American Electric Power(AEP) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 2024 operating earnings were $1.25 per share, a $0.12 increase YoY [7] - Full-year 2024 operating earnings guidance reaffirmed at $5.53 to $5.73 per share, with a long-term earnings growth rate of 6% to 7% [7] - GAAP earnings for Q2 2024 were $0.64 per share compared to $1.01 per share in 2023 [19] - Year-to-date GAAP earnings are $2.55 per share for 2024 versus $1.78 per share in 2023 [19] - FFO to debt metric stands at 14.6% for the 12 months ended June 30th, a 40 basis point increase from the prior quarter [25] Business Line Performance - Commercial load grew 12.4% YoY in Q2 2024, driven by data center demand [9] - Transmission and distribution utility segment earned $0.41 per share, up $0.11 YoY [22] - Vertically integrated utilities segment earned $0.46 per share, down $0.05 YoY [21] - AEP transmission Holdco segment contributed $0.39 per share, up $0.01 YoY [22] - Generation and marketing produced $0.12 per share, down $0.01 YoY [22] Market Performance - Data center commitments exceed 15 gigawatts of incremental load by the end of the decade, primarily in Ohio and Texas [8][9] - Industrial sales remained resilient, particularly in Texas, driven by new customers in energy, steel, renewable energy, and semiconductors [24] - Residential load growth was weak in most territories due to inflation, except in Texas where customer count and load increased [24] Strategic Direction and Industry Competition - Focus on executing strategic priorities, including capturing growth, responding to regulators, and using innovation to mitigate inflationary pressures [6] - Filed new data center tariffs in Ohio and large load tariff modifications in Indiana and West Virginia to ensure fair cost allocation [9] - PSO announced an agreement to purchase a 795-megawatt natural gas generation facility in Oklahoma, pending regulatory approval [10] - Evaluating the impact of the EPA's Coal Combustion Residual Rule and seeking cost recovery through regulatory mechanisms [11] Management Commentary on Operating Environment and Future Outlook - Management emphasized the importance of fair cost allocation for large loads and the need for long-term grid investments [8] - Expect continued growth in data center and industrial loads, particularly in Ohio, Texas, and Indiana [9][24] - Reaffirmed commitment to maintaining a strong balance sheet to support growth initiatives and capital spending [10] Other Important Information - Sale of AEP on-site partners remains on track to close in Q3 2024, with expected net proceeds of $315 million [27] - Voluntary severance program completed in Q2 2024, resulting in a $94 million expense [20] - $111 million accrual recorded for compliance costs related to the EPA's CCR rule, primarily in Ohio [20] Q&A Session Summary Question: Strategic changes under new CEO Bill Furman - Bill Furman is expected to focus on execution rather than significant strategic changes, with continuity in the current strategic direction [32] Question: Incremental CapEx and funding sources - Company plans to update CapEx and funding plans in the fall, with a focus on equity and equity-like tools, including portfolio optimization [34][35] Question: Data center load commitments and tariffs - 15 gigawatts of data center load commitments are firm, with customers required to pay for initial work under letters of agreement [51][53] - New tariffs will apply to future customers, ensuring fair cost allocation [53] Question: Residential sales trends and inflation impact - Residential sales remain weak in most territories due to inflation, with Texas being an exception due to customer growth [83][85] Question: Impact of Chevron decision on EPA and FERC regulation - Management believes the Chevron decision could be helpful in challenging EPA rules, but its impact on FERC remains uncertain [94][95] Question: Generation needs and resource adequacy - Company is proactively addressing generation needs, including the purchase of a natural gas facility in Oklahoma and ongoing RFPs for renewable and dispatchable resources [44][80]