exceptionally well to drive sustainable long-term value for both customers and shareholders. To deliver on our commitments, we are advancing projects through standardized designs, early procurement of long lead equipment, long-standing key relationships with industry leaders such as Kiewit, GE Vernova, and Mitsubishi, and a formalized partnership with Quanta.

Supported by decades of experience designing, building, and operating large-scale infrastructure, these key suppliers are providing top craft labor teams, manufacturing capacity, and technical expertise needed to execute our plan with speed and certainty. A key component of our execution strategy is continuing to work with our states to achieve constructive regulatory outcomes and enhance cost recovery across our portfolio. In Texas, a constructive unanimous settlement was filed for SWEPCO's base rate case with a proposed 9.53% ROE, up from 9.25%, and a proposed 51.98% equity layer, up from 49.4%. This positions SWEPCO well to advance growth plans and enhance safe, reliable, and affordable electric service for customers. In Virginia, APCo filed a constructive rate case settlement with a proposed 9.8% ROE, up slightly from 9.75%.

There are two key features of this settlement. First, a substantial portion of operating costs, including vegetation management, are proposed to move from base rates to annual riders, thereby reducing earnings lag. Second, base rates are expected to decrease in the first year following an order, further supporting efforts to drive customer affordability. To summarize, the key takeaway is simple. We are not preparing to execute this plan. We are already well into executing on it. We have the experience, partnerships, and operational capabilities in place to deliver this plan at the pace our customers need and create differential long-term value for our shareholders. I could not be more confident in the team we have assembled, the strategy we are executing, the improvements we have made, and the opportunities ahead.

With that, I'll turn the call over to Trevor, who will walk through our third quarter financial performance and provide additional detail on our long-term growth and financial outlook. Trevor?

Thanks, Bill. I will begin with our financial results, then review our updated financial plan, starting with the increased long-term earnings growth rate. I will also discuss details about the capital plan, rate base growth, and financing strategy before closing with why we believe AEP is uniquely positioned to capture the significant growth opportunities across our footprint. Please turn to slides 12 and 13 of the presentation. For the third quarter of 2026, AEP delivered operating earnings of $2.23 per share, compared to $1.80 per share in the third quarter of 2025. Each segment contributed higher earnings versus the prior year, driven by constructive regulatory outcomes, strong demand growth across our footprint, and continued transmission and generation build-out.

As Bill shared, given our strong performance year to date, we expect full year operating earnings to be at or above the high end of our 2026 guidance range of $6.25-$6.55 per share. Looking ahead to 2027, you will notice that our operating earnings guidance on page 22 in the appendix includes a new segment, AEP Infrastructure. This is driven by the evolution of the generation and marketing business towards infrastructure investments supported by contracted and highly predictable cash flows. A good example of this is the recently announced fuel cell project in Wyoming, supported by a 20-year take-or-pay PPA with Google. The new AEP Infrastructure business brings together our contracted generation assets, legacy PPAs, and other infrastructure investments under a single reporting segment. Going forward, we expect this business to move towards projects backed by high-quality long-term contracts. Turning to slide 14.

The most important takeaway from today's update is that we are entering the next chapter of AEP's growth story with greater confidence in both the magnitude and durability of our long-term growth opportunity. Historically, we have provided only the prompt year of earnings guidance. Today, we are providing more visibility into our expected financial performance with guidance ranges for both 2027 and 2028. That confidence goes well beyond the near term. We're now increasing our expected annual operating EPS growth rate to 9%-11% through 2031, up from our prior 7%-9% range. We're also increasing our expected five-year operating earnings CAGR to greater than 10% through 2031. The breadth and durability of opportunities across our portfolio provide confidence that our growth extends well beyond the five-year plan. Accordingly, we're also projecting a 10% operating earnings CAGR through 2033 based on the original 2026 guidance midpoint.

Today's update represents a meaningful step change in AEP's growth profile. We're growing faster and with greater visibility than ever before, further underscoring AEP's position as one of the premier high-growth companies in the utility sector. We're doing this while maintaining a focus on improved reliability and affordability. Please turn to slides 15 through 17. As Bill highlighted, we're excited to introduce our $100 billion five-year capital plan through 2031, one of the largest investment programs in the utility industry. With this new capital plan, we expect rate base to increase from $87 billion in 2026 to $162 billion by 2031, nearly doubling over the next five years. That translates into a rate base CAGR of more than 13%, up from 11% in our prior 2026 through 2030 capital plan.

This expected step-up in growth becomes particularly visible beginning in 2028 and 2029 as large generation and transmission projects are placed into service. Transmission remains one of AEP's most attractive investment opportunities, reflecting the scale and strategic advantage of operating the nation's largest transmission business. Our transmission capital plan increased to $37 billion through 2031 and now includes the Piketon Project in Ohio. We expect transmission rate base to nearly double over the next five years, approaching $70 billion by 2031. Moving to generation. Our updated plan incorporates $36 billion of investment through 2031. Regulated gas generation represents the largest opportunity, increasing by $7 billion versus the prior five-year capital plan. The rationale is simple. Contracted customer demand is growing faster than the operating output of our existing fleet, creating a clear, durable need for new baseload dispatchable generation.

Importantly, these generation investments are supported by fully executed take-or-pay ESAs within the VIUs, providing a higher degree of confidence in the underlying demand. They also benefit from constructive regulatory and cost recovery frameworks, such as Oklahoma's generation pre-approval mechanism, which allows for concurrent rider and construction work in progress recovery. Finally, distribution investment increased to $22 billion over the next 5 years, focused on grid modernization, reliability, resiliency, and infrastructure replacement. These are foundational investments required to strengthen the system and efficiently serve customers. Just as important is the quality of investment recovery. Roughly 90% of planned utility investments is expected to be recovered through reduced lag mechanisms, including riders, trackers, and forward test year rate cases. These constructive frameworks provide greater cash flow and earnings visibility while supporting more timely recovery of invested capital.

Taken together, this $100 billion five-year capital plan reflects a significant expansion of our investment opportunity, supported by contracted customer demand, highly visible transmission investments, and essential distribution infrastructure needs. Turning to slide 18. We now have 84 GW of incremental contracted load through 2031. This represents a 15 GW increase from the 69 GW contracted load we outlined on our second quarter earnings call. This step change is driven by the addition of Piketon and other ESAs signed since late July. In total, we now have 35 GW of incremental contracted load backed by firm take-or-pay ESAs. That leaves only 3 GW not under take-or-pay ESAs in PJM and SPP, which we anticipate will be converted in the near term. In ERCOT, our entire 46 GW of contracted load is backed by fully executed SB6 compliant letters of agreement.

Tying it back to the new financial outlook, the contracted load we have signed in PJM and SPP is largely reflected in the capital plan. For AEP Texas, we continue to see significant investment opportunities. However, we are taking a measured approach to how we add capital to the plan as the batch process and broader transmission planning continues. Therefore, most of our Texas plan reflects system reliability and resiliency, while only a portion of the transmission build-out required in Texas is incorporated, which includes the recently approved Howard to Solstice line. As these processes evolve, we expect additional capital opportunities to be secured in Texas. We also anticipate incremental generation investment opportunities, given strong customer demand, as well as continued growth in organic and competitive transmission. Taken together, these upside opportunities provide a long runway for future capital investment and earnings growth. Turning to slide 19.

Our expanded capital plan is supported by strong operating cash flow and a disciplined financing strategy. As noted on the slide, we expect to generate approximately $55 billion of cash from operations over the five-year forecast period. That strong and growing cash flow represents a significant source of funding for our investment program, supporting more than half of our $100 billion capital plan. In addition, we remain committed to returning capital to our shareholders through consistent dividend growth. A key differentiator of our financing plan is the relatively modest incremental equity requirement. Because we have been forward-leaning in issuing equity over the last few years, we have created significant financing flexibility and expect to fund growth with meaningfully less equity than the industry norm of 30%-40%. Specifically, we have added $22 billion to our capital plan while increasing equity funding by only $5.2 billion.

That means 24% of the incremental investment is expected to be funded through new accretive growth equity. It is also worth noting that $2.5 billion of the incremental equity assumption relates to marketed growth equity over the next two years of the plan. Simply put, we are funding a significantly larger investment opportunity with only modest equity needs to maximize shareholder value. We are entering this period from a position of financial strength with both Moody's and S&P FFO to debt currently within our 14%-15% target range and well above the 13% downgrade threshold, reflecting meaningful progress we have made over the last several years. Combined with our strong operating cash flow, this positions us well to execute our plan while maintaining our strong balance sheet. Please turn to slide 20, where I will conclude with a brief summary of what you heard today.

First, you heard that the business is performing exceptionally well. Our strong third quarter results reflects the benefits of disciplined execution, constructive regulatory outcomes, growing customer demand, and continued investment across the business. In fact, the strength we are seeing across the company gives us the confidence to deliver 2026 operating earnings at or above the high end of the guidance range. Second, you heard that we continue to expand our investment opportunity. Our new $100 billion five-year capital plan drives our expectation for rate base to nearly double to $162 billion by 2031. Third, you heard that our new update reflects a meaningful uplift in AEP's growth profile. We are raising our expected annual operating EPS growth rate to 9%-11% for 2027 through 2031, as well as increasing our expected long-term operating earnings per share CAGR to more than 10% over the same period.

Also, given the robust growth we are seeing across our portfolio, we expect this growth to continue well into the next decade, as we project a 10% operating earnings CAGR through 2033 based off of the 2026 original guidance midpoint. Lastly, you heard that we remain committed to balancing growth with affordability. Through large load tariffs, customer-funded infrastructure arrangements, and other innovative structures, we are working to have new growth help fund needed investments while also delivering meaningful affordability benefits for existing customers. Fully executed take-or-pay ESAs in the VIUs are now expected to generate up to $21 billion in fixed cost offsets, increased from our previously announced $16 billion for existing residential customers over the life of the contracts. When you step back, the investment thesis is straightforward.

AEP is one of the largest and most visible growth opportunities in the utility sector, supported by durable capital plans, constructive regulatory frameworks, strong execution capabilities, and a disciplined financial strategy. We believe these advantages position us to deliver top-tier growth, generate 12%-14% annual total shareholder return through 2031, and create meaningful long-term value for our customers and shareholders. With that, I will now ask the operator to please open the line for your questions.

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Shar Pourreza with Wells Fargo. Shar, your line is open. Please go ahead.

Good morning. Good morning. Big congrats on these results. Bill, just $100 billion CapEx is obviously fairly large. You are now guiding to a 10%+ CAGR through 2031. Can you just help better frame what could dictate that plus? Does Texas get you over 10% or extend the 10% runway? Then why assume the CAGR steps down to 10% through 2033, just given this robust plan? Is it the law of large numbers or just being conservative in the near term? Thanks.

Yeah. Thank you, Shar, and really appreciate the question. We see a really substantial pipeline of potential investment opportunities out there that is in excess of the capital plan we just discussed, really particularly in transmission and generation. Directly to your point, on the transmission side, additional 765 kV in Texas, we have projects emerging from SPP's integrated transmission plan. We have the competitive RFPs that we are very active in, and then of course, continued organic growth across the system. On the generation side, the combination of really super robust load growth and future plant retirements that we have coming up creates a significant and really visible need for new gas plants. Taken together, our long-term investment pipeline really remains exceptionally robust well into the next decade.

In working with Trevor and the team here, and given this visibility, along with our focus on ensuring we execute on this, I am really confident in our ability to deliver the 10% EPS CAGR through 2033. Obviously, as time goes on, we will continue to refine that. We want to make sure we underpromise and overdeliver. I am excited about giving you visibility out that far, and I am really confident on where we sit.

Got it. Perfect. Just the 300 basis points of lag between rate base and the EPS CAGR, obviously financing is a key part of it. Can you just give us a sense around the timing of equity? Any equity needed in 2026? I have to imagine, sort of the cash flow profile that comes with these large load customers kind of further helps you be more flexible, especially if they are paying some upfront. Just kind of curious on timing of equity. Thanks.

Yeah, Shar, this is Trevor. I will take that one.

Look, I think one of the things we've done, and we mentioned it in the prepared remarks, is we have been very forward-leaning in the equity, and we're sitting on over $5 billion of equity forwards right now in support of this capital plan. By doing that's given us a great deal of flexibility. What we're looking at right now is continuing to have the ATM option open to us, and then we kind of layered in that $2.5 billion at some point that we'll do over the next two years in support of this plan. What we'll probably see us do is bring some of that equity forward that went out all the way to 2028.

We'll utilize those equity forwards, and then at some point over the next two years, we will either go to the market and do either a block equity or equity linked securities, or continue to run the ATM. When you looked at us this last year, we said we would do $1 billion of ATM, and we got that $1 billion done well before the end of the third quarter. There's a lot of opportunity for us to get that equity in multiple different structures. Again, I think we've been very conservative in ensuring that the equity we do issue is done in a very shareholder-friendly way. So, it's given us a great deal of flexibility with how proactive we've been.

Perfect. Thanks, guys. Appreciate it. Big congrats. See you in a week. Thanks.

Your next question comes from the line of Steve Fleishman with Wolfe Research. Steve, your line is open. Please go ahead.

Yeah. Hi, good morning. Can you hear me okay?

Okay, great. Good morning. First of all on the generation builds in Indiana and at APCo, are those going to be done in the regulated businesses or are those being considered for kind of the GenCo structure still?

We continue to view the GenCo concept really favorably and are actively evaluating where it can create the most value for customers. We're also completing a detailed assessment of which jurisdictions would be best suited for a GenCo structure from a regulatory perspective. We're making sure that we're socializing this with our regulators and our state policy makers. But really given the urgency of meeting the growing customer demand, our focus right now has been on securing the load and moving forward with the generation investments that we need to support that growth in the vertically integrated utilities. The financial plan that we laid out today also preserves that flexibility.

Should a GenCo structure emerge as a viable pathway in any given state, particularly West Virginia and Indiana, we could ultimately look to house a portion of the planned or future gas plants in that framework. Continuing to work it, continuing to socialize it, and making sure that we've got the proper regulatory and other support in the states where we view these as most interesting.

Okay, great. Then maybe just on the, I think if I saw it right, of your 84 GW of load that you have got locked up, I think there is only 35 GW of that kind of baked into your plan. Is that correct?

What you have seen us do is we grew the amount of contracted load from 69 GW-84 GW. A majority of that is really the Piketon Project, which represents 9 GW, and then there is an additional 2 GW in Ohio, and 2 GW in APCo, and there is a gig in PSO. What we are seeing is strong growth there. What you are really looking at, and I think what the crux of your question is as we look at Texas, what is really kind of in the plan related to the 45 GW or the 46 GW that we have under LOAs. Generally what we are seeing there is

Yeah. What we are seeing there is the opportunity to continue to invest in Texas. Right now what we are seeing is most of that is really the Texas capital plan is $17 billion, and it has been designed and focused around enhancing system reliability and resiliency. There is really incremental investment to expand around ERCOT 765 system, such as the Panhandle RPG initiative. That spend is not included in the plan. I would say what you are looking at is probably a fairly conservative capital plan in Texas, especially as it relates to the incremental LOAs that we have got associated with Texas.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien, your line is open. Please go ahead.

Hey, good morning. Got to echo the comments made thus far. Really quite an impressive outcome here altogether. You really did deliver, as you say, high quality. With that said, actually, let me just pick it up where Steve left it off there. First off, how do you think about recutting that Texas conversation against Batch Zero versus Batch One? Inasmuch as it would appear that some of that upside you were just alluding to in terms of what's in versus not in the plan could indeed fold in as you look at these Batch One filings as soon as next year, and that could be within the five-year, certainly within the seven-year window. Do you want to talk a little bit about that timing of when some of this other load could start to firm up, if you get what I'm saying?

I don't want to get too ahead of myself, but at the same time, I want to make sure I'm hearing you right in how you're describing it.

Yeah, thanks, Julien, and good morning. With regards to the timing of Batch Zero, our understanding is that ERCOT expects to file its data center audit report on December 10, which will then be discussed during a PUCT open meeting that following week. ERCOT originally planned to complete the Batch Zero process in April. While this is being delayed, we don't expect it to be really pushed out materially further. Of course, I want to reiterate that our signed load in ERCOT is real. We've collected over $2 billion of cash or collateral just for Texas. Of the 45 GW we submitted as part of that Batch Zero filing, 16 GW were categorized as base load and the remaining 29 GW as study load.

The conditional load classifications that ERCOT communicated in early September are really generally consistent with our filings, so we feel very strong and good about that. However, we do view these classifications as being more sort of administrative in nature as they work through the overall process. Clearly, we will have more clarity in the coming months. Our customers, as we have had our discussions with them, they remain very committed to connecting to our system, and we continue to be very excited about our business opportunities in Texas.

Excellent. Then just in terms of a more substantive EPS question, you have got this 10% number in the later years. Your last year, if you think about that roll forward, because you obviously provide some more discrete rate base numbers. If you think about rolling forward 2030 to 2031, for instance, you have got a 7% growth in that final year. How do you think about what is baked into rate base in what you are showing here versus what is kind of baked into your EPS numbers and commitments here for the 9%-11% or 10% or however you want to characterize it?

In the later years. Are you affected? Go for it.

Yeah. What we wanted to do with this was really provide a look just a little bit beyond the five-year plan. What we did is rolled out that seven-year look on that 10%. What I don't want people to assume is that we're walking down or stepping back from what we're seeing is robust growth across the system. We really just haven't put the capital into those years and the associated financing. I think you've seen us continue to show that this capital plan has a long runway for increased growth, and we're very confident about sustaining that 10% over the long-term period. When you get seven years out into the plan and still being able to say we're growing at a 10% CAGR, yeah, you may be right if you actually run the calculation that you see a slight drop-off.

What I'm saying is that we don't even have a lot of these incremental growth opportunities baked into the plan at this point yet. This, I would say, is really a conservative look around the corner, and we feel very good about where things are going, especially within the historical five-year window. In the seven-year window, as we continue to update that, I think you'll see that continue to show strong, robust growth like we're seeing in that 2029, 2030, and 2031 timeframe.

Yeah, indeed. Are there any lumpy items that you'd be looking out for those final years as you think turn around the corner here that could move the needle? You've made some pretty big moves here of late. I'm just curious if there's anything that stands out that you'd be watching here as you think about lumping into that, call it that 2031 rate base.

Yeah. I would say, Julien, what you would want to watch for is the continuation of the build-out in Texas. I think we've been fairly conservative in the Texas capital plan, especially around 765 kV build-out. I think you can also take a look at the generation needs as we lean into the incremental generation opportunities across the VIUs. From that perspective, both transmission and generation are going to be big projects coming in and incremental projects as we continue to roll out the capital plan in subsequent years. We also, on the transmission side, also have the competitive transmission projects, and you've seen us pretty active in MISO with the projects that we announced up in Wisconsin. I think this will be a very much a continuation of the underpromise and overdeliver mantra that this management team is doing.

Your next question comes from the line of Nick Amicucci with Evercore ISI. Nick, your line is open. Please go ahead.

Hey, good morning, everyone. I did want to just say congrats to Darcy and thanks for all the help over the years. I did want to just ask on the $37 billion for transmission, $17 billion is RTO-driven, $11 billion reliability, and $9 billion individual customers. Just as we think about the RTO piece in particular, how much of that has been awarded versus pending regional planning or competitive bids?

Hi, Nick. It's Kate here. When we put that into the plan, that has already gone through a regional transmission planning process. That is work that has already been identified and the needs identified, whether it's an SPP, MISO, ERCOT, or PJM. All of that's been through the process. The majority of that is now ready to construct, and we continue to work through the final stages of the regulatory process on the other items in there. I want to reiterate, all of that has been through kind of the regional needs process. That doesn't include any of the upside that Bill talked about that we may see in the future as these planning processes continue.

Perfect. Makes sense. Just as we think about the new segment, AEP Infrastructure. I guess with the fuel cell project, not targeted to come up into service until 2028. Just, I guess what's driving the $0.26 accretion in the infrastructure from contracted assets versus maybe retail and wholesale?

Yeah. Nick, what we are seeing is within the Wyoming fuel cell project, it's going to come on in stages, and so there's I think five or seven discrete stages of when those fuel cells are coming on. So we're actually seeing earnings contributions in 2027, and then the entire project would be fully in service by December of 2028, and it would be then a full run rate in 2029. So that's really kind of what you're seeing in the step up there on the AEP Infrastructure. Kate, anything you want to add?

No, I think that is right. When we see you at EEI, we will provide all the breakout of the earnings drivers. But Trevor is absolutely right.

Perfect. Look forward to it. Thanks, guys.

Your next question comes from the line of David Arcaro with Morgan Stanley. David, your line is open. Please go ahead.

Oh, hey. Thanks so much. Good morning. Maybe continuing on that question a little bit on the infrastructure side of things. I was just wondering, how do you frame capital allocation to the AEP infrastructure side of things? A fairly minor amount of CapEx being allocated to that currently, and I am wondering, is that going to be largely driven by some of these individual large project opportunities that you identify, or maybe shaped by more of a generation business in West Virginia and Kentucky? I guess what defines that and maybe what's the timeframe as you consider additional CapEx opportunities there?

Yeah. David, here again, we've taken a fairly conservative approach in putting capital into that business. Greg has done a good job of continuing to grow that business as we've seen with the Bloom fuel cells. What we're really looking at, and I think the heart of your question around capital allocation is, those dollars that get allocated to that unregulated business need to compete at a higher than return on a regulated business. From that perspective, as Greg, across his business, looks at opportunities, we're looking at, again, substantially higher returns than what we would get on the regulated side in order to justify the capital allocation to that. We certainly saw that with the fuel cell project in Wyoming.

The other thing that's pretty important, and that's why we've really kind of now driven towards this new segment and calling it AEP Infrastructure, is because we are seeing more long-term contracted infrastructure with highly creditworthy counterparties, and that's what we're really looking for. This isn't about us just trying to go find merchant generation. This is where can we augment our existing footprint and where can we augment our existing capabilities to bring incremental shareholder value at an amount and at a return appropriate for that unregulated business.

Got it. Yeah, thanks, Trevor. That makes a lot of sense. I'll leave it there. Appreciate it.

Your next question comes from the line of Ross Fowler with Bank of America. Ross, your line is open. Please go ahead.

Morning, Trevor. Morning, Bill. How are you?

Just a couple of questions from me. Really quick on incremental equity here that is running at about 24% of CapEx, and I apologize if I missed this in an earlier answer because there was 300-ish calls going on. Trevor, is that sort of the expectation I should think about going forward as I look at modeling any new incremental CapEx? You have talked a lot about CapEx upside from the $100 billion. How do I think about that as the right ratio?

Yeah. Ross, we have kind of been pretty public about the fact that across the industry, you generally see roughly 30%-40% of incremental equity for incremental capital. Given the strong cash flows that we have within the business, you are looking at this plan generating $55 billion of free cash flow off of the business. Then looking at how we have leaned into the equity needs that we had before and putting a lot of that $5.2 billion into forward contracts, that is giving us a great deal of flexibility. What I would not want to do is box ourself in at this point and saying all incremental capital is going to be financed at sub 25%. But again, you are going to see us be very shareholder friendly.

We realize just how precious shareholder capital is and how precious that equity is. We don't take it lightly when we go out with issuing it. But when we do issue equity, it needs to be accretive to the earnings and to the plan. From that perspective, we're going to always try to find the most efficient ways to finance and fund the growth of this business. As we continue to roll out revisions to the capital plan in subsequent years, you can see us looking at multiple different equity or equity-linked instruments, as well as seeing the significant amount of cash generation from these existing businesses being generated that will help finance growth in the future. Again, we want to be as conservative as we possibly can with shareholder equity.

Yeah. I would expect nothing less, Trevor. I don't want to beat a dead horse here, but maybe winding back to Texas and following on to Julien and Steve's question. If I think about what you're showing in Texas right now, and I go to slide 17, about $6.4 billion of that's distribution, right? Then I get about $7.4 billion of transmission. Now, part of that transmission is Howard-Solstice, I think, that's in there, right? That's the first-

question. The next question is, of what's left, after I take Howard-Solstice out of that $7.4 billion, can you give me any scope of what- we're getting to a pretty small number in the context of your $100 billion plan, but what's in there for Batch Zero? Is it anything? Is it a very small proportion of what's left? I think you kind of talked about that, but I'm just trying to scope out for the LOAs, what's left in that remainder?

Yeah. I will let Kate kind of get into the detail on this, but I will say, one, for sure, the Howard-Solstice line is included in the plan right now. That 765 kV is in there. Kate, why don't you walk through a little bit with regards to what's in and what's not in, and why we think the Texas capital plan is actually fairly conservative at this point?

Hi, Ross. We've taken, as Trevor said, a pretty conservative approach to the AEP Texas capital plan in this update, just while we wait for the Batch Zero process to play out and the broader transmission planning. If we look at AEP Texas's capital plan, about 85% of that is currently allocated to system reliability, resiliency, replacing infrastructure, and modernizing the grid. To Trevor's point, that does include approved lines like the Howard-Solstice line. I would think about most of the AEP Texas plan as being related to resiliency and reliability at this point. As we look forward, as Batch Zero progresses and as the broader transmission planning process progresses, there's absolutely upside, which, as that crystallizes through the process, we'll think about when to add that to the plan at the appropriate time.

Okay. That makes complete sense. Thank you.

American Electric Power (AEP) Q3 2026 Earnings Call Transcript

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