10-QPeriod: Q3 FY2021

AMERICAN ELECTRIC POWER CO INC Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 28, 2021For Securities:AEP

Summary

This 10-Q filing for AMERICAN ELECTRIC POWER CO INC (AEP) for the period ending September 29, 2021, indicates a period of growth and recovery, particularly in the Transmission and Distribution Utilities and AEP Transmission Holdco segments, driven by increased investments in infrastructure and renewable energy projects. The company reported an increase in earnings attributable to common shareholders for both the quarter and the nine-month period compared to the prior year, primarily due to favorable rate proceedings and higher transmission investment. However, the company also faced challenges, including increased operation and maintenance expenses and supply chain disruptions, partly influenced by the ongoing COVID-19 pandemic. Significant events impacting financial performance included recovery efforts from the severe winter weather in February 2021, which resulted in substantial deferred regulatory assets for fuel and purchased power costs for PSO and SWEPCo. The company continues to navigate regulatory matters, including base rate cases and environmental compliance costs, which are expected to influence future financial performance.

Financial Highlights

44 data points
Beta

Revenue

$4.62B

Net Income

$796.90M

17.2% Net Margin

EPS (Diluted)

$1.58

Total Assets

$86.34B

Cash & Equivalents

$1.37B

Free Cash Flow

$1.93B

Financial Statements
Beta
Revenue$4.62B
Operating Expenses$3.52B
Operating Income$1.11B
Interest Expense$303.70M
Net Income$796.90M
EPS (Basic)$1.59
EPS (Diluted)$1.58
Shares Outstanding (Basic)501.23M
Shares Outstanding (Diluted)502.61M

Key Highlights

  • 1Earnings attributable to AEP common shareholders increased to $796 million for the third quarter of 2021 and $1,949 million for the nine months ended September 30, 2021, compared to $749 million and $1,765 million respectively in the prior year periods.
  • 2The Vertically Integrated Utilities segment saw a 9.3% increase in earnings for the quarter and a 4.5% increase for the nine months, driven by favorable rate proceedings and increased transmission investment.
  • 3AEP Transmission Holdco reported a significant 20.6% increase in quarterly earnings and a 31.6% increase in year-to-date earnings, primarily due to continued investment in transmission assets.
  • 4The company incurred significant storm restoration costs of $215.4 million related to the February 2021 severe winter weather, with approximately $141.6 million deferred as regulatory assets.
  • 5PSO and SWEPCo have deferred substantial regulatory assets of $1,106.3 million and $488.9 million, respectively, related to natural gas expenses and electricity purchases during the February 2021 winter storm, with recovery expected to be extended.
  • 6AEP announced plans to sell Kentucky Power Company (KPCo) and Kentucky Transmission Company (KTCo) to Liberty Utilities Co. for approximately $2.85 billion, expected to close in Q2 2022.
  • 7The company has revised its 2021 forecast for weather-normalized retail sales volumes, now anticipating a 2.2% increase, with industrial sales expected to rise by 4.3% and residential sales projected to decrease by 0.9%.

Frequently Asked Questions

The severe winter weather in February 2021 resulted in significant costs for AEP's subsidiaries, particularly PSO and SWEPCo. These companies deferred substantial regulatory assets totaling over $1.5 billion for natural gas expenses and electricity purchases. While management believes these costs are probable of future recovery, the recovery period is expected to be extended to mitigate customer impact. Restoration expenses for storm damage also contributed to the deferred regulatory assets.

The AEP Transmission Holdco segment showed strong performance, with quarterly earnings increasing by 20.6% and year-to-date earnings up by 31.6%. This growth was primarily driven by continued investment in transmission assets, leading to higher transmission revenues and income.

AEP is actively involved in numerous rate proceedings across its various jurisdictions. Notable matters include base rate case filings for OPCo (Ohio Power Company) and PSO (Public Service Company of Oklahoma), and ongoing appeals for APCo (Appalachian Power Company) in Virginia. These proceedings aim to determine appropriate rates and returns, and their outcomes can significantly impact future financial results. The company is also managing significant regulatory assets related to storm costs and fuel expenses, with recovery periods and carrying charges subject to regulatory approval.

AEP's agreement to sell KPCo and KTCo to Liberty Utilities for approximately $2.85 billion is a significant strategic move. The proceeds are expected to be used to eliminate forecasted equity needs for 2022, supporting investments in regulated renewables, transmission, and other projects. The sale is subject to regulatory approvals and is expected to close in the second quarter of 2022, with an immaterial impact on after-tax earnings.