American Electric Power(AEP) - 2023 Q4 - Annual Report

AEP Subsidiaries and Business Segments - AEP Energy, Inc. is a wholly-owned retail electric supplier for customers in Ohio, Illinois, and other deregulated electricity markets throughout the United States[12] - AEP Energy Supply, LLC is a nonregulated holding company for AEP's competitive generation, wholesale, and retail businesses, and a wholly-owned subsidiary of AEP[12] - AEP Renewables develops and/or acquires large-scale renewable projects backed with long-term contracts with creditworthy counterparties[12] - AEP Texas Inc. engages in the transmission and distribution of electric power to retail customers in west, central, and southern Texas[12] - AEP Wind Holdings, LLC, acquired in April 2019 as Sempra Renewables LLC, develops, owns, and operates wind generation facilities in the United States[12] - AEP Energy Partners, Inc. is dedicated to wholesale marketing, trading, hedging activities, asset management, and commercial and industrial sales in deregulated markets[12] - AEP Transmission Company, LLC owns the State Transcos within the AEPTCo consolidation[12] - AEP Transmission Holding Company, LLC owns transmission operations joint ventures and AEPTCo[12] - AEP Generation Resources Inc. is a competitive AEP subsidiary in the Generation & Marketing segment[12] - AEP Appalachian Transmission Company, Inc. is a wholly-owned AEPTCo transmission subsidiary[12] Renewable Energy Projects - The North Central Wind Energy Facilities include three Oklahoma wind facilities totaling approximately 1,484 MWs of wind generation[14] - Maverick, part of the North Central Wind Energy Facilities, consists of 287 MWs of wind generation in Oklahoma[14] - Traverse, part of the North Central Wind Energy Facilities, consists of 998 MWs of wind generation in Oklahoma[18] - Sundance, acquired in April 2021 as part of the North Central Wind Energy Facilities, consists of 199 MWs of wind generation in Oklahoma[15] - Sempra Renewables LLC, acquired in April 2019, consists of 724 MWs of wind generation and battery assets in the United States[15] - Santa Rita East Wind Holdings, LLC operates a 302 MW wind generation facility in west Texas, in which AEP owns an 85% interest[15] Fossil Fuel and Nuclear Generation - The Rockport Plant, jointly-owned by AEGCo and I&M, consists of two 1,310 MW coal-fired generating units near Rockport, Indiana[15] - The Turk Plant, a 650 MW coal-fired plant in Arkansas, is 73% owned by SWEPCo[18] - The estimated cost of decommissioning and disposal of low-level radioactive waste for the Cook Plant was $2.2 billion in 2021 non-discounted dollars, with additional ongoing estimated costs of$7 million per year for post decommissioning storage of SNF[81] - As of December 31, 2023, the total decommissioning trust fund balance for the Cook Plant was approximately $3.5 billion, up from$3 billion in 2022[81] Regulatory and Tax Environment - The Tax Cuts and Jobs Act (TCJA) reduced the corporate federal income tax rate from 35% to 21% effective January 1, 2018[17] - AEP's subsidiaries face regulatory risks related to rate cases, environmental compliance, and cost recovery for new investments in generation and transmission infrastructure[20] - AEP's authorized return on equity (ROE) varies by jurisdiction, with the highest being 10.50% for AEPTCo - SPP and the lowest being 9.25% for SWEPCo in Texas[33] - AEP's service areas include states with restructuring laws, such as Michigan, Ohio, and Texas (ERCOT area), requiring unbundling of previously integrated regulated rates[27] - AEP's transmission subsidiaries are subject to mandatory reliability standards set by NERC, approved by FERC, to protect against cyber and physical security breaches[114] - AEP's transmission and distribution utility subsidiaries provide services at rates approved by state commissions and FERC, with cost-of-service reflecting operating expenses and investment returns[113] - AEP's transmission subsidiaries are members of RTOs like PJM and ERCOT, ensuring open access to transmission assets and preventing discrimination[112] Financial Performance and Risks - The Registrants' forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected[19] - AEP's operations are exposed to risks from fuel availability, generation capacity performance, and the ability to transition to renewable energy sources at acceptable costs[20] - AEP's generating capacity as of December 31, 2023, includes 23,300 MWs of owned capacity and 5,200 MWs of PPA capacity, with coal capacity representing 42% of total capacity compared to 70% in 2005[45] - AEP's regulated utilities have long-term contracts for 2,750 MWs of wind, 80 MWs of hydro, and 65 MWs of solar power, and own and operate 1,639 MWs of wind, 816 MWs of hydro, and 41 MWs of solar power[48] - AEP's energy efficiency and demand response programs have reduced annual consumption by over 10.5 million MWhs and peak demand by approximately 3,600 MWs since 2008, with an estimated expenditure of $1.7 billion[49] - AEP's total Scope 1 GHG emissions in 2023 were approximately 42.8 million metric tons, representing a 68$50 million threshold for triggering an event of default[36] - AEP is subject to environmental regulations, including the Clean Air Act, Clean Water Act, and Coal Ash Regulation, which may require significant capital investments and could impact net income and cash flows[38][39][40][41] - AEP has set intermediate and long-term CO2 emission reduction goals, including an 80% reduction by 2030 and a net-zero goal by 2045 for Scope 1 and Scope 2 emissions[53] - AEP's employee DART rate improved to 0.384 in 2023 from 0.424 in 2022, indicating fewer injuries per 100 full-time employees[56] - Women comprised approximately 20% of AEP's total workforce as of December 31, 2023, while racially or ethnically diverse employees represented approximately 21%[58] - AEP invested more than $2 million in employee education in 2023, supporting approximately 560 employees through its tuition reimbursement program[63] - AEP's fossil fuel costs for the Vertically Integrated Utilities decreased by 28.3$64.31 per ton[76] - AEP's coal inventory for the Vertically Integrated Utilities was approximately 82 days of full load burn as of December 31, 2023, significantly higher than the target of 34 days[76] - AEP's generation mix in 2023 included 37% coal and lignite, 22% nuclear, 22% natural gas, and 19% renewables, reflecting a shift toward cleaner energy sources[71] - AEP's Culture and Inclusion Council focuses on enhancing female and minority representation in leadership and addressing pay equity[60] - Total natural gas delivered to the plants in 2023 was 146.0 billion cubic feet, compared to 126.0 billion cubic feet in 2022 and 108.0 billion cubic feet in 2021[78] - The average delivered price of natural gas per MMBtu in 2023 was $2.69, down from$6.94 in 2022 and $8.92 in 2021[78] - Counterparties posted approximately$36 million in cash, cash equivalents or letters of credit with AEPSC as of December 31, 2023, while AEP's public utility subsidiaries posted approximately 200 million with counterparties and exchanges[84] - AEGCo and I&M executed an agreement in April 2021 to purchase 100% of the interests in Rockport Plant, Unit 2 effective at the end of the lease term on December 7, 2022[86] - AEP's aggregate equity participation in OVEC is 43.47%, with Parent owning 39.17% and OPCo owning 4.3%[87] - OVEC financed capital expenditures in excess of 1 billion in connection with flue gas desulfurization projects and the associated scrubber waste disposal landfills at its two generation plants[87] - I&M provides retail electric service in Indiana at bundled rates approved by the IURC, with rates set on a forecasted cost-of-service basis[98] - APCo and WPCo provide retail electric service in West Virginia at bundled rates approved by the WVPSC, with rates set on a combined cost-of-service basis[101] - AEP's State Transcos had $14.2 billion of transmission and other assets in-service as of December 31, 2023, with plans to construct approximately$3.4 billion of additional transmission assets through 2026[117] - ETT's investment in completed and active projects in ERCOT is expected to reach $5.0 billion by 2030[118] - The net book value of Transource Energy was$289 million as of December 31, 2023, including $39 million related to noncontrolling interest[120] - AEP's transmission joint ventures, such as Prairie Wind and Pioneer, have estimated/actual project costs ranging from$158.0 million to $191.0 million, with approved ROEs between 10.52$104.1 million, is expected to go in-service in 2027[118] - AEP's vertically integrated public utility subsidiaries hold franchises or rights granting exclusive electric service provision in various municipalities and regions[104] - AEP's transmission joint ventures, such as Transource Missouri and Transource West Virginia, have ownership structures where AEP holds 86.5% and Evergy, Inc. holds 13.5%[118] - AEP's joint ventures are serviced by approximately 494 AEPSC employees and 317 operating company employees in 2023[121] - The State Transcos filed rate base totals of $10.7 billion,$9.9 billion, and $8.4 billion for 2023, 2022, and 2021, respectively[125] - Total filed transmission revenue requirements were$1.8 billion, $1.7 billion, and$1.4 billion for 2023, 2022, and 2021, respectively[125] - AEP OnSite Partners owned projects in 22 states with approximately 195 MW of installed solar capacity and 4 MW of solar projects under construction as of December 31, 2023[129] - AEP Energy had approximately 929,000 customer accounts as of December 31, 2023[130] - AEP announced the initiation of a sales process for AEP Onsite Partners and AEP Energy in April 2023, targeting completion in the first half of 2024[131] - Counterparties posted approximately 117 million in cash, cash equivalents, or letters of credit with AEP as of December 31, 2023, while AEP's Generation & Marketing segment subsidiaries posted approximately 155 million with counterparties and exchanges[137] - AEP's business plan includes extensive investment in capital improvements, including transmission and renewable generation facilities, with potential risks if regulatory commissions do not approve rate adjustments[146] - Regulated electric revenues and earnings are subject to federal and state regulation, which may limit AEP's ability to recover costs[147] - AEP's regulated utility businesses face potential public criticism or adverse publicity, which could negatively affect legislative or regulatory processes[150] - AEP's transmission investment strategy is heavily dependent on federal and state regulatory policies, with a significant portion of earnings derived from transmission activities[152] - Challenges to AEP's transmission formula rates could result in lowered rates, refunds, and adverse effects on financial condition, with potential revenue reductions and refunds ordered by FERC[153][154] - AEP faces risks related to project siting, financing, construction, permitting, and governmental approvals, which could impede development and operating activities[155] - Changes in technology and regulatory policies may lower the value of electric utility facilities, with advancements in batteries, energy storage, and renewable energy technologies challenging AEP's competitive ability[156][157] - AEP may not recover costs incurred for canceled projects, with potential unrecoverable costs or cancellation penalties under equipment purchase orders and construction contracts[158] - AEP is exposed to nuclear generation risks, including environmental and health risks, insurance limitations, and uncertainties related to decommissioning nuclear plants[159][160][161][162] - AEP subsidiaries face risks in regional power markets, with potential additional fees and increased costs due to changes in RTO rules and transmission rate design[163][164] - AEP could be subject to higher costs and penalties related to mandatory reliability standards, with potential sanctions for non-compliance[165] - AEP Texas faces risks from concentrated receivables in a small number of REPs, with potential delays or defaults adversely affecting cash flows and financial condition[166] - AEP's financial performance may be adversely affected by operational risks, including equipment failure, labor disputes, supply chain disruptions, and catastrophic events[169] - AEP has experienced immaterial cybersecurity incidents, including phishing and unauthorized access, with no material impact on business operations to date[172] - AEP relies on capital markets for liquidity, with 10%, 17%, and 16% of available credit facilities tied to European, Canadian, and Asian banks, respectively, as of December 31, 2023[176] - AEP faces potential capital constraints due to increasing unwillingness of certain sources to invest in fossil fuel-reliant companies, which could increase capital costs and reduce net income[177] - AEP initiated a sales process for its ownership in AEP Energy and AEP Onsite Partners in April 2023, with a separate agreement signed in December 2023 to sell NMRD to a non-affiliated third-party[178] - AEP's credit ratings could be downgraded, potentially limiting access to capital and increasing interest costs, which may reduce future net income and cash flows[180] - AEP's operating results are subject to seasonal fluctuations, with demand peaking during summer or winter months, and mild weather conditions could reduce future net income[182] - AEP's pension and postretirement plan costs could increase due to volatility in securities markets, interest rates, and changes in actuarial assumptions, potentially impacting liquidity and cash flows[184] - Supply chain disruptions and inflation have led to higher prices for critical components and materials, which could delay construction and maintenance, impacting AEP's corporate strategy and financial condition[186] - AEP's results may be negatively affected by slower customer growth, declining demand, or a recession, influenced by factors such as energy efficiency measures and economic conditions[188] - AEP is exposed to price volatility in purchased power, fuel, and emission allowances, with potential impacts on financial performance if costs cannot be recovered from customers[191] - Coal, natural gas, and emission allowance prices have shown significant volatility, potentially impacting future net income, cash flows, and financial condition[192] - Climate change poses physical and financial risks, including increased energy use due to weather changes, which may require additional investments in generating assets and infrastructure[193][194] - Severe weather events, such as thunderstorms, tornadoes, and hurricanes, increase operational costs and may lead to service interruptions and higher energy prices[195] - Climate change could impact regional economic health, affecting AEP's sales and revenues, and potentially limiting access to capital markets[196] - AEP Texas experienced power outages affecting approximately 468,000 (44%) customers during the February 2021 winter storm in Texas[200] - AEP and AEP Texas are involved in approximately 100 lawsuits related to the February 2021 winter storm, with potential financial impacts on operations and cash flows[201][202] - AEPTCo relies on AEP affiliates for 79% of its consolidated transmission revenues as of December 31, 2023[204] - Compliance with environmental laws and regulations, including greenhouse gas emissions, could significantly increase costs and potentially render some generating units uneconomical[209][210] - AEP faces risks related to high-voltage electricity transmission, including potential operational suspensions and civil or criminal penalties[203] - Regulatory compliance costs and penalties could materially impact AEP's financial operating results, including earnings, cash flow, and liquidity[206]