American Electric Power Company, Inc. · NASDAQ:AEP
American Electric Power — Investor Day (October 2022)
55 slides from American Electric Power's investor day presentation, Oct 4, 2022
Slide 1: AEP Analyst Day 2022
AEP ANALYST DAY 2022 Delivering Maximum Value to Stakeholders through Active Management Nasdaq MarketSite • New York City October 4, 2022 • 1:30pm – 4:00pm AEP CONFIDENTIAL
Slide 2: Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
“Safe Harbor” This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its Registrant Subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influence
Slide 3: Today's Speakers and Agenda
Today’s Speakers and Agenda Nick Julie Greg Antonio Matt Raja Akins Sloat Hall Smyth Satterwhite Sundararajan Chair and CEO President and CFO Executive Vice Senior Vice President, Senior Vice President, Executive Vice Executive Chair President and CEO President, Grid Solutions Regulatory President,
Slide 4: Nick Akins
Nick Akins Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed by Q&A
Slide 5: AEP Is a Pure Play Regulated Utility
17,000 AEP Is a Pure Play Regulated Utility 40k TRANSMISSION MILES $ 91B TOTAL ASSETS EMPLOYEES Nation’s largest electric Strong balance sheet Across the system transmission system 224k DISTRIBUTION MILES $ 56B RATE BASE 5.5M CUSTOMERS One of the largest distribution As of December 31, 2021 Througho
Slide 6: AEP's Strategic Vision and Execution
STRATEGIC PILLAR STRATEGIC PRIORITIES AEP’s AFFORDABLE • Be an industry leader in cost efficiency while prioritizing spending appropriately to ensure safe and reliable service Strategic Enable equitable access to affordable and reliable electricity • Grow our business while keeping rates at or below
Slide 7: Taking Bold Steps to Accelerate CO2 Emission Goals
Taking Bold Steps to We are rebasing our near-term CO2 emission reduction target to 2005, Accelerate CO2 Emission upgrading our 2030 target to include full Scope 1 emissions and accelerating our net-zero goal by 5 years Goals We Have an Achievable Pathway to Net-Zero by 2045 NEW GOAL: NEAR 80% REDUC
Slide 8: Proven Track Record of Reducing Fleet Emissions
Proven Track Record of Reducing Fleet Emissions 63% Reduction in CO2 emissions from Forecasted CO2 Emissions (Scope 1) 152M metric tons in 2005 to 56M metric tons in 2021 98% Reduction in SO2 emissions between 1990-2021 80%+ Reduction in 95% Reduction in 95% Scope 1 Emissions Scope 1 Emissions Reduc
Slide 9: Continuing to Advance Our Coal Fleet Transition
26% of AEP Has Retired or Divested the Net Plant Continuing to ~24,800 MW1 2010 Most Coal Generation in the Industry Since 20104 Advance Our Coal Fleet Transition 11% of Coal-fired generation is projected Net Plant to be less than 5% of AEP’s Net ~11,850 MW1,2 Plant by YE 2028 Coal Net Plant as % 20
Slide 10: Transforming Our Generation Fleet
Transforming 80% Our Generation 70% 66% 70% Fleet 60% Nameplate Capacity 52% 50% 41% 40% Capacity includes both owned and PPA generation. Energy Efficiency / Demand Response represents 30% 27% avoided capacity rather than physical assets. 22% 23% 2022 data as of 6/30/2022 and includes current 19% 19
Slide 11: Regulatory Timeline of Kentucky Sale
NOV DEC JAN FEB MAR APR MAY JUN 2nd Half JAN AEP Filings 2021 2021 2022 2022 2022 2022 2022 2022 2022 2023 Mitchell Operating Mitchell Operating Regulatory Timeline Agreement1 Kentucky Public Agreement Update: • Filings made July 11, 2022 of Kentucky Sale Service Commission Order Received May 3, 202
Slide 12: Julie Sloat
Julie Sloat Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed by Q&
Slide 13: Stakeholder Commitments
Stakeholder Commitments 6%-7% Annual Dividend Growth In-line with Strong Balance Sheet Operating Earnings Earnings Growth and Targeted with a Target FFO/Debt Growth Payout Ratio of 60%-70% of 14%-15% New ESG Goal of Customer Care: Commitment to Active Management of the AEP Net Zero by 2045 Identific
Slide 14: Strong Return Proposition
Strong Return 4.97 - 5.07 $ $ Proposition UPDATED 2022 OPERATING EARNINGS GUIDANCE RANGE Narrowing 2022 Operating Guidance Range Steady and Predictable Growth Raising Midpoint to $5.02 Consistent Dividends 5.19 - 5.39 $ $ Strong Balance Sheet Low Risk, Regulated Assets Robust Electric Infrastructure
Slide 15: Total Shareholder Return
Total Shareholder 260% Return 240% 245% 243% AEP’s total shareholder return outperformed 220% the S&P 500 Electric Utility Index and the broader S&P 500 Index over the last decade under Nick Akins’ leadership 200% 194% 180% AEP 160% S&P 500 Electric Utility Index S&P 500 Index 140% 120% 100% 2012-20
Slide 16: Inflation Reduction Act (IRA) Quick Takeaways
Inflation Reduction Act (IRA) Quick Takeaways • Extension and modification of renewable energy tax credits and Poised to Deliver inclusion of nuclear Production Tax Credit (PTC) supports our 1 Significant Benefits for customers desire for an affordable and reliable clean energy transition Our Custom
Slide 17: 2023-2027 Capital Forecast of $40B
Other Generation Corporate $1.1B • 3% Nuclear $3.1B • 7% Generation Regulated $0.3B • 1% Environmental 2023-2027 Capital 99% Generation $0.4B • 1% Forecast of $40B Gen & Marketing of capital allocated to $0.4B • 1% regulated businesses Distribution The ability to quickly redeploy transmission and di
Slide 18: Shift to Wires and Renewables
2023-2027 Regulated Capital Forecast Shift to Wires Corporate Generation and Renewables 2013-2017 $3.1B $1.8B Regulated Capital Corporate $1.2B Regulated Generation Renewables ~90% of future investment $3.8B $8.6B Distribution is in wires and renewable $5.8B Distribution 40B generation $10.8B $ $ 22
Slide 19: Undervalued Transmission Business
Undervalued AEP derives more than 50% of its Transmission earnings per share from its transmission Undervaluation of AEP Shares (2024E) ($/share) business Business AEP Trans Transmission in AEP Total AEP FirstEnergy Transmission Minority Sale $/share Holdco Operating Transmission Companies Estimated
Slide 20: Efficient Cost Recovery Mechanisms
Efficient Cost 2023-2027 Regulated Capital Investments Recovery $16B $15.0B Mechanisms $14B $12B $10.8B $10B ~85% of capital plan is $8.6B recovered through $8B reduced lag mechanisms $6B $4B $3.1B $1.8B $2B $0B Transmission Distribution Regulated Renewables Generation Corporate/Other Historical Tra
Slide 21: Continuous Focus on O&M Efficiency
2023E Inflation Gap of ~$0.5B $5B Inflation ~6% Avg. 2022E – 2023E Continuous Focus Inflation ~2% Avg. 2013A – 2021A on O&M Efficiency $4B O&M discipline over Total Non-fuel O&M $3B time amid rising costs and growing asset base $2.5B $2.5B $2.8B $2.9B $2.7B $2.9B $3.1B helps keep customer $2.1B $2.3
Slide 22: Weather Normalized Billed Retail Load Trends
AEP Normalized Residential GWh Sales AEP Normalized Commercial GWh Sales Weather Normalized % Change vs. Prior Year % Change vs. Prior Year Billed Retail Load 6% 6% 4.7% 4.4% 3.2% 3.4% 3.0% 3% 3% 1.2% Trends 0.7% 0% 0% 0.0% -0.1% -0.1% -0.6% -1.1% -1.1% -3% -3% -6% -6% -4.2% -9% -9% 2019A 2020A 2021
Slide 23: 2023-2027 Cash Flows and Financial Metrics
$ in millions 2022E 2023E 2024E 2025E 2026E 2027E 2023-2027 Cash Cash from Operations Net Cash Proceeds from Sale of Assets $ 5,400 200 $ 6,000 1,2001 $ 6,400 - $ 6,900 - $ 7,100 - $ 7,700 - Flows and Financial Capital and JV Equity Contributions2 (7,800) (6,800) (8,900) (9,700) (7,300) (6,900) Metr
Slide 24: Active Management and Capital Recycling
Active Management Capital Recycling Enterprise Value Transaction Close Date and Capital Recycling AEP River Operations $0.8B 2015 5,200 MW Merchant Generation $2.2B 2017 After the close of our Racine Hydro Not Disclosed 2021 Kentucky operations sale, AEP will have recycled Kentucky Operations $2.6B
Slide 25: Organizational Chart
Organizational Chart Julie Sloat President and CEO (Effective 1/1/2023) To Be Chris Peggy Greg Announced Beam Simmons Hall EVP and CFO EVP Energy Services EVP Utilities EVP Chief Commercial Officer Therace David Raja Phil Chuck Risch Feinberg Sundararajan Ulrich Zebula EVP Chief Technology EVP Gener
Slide 26: Greg Hall
Greg Hall Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed by Q&A
Slide 27: Unregulated Contracted Renewable Assets
Unregulated Contracted Renewable Assets 1,365 MW net capacity (Wind: 1,200 MW; Solar: 165 MW)1 14 operating assets of relatively new vintage across wind and solar technologies 11 states / 7 power markets Auwahi across the U.S. (16 MW1) 10+ year PPA weighted average remaining PPA term Portfolio break
Slide 28: Sale Update of Unregulated Contracted Renewable Assets
Sale Update of Unregulated Contracted Renewable Assets PROCESS In February 2022, AEP announced the sale of its unregulated contracted renewable asset portfolio BENEFITS FLAT RIDGE II UPDATE Continue to de-risk and In July 2022, we announced our AEP’s net investment (equity position) in intentions to
Slide 29: Competitive Business Platform
Competitive Business Platform CUSTOMER CLASSES DISTRIBUTED RESOURCES • Residential • Solar • Commercial • Energy Storage • Industrial • Reciprocating Engines • Municipals • Fuel Cells • Cooperatives • Substations RETAIL SERVICES WHOLESALE SERVICES • Electric Sales • Electric Sales • Natural Gas Sale
Slide 30: Retail Business (Begin Strategic Review)
Retail Business (Begin Strategic Review)1 BUSINESS MODEL Commodity and Services Sales • Focused where AEP operating companies can’t offer solutions Mid-Atlantic Focus Electric in 7 states/27 utilities and • Base platform is electric and natural gas sales natural gas in 4 utilities in Ohio • Channel
Slide 31: Distributed Resources Business
Distributed Resources Business BUSINESS MODEL Customer Asset Development National Focus • Customer centric business where AEP Projects in 22 states regulated businesses can’t offer solutions and 8 power markets • Focused on behind-the-meter generation assets • Assisting customers achieve: Cost sav
Slide 32: Wholesale Business
Wholesale Business BUSINESS MODEL Portfolio Optimization • Traditional municipal and cooperative customer portfolio Central and Mid-Atlantic Focus • Cardinal Plant and renewables PPA Serve wholesale loads in 12 states and optimization participate in 4 power markets • Manages wholesale components of
Slide 33: Antonio Smyth
Antonio Smyth Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed by
Slide 34: Linking Investments to Outcomes: Regulated Capital Investment
Linking Investments to KEY INVESTMENT STRATEGIES 2023-2027 CAPITAL INVESTMENT Outcomes: Regulated Capital Investment • Transform our electric generation fleet to drive-down costs to customers and achieve our climate goals $ 15.0B Strategy • Develop a modern and secure electric transmission grid to b
Slide 35: Leader in Electric Transmission in the U.S.
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION Leader in Electric Largest TRANSMISSION TRANSMISSION Transmission in LINE MILES NET PLANT (in billions) Transmission System in the the U.S. U.S. AEP’s transmission system is critical to serving customers across the U.S. Eastern Interconnection and E
Slide 36: Transmission Organic Growth Opportunity
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION Transmission 2023-2027 CAPEX DRIVERS Organic Growth ASSET REPLACEMENT LOCAL RELIABILITY RTO DRIVEN TELECOM / TECHNOLOGY CUSTOMER SERVICE Opportunity Asset renewal investments based Multi-driver projects on the local network Upgrades needed to addres
Slide 37: Stable and Efficient Transmission Investment Recovery
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION Stable and Efficient Transmission Investment 9.85% Base + 0.50% RTO 10.0% Base + 0.50% RTO Recovery ROE adder adder 9.4% Capital updates allowed 2x Forward Looking Yes Yes per year Rates Transmission (not forward looking) Cost Recovery in AEP States
Slide 38: Transforming the Distribution Grid
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION Transforming the AEP DISTRIBUTION Distribution Grid INVESTING IN THE DISTRIBUTION GRID OF THE FUTURE SYSTEM AT A GLANCE: 1% Improve Reliability and Resiliency through Broad Asset Renewal and Reliability Investments Significantly Enhance Reliability
Slide 39: Distribution Organic Growth Opportunity
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION Distribution 2023-2027 CAPEX DRIVERS Organic Growth CAPACITY EXPANSION, RELIABILITY AND MODERNIZATION CUSTOMER REQUESTS AUTOMATION AND TECHNOLOGY RESTORATION AND SPARING ADVANCED METERIING (AMI) RURAL BROADBAND Opportunity Asset renewal and Investme
Slide 40: Resource Plans Are Aligned with Climate Goals
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION VA VCEA – Dec 2021 IN – Jan 2022 VA– Apr 2022 VA VCEA – Q1-23 Resource Plans Are IRP FILINGS Aligned with Climate 2021 | 2022 Goals OK – Nov 2021 AR – Dec 2021 MI – Feb 2022 LA Draft – Q4-22 Current IRPs identify a 10-YEAR RESOURCE NEEDS significant
Slide 41: Regulated New Generation Investment
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION 2023-2027 CAPEX Regulated New Resource Project MWs Projected In-Service Date Status Generation Solar Amherst / Virginia 5 Q4-22 Projects Approved: Investment June/July 2022 APCO Solar Bedington / West Virginia 50 Q2-24 I&M $ 8.6 Solar Firefly / Vi
Slide 42: IRA Provides a Clean Energy Investment Tailwind
TRANSMISSION DISTRIBUTION REGULATED NEW GENERATION IRA Provides a Clean Energy Investment Tailwind Tax credits extend the runway for clean energy investments and will significantly drive-down costs to customers • Long-term extension of clean energy tax credits and reinstatement of the full credit va
Slide 43: Matt Satterwhite
Matt Satterwhite Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed
Slide 44: Improved Recovery Mechanisms of Growing Rate Base
Improved Recovery 2019-2023: ~68% of 2023-2027: ~85% of Mechanisms of capital via reduced lag capital via reduced lag Growing Rate Base mechanisms mechanisms Reduced lag mechanisms help narrow the gap between earned and authorized ROE1 which decreased from 85 bps to Renewables Recovery 49 bps from 2
Slide 45: AEP rates are in line with peers in the states we operate
2021 Average WEST EAST Residential Monthly Rate Arkansas Indiana (cents/kWh) Michigan Louisiana AEP rates are in-line with peers in the Ohio Oklahoma states we operate Virginia Texas Virginia West Data source: EIA 861M. AEP rates are in line with peers in the states we operate 45 • AEP ANALYST DAY 2
Slide 46: Actively Managing Current Fuel Cost Impacts
Actively Managing APCo VA • Current Mechanism: 12-month fuel clause to reset and account for prior year Current Fuel Cost • Adjustment: Reset base of fuel level and seek a 24-month recovery with carrying charge on under-recovered balance (September 2022) Impacts APCo/WPCo WV • Current Mechanism: 12-
Slide 47: Actions to Close the ROE Gap
Actions to Close APCo PSO SWEPCO AEP Texas 12% 9.6% the ROE Gap 10% 9.4% 9.4% 9.4% 9.1% 8% 8.4% 8.5% 6% 6.4% Focus on achieving authorized ROEs in all 4% Authorized ROE operating companies 2% 12 Months Ended 6/30/2022 ROE (operating earnings, not weather 0% normalized) ACTION PLANS TO CLOSE GAP APCo
Slide 48: Review of Multi-jurisdictional Regulatory Constructs
Review of Multi- APCo SWEPCO jurisdictional Regulatory Constructs Recent State-level Divergence and Need: Recent State-level Divergence and Need: Allows customers and • ELG investments for existing coal assets facing initial • Arkansas portion of Turk was never included in rates due differences betw
Slide 49: Raja Sundararajan
Raja Sundararajan Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed
Slide 50: Keeping Customer Rates Affordable
O&M Discipline Generation Transformation Keeping Customer Rates Affordable AEP’s efforts will transform ~20,600 MW customer bills and control Renewable Generation Interconnected Across the U.S. via AEP’s Transmission costs while keeping rates System Today affordable and maintaining reliable service
Slide 51: Economic Development Project Highlights: 2021-2022
Economic Crypto & Cloud Computing 84 Total Jobs | Dowagiac, MI Data Center (Cyprus – Bldg. 1) 57 Total Jobs | Franklin Co., OH Biopharmaceutical Manufacturing 1,132 Total Jobs | New Albany, OH Development 14 MW | In-Service 06/25/21 50 MW | In-Service 10/31/22 3 MW | In-Service 12/31/23 Project High
Slide 52: Recent AEP Reshoring Successes
Nucor (APCo) Recent AEP • The largest single investment in West Virginia history. Site chosen because of high voltage Reshoring infrastructure, AEP’s proven ability to serve large loads and AEP’s excellent customer service. Successes • 800 jobs (plus 1,000 construction jobs) and 375- 400 MW of new l
Slide 53: Julie Sloat
Julie Sloat Opening Remarks and Kentucky Sale Update Stakeholder Commitments and Robust Financial Plan Competitive Business Portfolio Management Abundant Regulated Investment Opportunities Proactive Regulatory Initiatives Economic Development and Customer Affordability Closing Remarks Followed by Q&
Slide 54: Closing Remarks: Stakeholder Commitments
Closing Remarks: Stakeholder Commitments 6%-7% Annual Dividend Growth In-line with Strong Balance Sheet Operating Earnings Earnings Growth and Targeted with a Target FFO/Debt Growth Payout Ratio of 60%-70% of 14%-15% New ESG Goal of Customer Care: Commitment to Active Management of the AEP Identific
Slide 55: AEP Analyst Day 2022
AEP ANALYST DAY 2022 Delivering Maximum Value to Stakeholders through Active Management Nasdaq MarketSite • New York City October 4, 2022
American Electric Power Company — Investor Day (October 2022) on 6ix