AEP Q2 results belie recession talk as sales jump 3.5%, helping drive earnings growth, officials say

Dive Brief:

There are no signs the economy is slowing in American Electric Power’s service territory, with weather-normalized electricity sales above pre-pandemic levels and up 3.5% in the second-quarter from a year ago, company officials said Wednesday during an earnings call with analysts.
“The headlines are full of messages about a pending recession, but our sales statistics through the first half of the year show our service territory is still in the expansion phase of the business cycle,” Julie Sloat, AEP chief financial officer, said, noting load growth was a key contributor to increased first-half earnings.
Supply chain and labor market issues are unlikely to disrupt the company’s plans to build out its renewable energy fleet, according to Nick Akins, the company’s CEO, president and chairman. “All in all, we're hanging in there, and the capital plan still remains secure in terms of the ability to move these projects forward,” Akins said.

Dive Insight:

The Federal Reserve has been raising interest rates and more increases are possible, but, so far, that hasn’t put a damper on electricity sales to AEP’s 5.5 million customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.

Second-quarter residential sales increased 1.2%, commercial sales climbed 4.1% and industrial sales jumped 5.1% compared to the same period last year, according to AEP’s latest quarterly report.

“The AEP service territory has made significant momentum despite the well-publicized headwinds impacting the macro economy,” Sloat said, adding that interest rate hikes could dampen economic activity.

Load growth provided an 11-cents/share bump to first-half earnings, which ultimately increased to $2.42/share from $2.33/share in the year-ago period.

Meanwhile, AEP is preparing to start a bidding process for its 1,365-MW unregulated renewable energy fleet by early September, Akins said. There is “robust” interest in the portfolio and AEP expects to close a deal by the end of the year, he said.

The company is in talks to sell separately its 235-MW Flat Ridge 2 wind farm in Kansas, which has experienced “deteriorating” financial performance due to equipment issues and transmission congestion, according to Sloat. AEP took a $186 million pre-tax write-off on the wind farm in the second quarter.

Also, AEP expects to complete the sale of its Kentucky utility operations to Liberty Utilities, an Algonquin Power & Utilities subsidiary, this summer, Akins said. West Virginia and Kentucky regulators have approved the deal, with a decision by the Federal Energy Regulatory Commission expected next, he said.

AEP plans to use the proceeds from the Kentucky sale, expected to be $1.4 billion, and the sale of its unregulated renewable energy assets in part to help finance its goal of getting half its electricity from regulated wind and solar farms, according to Akins.

The company plans to spend $8.2 billion on renewable energy between this year and 2026, putting it on a path to adding 15 GW by the end of the decade.

AEP’s Southwestern Electric Power Co. is seeking regulatory approval for 999 MW of utility-owned wind and solar through a $2.2 billion investment. The utility has a 4.2-GW renewable energy request for proposals in progress. Two other AEP utilities have outstanding RFPs for a total of 2.4 GW.

AEP could sell additional assets, according to Akins.

“We will continue to evaluate opportunities to add value from a shareholder perspective, but also to ensure that our customers are seeing the capital deployment that provides a better experience,” Akins said. “We're going to be thinking on the edge about what can be done to make sure that we fund these real opportunities we have ahead of us.”