Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Electric Power Co Inc (AEP, Financial) announced a 12% increase in second quarter 2024 operating earnings, reaching $1.25 per share.
- The company reaffirmed its 2024 full-year operating earnings guidance range of $5.53 to $5.73 and its long-term earnings growth rate of 6% to 7%.
- AEP has commitments from customers for more than 15 gigawatts of incremental data center load by the end of the decade, indicating strong future demand.
- Commercial load grew an impressive 12.4% over the second quarter of last year, primarily in Ohio and Texas.
- AEP's liquidity remains strong at $5.4 billion, supported by $6 billion in credit facilities.
Negative Points
- GAAP earnings for the second quarter were $0.64 per share, down from $1.1 per share in 2023.
- AEP recorded a $126 million after-tax provision for customer refunds related to the Turk Plant cost cap issue.
- The company incurred a $94 million expense associated with a voluntary severance program completed in the second quarter.
- AEP recorded a $111 million accrual for compliance costs related to the EPA's revised coal combustion residual rule.
- Residential load remains weak in most of AEP's territories, likely due to the cumulative effects of inflation.
Q & A Highlights
Q: How much latitude will the new CEO, Bill Fehrman, have to make strategic changes?
A: Benjamin Fowke, Interim President and CEO, stated that while Bill is familiar with the current strategy and there is agreement on its direction, Bill will focus on execution and may make some changes. However, significant strategic shifts are not expected.
Q: Can you elaborate on the incremental CapEx and funding sources for customer growth and data centers?
A: Benjamin Fowke mentioned that an update will be provided in the fall, detailing CapEx needs for generation and transmission to support load growth. They are open to equity, equity-like products, and portfolio optimization, but price and execution are critical factors.
Q: What is the outlook for incremental wires needs given the rapid materialization of customer commitments?
A: Benjamin Fowke indicated that there will be significant increases in transmission spend, followed by generation and distribution. Charles Zebula added that the company has already raised CapEx by $500 million this year, primarily for T&D reliability, customer hookups, and storm-related capital.
Q: Can you provide more details on the PSO natural gas generation purchase and the need for incremental generation?
A: Peggy Simmons, EVP of Utilities, explained that due to increased reserve margins and additional load, more generation is needed. The Green Country facility purchase is a proactive approach to ensure resource adequacy, with regulatory filings planned for the fall.
Q: How should we think about the impact of data center load on CapEx and rate base growth?
A: Benjamin Fowke emphasized that incremental CapEx will support new load growth, which should be beneficial for all customers. The modeling suggests that this growth will help mitigate cost increases and spread fixed costs over a larger base.
Q: What are the plans for addressing the authorized versus earned ROE gap?
A: Peggy Simmons noted that the earned ROE is currently at 8.9% on a trailing 12-month basis, with expectations to reach 9.1% for the year. The company continues to make progress on this front.
Q: How will the company handle the financial impact of the voluntary severance program and potential cost-cutting opportunities?
A: Benjamin Fowke mentioned that the company hit its targets for the voluntary severance program and plans to hold onto those gains. Bill Fehrman is expected to bring innovative ideas to further manage costs, with a focus on bringing new load on board in a fair manner.
Q: Can you clarify the 15 gigawatts of incremental load commitments and their impact on the system?
A: Benjamin Fowke clarified that the 15 gigawatts refer to data centers, with commitments already showing up in the numbers. The company is working on system upgrades to connect this load over time.
Q: What is the outlook for residential sales growth given the impact of inflation?
A: Charles Zebula noted that residential sales are down in some areas due to inflation, but Texas is seeing growth. The company expects the decline to slow as inflation tames and wage growth continues.
Q: How does the company view the potential impact of the Supreme Court's Chevron decision on EPA and FERC regulations?
A: Benjamin Fowke believes the decision could be helpful as courts will have more discretion and not be as bound by agency interpretations. The company plans to challenge several EPA rules and will monitor how courts interpret the decision.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
