Ladies and gentlemen, thank you very much for standing by, and welcome to the American Electric Power first quarter 2020 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given to you at that time. If you should require assistance during today’s call, please press star then zero and an operator will assist you offline. I would now like to turn the conference over your first speaker, Ms Darcy Reese. Please go ahead.

Thank you, Perky. Good morning everyone and welcome to the first quarter 2020 earnings call for American Electric Power. Thank you for taking the time today to join us. Our earnings release, presentation slides, and related financial information are available on our website at aep.com. Today we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Our presentation also includes references to non-GAAP financial information. Please refer to the reconciliation of the applicable GAAP measures provided in the appendix of today’s presentation. Joining me this morning for opening remarks are Nick Akins, our Chairman, President and Chief Executive Officer, and Brian Tierney, our Chief Financial Officer. We will take your questions following their remarks. I will now turn the call over to Nick.

Okay, thank you Darcy. Welcome and thank you all for joining AEP’s first quarter 2020 earnings call. I want to take a moment to extend our sympathies to all those who have been personally impacted by the COVID-19 pandemic. At AEP, we understand that we are all in this together. The AEP Foundation has contributed to charities across our footprint to ensure that we are part of the solution for the customers and communities. In addition to providing our employees with the personal protective equipment they need to do their jobs, we have donated masks, gloves, and other essential items needed by hospitals across our service territory. To further assist those in need within our communities, our customer service representatives have provided assistance in fielding questions on how to secure small business loans. Throughout these challenging times, I continue to be extremely proud of our employees who have done an outstanding job demonstrating their capacity for being adaptable and exercising the agility needed to meet the challenges of a rapidly changing situation. As we continue to adapt to the ongoing challenges imposed by COVID-19, we remain committed to keeping our employees safe and keeping America powered through these unprecedented times. Certainly as we headed into March during the first quarter, the story for the quarter would have been one in which we have all heard before, mild weather impacted the first quarter, but as we’ve also heard before, a quarter does not a year to make [ph] and there is plenty of time to recover from a mild winter. We adjust to these types of issues all the time. But I’m sure you’re more interested in the last half of March and what April tells us about the future. I’ll get into all that in a minute, but first let’s…

Thank you Nick, and good morning everyone. I will take us through the financial results for the quarter, provide some insight in how we’re thinking about 2020, including an update on April load, and finish with a review of our balance sheet and liquidity. Let’s stop briefly on Slide 7, which shows the comparison of GAAP to operating earnings for the quarter. GAAP earnings were $1.00 per share compared to $1.16 per share in 2019. There is a reconciliation of GAAP to operating earnings in the appendix. Let’s turn to Slide 8 and look at the drivers of quarterly operating earnings. Operating earnings for the first quarter were $1.02 per share or $504 million, compared to $1.19 per share of $585 million in 2019. Looking at the drivers by segment, operating earnings for vertically integrated utilities were $0.50 per share, down $0.13. Earnings in this segment declined primarily due to warmer than normal winter weather and lower normalized retail load. Other small decreases included higher depreciation, higher tax expense and lower wholesale load, AFUDC, and off-system sales. Favorable drivers included rate changes and higher transmission revenue. The transmission and distribution utilities segment earned $0.24 per share, down $0.08 from last year primarily driven by the 2019 reversal of a regulatory provision in Ohio. Other smaller drivers included higher depreciation, the roll-off of legacy riders in Ohio, and unfavorable weather. These items were partially offset by higher rate changes, normalized retail load, and recovery of increased transmission investment in ERCOT, as well as lower O&M. The AEP transmission holdco segment continued to grow, contributing $0.28 per share, an improvement of $0.03 over last year. Net plant increased by $1.5 billion or 18% since March of last year. Generation and marketing produced earnings of $0.07 per share, down $0.02 from last year.…

[Operator instructions] Our first question comes from the line of Steve Byrd with Morgan Stanley. Please go ahead.

Hi, good morning. Hope you all are doing well.

Morning Steve.

Thanks for the update on a lot of topics. Wanted to talk first just about two of your rate cases, Indiana and Michigan, where I believe the test year is going to be a 2020 test year. How do you think about that sort of test year in light of COVID - you know, load adjustments, COVID-related expenses as you think through that rate case, and sort of how to approach 2020 given it’s such an unusual year?

In at least Indiana, we have forward test year views, and I think it’s probably going to be particularly important as we go in for these cases for there to be an understanding that we are dealing with a COVID-related year if it is a test year. Wherever you have forward test years, though, you can account for that going forward in the rate making, but we’d be tuned into the process whether you pro forma in or do other things. I think there’s probably at least opportunities for discussion about that because COVID--you know, 2020 is going to be an usual year and to be used for test years would be particularly challenging. You have to really go to some form of pro forma view that has the level of investments, the level of business activity that you would normally see. So, I would expect our commissions to be reasonable in that approach.

You know, in both those cases, Steve, we had forward-looking test years and we do have orders effective in both of those jurisdictions.

Okay, that’s helpful. Yes, it makes sense that you’d sort of try to work to the adjustments. It makes sense. On North Central wind, some great progress there. That’s really encouraging. I guess I had sort of two related questions on North Central. If you do get those additional approvals that you’re waiting for, such as in Louisiana, Texas, can you quickly flex the plan to go to the higher megawatt level? Then relatedly, you’ve obviously deferred some capex. Do you have that flexibility to deploy whatever capital you need to, to make this a bigger project, or does your capital position caution against significant ramp-up in capex this year? Just thinking through the growth at North Central.

Yes, so originally North Central was not in our capital plan, and so when we get approval for that, that’d be dealing with a different financing model associated with that. As far as the megawatt level and the amount of investment, yes, if we get approval for Louisiana for example, and Louisiana also approves the up rate which is in a settlement arrangement, then we would have the full $2 billion investment opportunity there. We already know we’re going forward with the project - that was the importance of Arkansas approval, so the project is moving forward. The question is what size, and then when Louisiana approves that, and hopefully with a flex-up as well, then that’s the full $2 billion, or if Texas takes their portion, then all operating jurisdictions will be taking their particular portions as we go forward. Now, there is additional opportunity for renewables in those areas. The integrated resource plans have the capability for that, but we felt like, as we originally said about this project, there is sort of a break point between the opportunities that existed around the wind farm project and the pricing, and we wanted to make absolutely sure that the pricing was very effective and produced very positive savings for our customers. So, we can always go out for a bid again to fill the rest of that from a resource planning perspective.

Steve, we’ll be full speed ahead on the capex associated with North Central wind one way or the other. Nick mentioned that it’s not in the $33 billion that we had previously identified for the five years, 2020 to 2024, and we previously said that we anticipate an equity component of that investment to be between 50% and 66%.

That’s super helpful. I’ll let others ask questions. Thank you.

Thank you.

Thank you. Our next question comes from the line of Durgesh Chopra with Evercore. Please go ahead.

Hey, good morning guys. Thanks for taking my question. I have two. The first one on 2020 guidance range here, the $0.15 EPS hit, what are you assuming in terms of decline trends for the rest of the year? I guess what I’m asking is are you--as you make some amount of recovery in Q3 or Q4, just curious as to what you’re assuming in terms of profiling for the rest of the year.

Sure, so we are assuming that the second quarter would be the lowest quarter for load, and that there would be a gradual recovery over the balance of 2020 and into the first quarter of 2021.

Got it, perfect. Then, can you comment on just your--you know, assuming that you hit your lower half of the EPS guidance range for this year, where would that put you in terms of credit metrics [indiscernible] debt versus your targeted metrics? Then any color that you can provide us with your recent conversations that you have had with Moody’s on some of the changes that you’ve made to your plan?

We’ve really been--we anticipate year end being FFO to debt in that 13% to 14% range. We’ve communicated that with S&P and Moody’s, had dialogues with them as late as yesterday. They understand where we are and what we’re doing. I think they were encouraged to see us flex a little bit our capex for the balance of the year in response to anticipated lower cash flows than what we had anticipated, and they’re supportive of that. They were--they viewed what Julie and her team did around the term loan facility as being credit positive, and they are fully aware and apprised of what we’re doing. You should ask them, but I think their answer would be supportive.

Great, that’s all I had, guys. Thank you very much.

Thank you, Durgesh.

Thank you. Our next question comes from the line of Julien Dumoulin with Bank of America. Please go ahead.

Hey, good morning team. I hope you’re all well. Perhaps just to pick up where the last question left off to start here. On guidance and the 2020 lower half, how do you think about the reduction in capex? I just want to reconcile this. It seems as if you’re not really changing FFO to debt expectations as you are bringing down capex altogether, but why do that relative to no change in earnings? Can you walk through the thought process there? Then also, it seems as if it doesn’t necessarily have too much of an earnings impact given the corporate nature of some of the capex, so I just want to make sure we’re thinking about that correctly as well.

Sure Julien, thanks for the question. We are anticipating there to be some reduction in cash flow this year associated with two things: one, lower customer demand, and then two, we have eliminated disconnects currently, and so we think that customers will pay us slower than what they have in the past. We’re not seeing the impact of that in a significant way yet - it’s too early, but in anticipation of lower cash flows to maintain those FFO to debt metrics, we felt it was prudent to at least engage the motor on our ability to scale back capex. In regards to the no impact on future earnings, we tried to do it in places that have either lower regulatory lag or the increase in earnings isn’t as great. Nick mentioned that some of that reduction is in the competitive renewables space and some of that reduction is also at corporate capital, things like IT and things like that, that are much slower to flow into customer rates during rate cases. Things that we are careful not to cut were things like transmission, where we’re spending on customer resilience and reliability and we have those formula-based rates to update and get that capex into rates on a fairly efficient basis. We were really thoughtful about how we cut that or shifted that small amount of capex, and made sure that it wasn’t impacting earnings.

Julien, I think you’re reading it right, though - we’re being as transparent as we possibly can be through this process using the latest information. Matter of fact, we got the load information, April load information yesterday, so we’re trying to be as transparent as possible, but also taking the right, smart, appropriate steps to ensure that we’re able to be agile enough to do what we need to do. I think you’re reading that right. We obviously would put that capital back in as quickly as possible and then, as Brian mentioned, we’re not only mitigating any impacts to the earnings capability but also thinking ahead in terms of where we deploy that capital in the future. Then we also have North Central coming about, so those things are occurring. We’re trying to manage through this year in a very positive fashion and really a defensive posture, and then set ourselves up for the future years, in ’21 and beyond. We’ll continue that approach, and obviously if we get a hot summer, for example, we’ll throw capital back in - there’s all kinds of things we can adjust, and then from a residential standpoint, you heard our residential load for April was 6%, and we’re saying 3%, so we don’t know exactly how this is going to play out, particularly with changing dynamics of business cases themselves changing. I mean, we had Nationwide recently come out and say that their people are going to be working from home, and we have 17,000 employees and 12,000 are working from home. We may be looking through our Achieving Excellence program, which we have already accelerated, to look at how you look at people working from home and maybe the whole business cases changes from that perspective and also reduces O&M further. So we’re in the process of doing all that, but we’re just trying to be as transparent as possible. But you’re reading the tea leaves right.

Got it, excellent. Let me just clarify this from the transcript - you all reaffirmed intentions to file rate cases in various geographies. This doesn’t shift timing necessarily, it sounds like, nor--at the same time, I don’t want to tie one to the other, does it shift any expectations with respect to asset sales, disposals, strategic reviews? Just want to make sure we’re on the same page there, and there could be some further capital needs.

No, it doesn’t change. As a matter of fact, we’ll continue those cases. Obviously, as I mentioned, in Kentucky we have a stay out provision. We need to file a case, and we’ll do that when that stay out provision is lifted, and then that would be effective January 1 of 2021. Then for Ohio, obviously we’re due to file a case there as well. It’s a pretty moderate case, but nevertheless. As far as we can tell, everything is going exactly like we had planned. Now, you may see some procedural schedules change, but the end result and the end dates aren’t changing, so that’s where we’re at today.

Great, thank you.

Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead.

Morning Michael.

She did a better job pronouncing my last name than most people do.

I have the same problem.

I had a handful of questions. One, I’m going to be a little more specific on capex, so $500 million cut, $200 million is at the non-regulated renewable--

Michael, $500 million shifted.

Shifted - my bad.

We’re sensitive about that!

Five hundred shifted, 200 is at the non-regulated renewable, 100 is at corporate. What’s the other 200?

There’s another $75 million to $100 million that is in our distribution at our opcos, and then the other $100 million is spread across our organizations but not in the transmission side of the business.

Got it, okay. That’s fine. The other question is, is there any scenario where you could delay, given all that’s going on in the world, all the uncertainty about demand, about the impact of disconnects, is there any regulatory scenario where you could actually postpone or push out the AEP Ohio rate case?

No, we don’t see that happening because obviously we’re required to file a case, and actually it’s a pretty moderate case, so I think that there really isn’t any reason to delay it at this point.

Michael, I think Nick’s answer earlier was there could be a delay in the procedural schedule. We would still expect to get the result of the case when we originally had.

Yes.

Got it. Then final question--

And everybody knows about it as well, so it won’t be a surprise to anybody. There’s a pretty negligible impact on customers too in that case.

Yes, that makes a ton of sense. Then last question, you all have done a great job in managing down O&M for the last four years, and you’ve taken a lot of O&M out of the company. It saves the customers money, it’s good for shareholders. At what point do you think the long term rate of change in O&M management starts to flatten out, meaning the curve, the ability to keep taking out more or become more efficient just starts to flatten out, the pace of change slows.

You know, we’ve had a lot of conversations about that, but every day you’re surprised by some new innovation or something that can change the trajectory of O&M expense. We spend $4 billion a year, I think $2.8 billion is not tracked, and when you look at some of the opportunities that are available, and actually I think if there is a silver lining in the coronavirus pandemic, it is that we can really re-evaluate what it means to get our business done, because we’ve been very effective at the people working from home and actually productivity has not suffered as a result. We still have obviously the field employees that are still out there working as well, but you see the innovations that are occurring. I think we have years ahead of us to continue to optimize O&M expense, and when you think it’s going to level out, something new comes about and I think that’s going to be a continual opportunity for us. We actually--and you probably we announced we have a new senior vice president over our--actually, the digital experience, our Chief Information and Technology Officer who is joining the company, we wanted to make sure that we put technology and the customer experience, and certainly our charge innovation hub and those kinds of things together to really focus the organization on what the future holds and what it can mean in terms of O&M in the future. I think we don’t know the answer to that, and really you don’t want to know, you want to just keep pressing forward, and we’ll do that.

Got it, thank you Nick. Much appreciated.

Thank you. Our next question comes from the line of Jeremy Hulme [ph] with JP Morgan. Please go ahead.

Hi, good morning. Thanks for having me here. I could be wrong, but I think in the past you might have provided a multi-year view of financing needs in the earnings deck. I think I might have missed that here, so didn’t know if there any changes to how you’re thinking about funding capex going forward here, and is there any interplay with where Moody’s is at right now as you think about this?

Jeremy, there’s really no change in how we’re funding capex. I think the big thing we did really with the last call was give some insight into how we were going to fund more Central wind and the idea that we’d be doing that between 50% and 60% equity. We’ve always been fairly conservative in our balance sheet management, and we’re going to continue that going forward.

Got it. That’s it for me. Thanks for taking my question.

Thank you.

Thank you. Our next question comes from the line of James Thalacker with BMO Capital Markets. Please go ahead.

Hey, how are you guys? Thanks for taking my call.

Sure.

Just following up on Jeremy’s question, just wondering, Brian and Nick, as you guys are getting closer to North Central wind approvals, have you sharpened your idea on how you’re thinking about financing that, and especially have you looked a little bit more maybe some cycling some current assets, as opposed to accessing the capital markets specifically?

James, we do have a little bit of time for that, right? The smaller portion of North Central wind is going to come, about $300 million at the end of ’20, which would really make the financing of that a ’21 event. Then we have really until the end of ’21 to go forward with that, so how we come up with the equity portion of that, whether it’s capital rotation or whether it’s the equity capital markets, are still things that we have plenty of time to work through. I think the important assumption was the range of percentage of equity that we’d use for that project, and that’s where we talked about being in the 50% to 66% of the project.

Yes, and really probably the main message is all the options that were available to us before are still on the table and still being considered. There hasn’t been any change from a timing perspective in our ability to get that done, so I’d say we’re still at the same place we were and we’re ready to execute. I think it’s just a matter of us getting the ducks all in a row to ensure that we’re at the right place at the right time.

Sure. I just wasn’t sure if you guys were looking at the potential for augmenting some of the equity with the recycling of assets, if there became a regulatory proceeding or something like that, that would have to be taken into consideration ahead of time just because of--

Yes, and we’ve said for really over a year now that with capital rotation, but also sale of assets is on the table as part of that process. We’re obligated to do that from a shareholder perspective, and we will certainly do that.

Got it. Thank you very much. Appreciate the time.

Thank you. Our next question comes from the line of Sophia Karp with Keybanc.

Morning Sophia.

Hi. Good morning, thank you for taking my question. A couple of questions here for me. Can you remind us if North Central wind was contemplating tax equity financing as part of the plan?

It is not.

Okay, so then maybe another one for me. I know you guys have a pretty decent chunk of your workforce that was on track to retire within the next, call it five, seven years maybe. Are you contemplating offering them, these folks some sort of voluntary early retirement, maybe in an effort to cut O&M? Is that something that we could see on the table?

Well, I usually get that question from employees. As we look at the O&M and the issues that we’re dealing with to try to reduce O&M to the $2.7 billion level and beyond, we look at a lot of things; but one thing we have to be very careful about is certainly if you offer things like that, you usually lose people you don’t want to lose. In this day and age certainly in our frontline employee ranks, we need every individual that’s working, and there’s a lot of competition going on for the professionals in those industries. That’s something we have to be really careful about. Now obviously if it’s part of the--as part of our regular operations that if we evaluate groups and there’s efficiencies in terms of resources, whether it’s vacancies or retirements or even where severance is offered, we’ll continually manage our resource based upon the work that’s in front of us, and we typically do that on a surgical basis rather than some generalized approach. I suspect that we’ll continue that approach.

Got it, thank you. One more from me, if I may. On the volumes, first, to what do you attribute the jump in oil and gas volumes? What kind of dynamic on the ground is driving that, and should we expect a reversal of that? As the states begin to sort of reopen, if you call it that, which ones of your service territories would you expect to reopen and maybe be on a faster trajectory sooner than the others [indiscernible]?

What’s really driving our results for oil and gas has been midstream and downstream, so I attribute a lot of that--it’s pipeline transportation, really, was up 28% for the quarter. What you’re seeing there is sort of a lag effect associated with all the increases that we’ve seen in oil and gas extraction and then it’s been moving that product from the oil patch to refineries and places where it can be used. That lag effect is finally catching up with us as we’ve seen people putting in electric compression on pipelines and our having to service that, and so that trend has continued well into the first quarter and even into the month of April. We’ve continued to see increases in pipeline transportation and downstream as well. The downstream might fall off a little bit as we’re seeing some reductions in refining, and certainly oil and gas extraction itself will be down as people shut in wells and don’t take as much as they previously had. But it’s really been the midstream part of that that’s been driving the growth in oil and gas that we’ve seen.

Just to go back on your earlier question too, just an example, I probably have the opportunity for a call-out, our Conesville plant is retiring, the plant is retiring this month after over 60 years of service, and that’s typically what we’ve done. As plants retire, as employees shift from one plant to another and optimize across plants, we’ve enabled that through severance programs and those types of things, so that’s just an example of what you were mentioning before.

Then to our service territories as they open, all 11 of our traditional footprint states anticipate opening in May, and they generally have staged reopenings as we go through the month, but all of ours anticipate opening during this month.

Awesome, let’s hope that happen. Thank you.

Yes, I think our service territory, and it’s really interesting to me because we serve midsized cities and smaller - Columbus, Tulsa are our largest cities, but they’re obviously not New York or Chicago or other areas like that, San Francisco. That has actually improved the resilience because people are more spread out, and so our states have been able to methodically go through the shut-down provisions and now are methodically going through the restart provisions, and it’s been, I would say, probably more helpful to the recovery process for our service territory.

Thank you.

Perky, I just want to let you know, we have time for one more question.

Thank you. Our final question is from the line of Shar Pourreza with Guggenheim and Partners. Please go ahead.

Hey, good morning guys.

Morning Shar.

Just one or two questions, more just clarification. Nick, you obviously reiterated guidance, the long term growth rate, 5% to 7% off the original base. I know in prior remarks, you’ve highlighted that you’d be disappointed if you weren’t in the upper end. Is that still the case, or have the issues around COVID and some of the moving pieces walked you back down a little bit from that?

Yes, I guess I would still be disappointed, but obviously you have to look at it realistically, and based on the information we have today, I think we’re well placed in terms of that, and we’ll continually update it. Obviously I’d like to think there’s more upside than downside because we have looked very conservatively and very pragmatically at what we face relative to the business and customer base that we serve, but as we get North Central, I’m still optimistic about those future years where that gets fully layered in, starting in ’21. So 2020 may be a tread year for the guidance range and then we get the engine back fully on the tracks and get moving again.

Got it. Then just one last on North Central, if you take the $2 billion spending around that project and you look at your $33 billion of opportunities in your base plan, as you guys look to layer in North Central spend and you’re looking at different financing opportunities, is there any spending opportunities within the core $33 billion that could be maybe secondary in nature of offsetting with North Central coming online, or should we think about $2 billion from North Central additive to $33 billion? I’m just trying to figure if we’re modeling this, how we should think about that.

And that’s why we’ve kept it outside. It’s additive to the $33 billion.

Got it. Terrific, guys. Thanks so much for everything.

Thank you Shar.

Thank you for joining us on today’s call. As always, the IR team will be available to answer any additional questions you may have. Perky, will you please give the replay information?

Certainly. Ladies and gentlemen, this conference is available for replay starting today. Please dial 1-866-207-1041 and enter the access code of 3291585. You may also dial 402-970-0847 and enter the access code of 3291585. Those numbers again, 866-207-1041 and 402-970-0847 and entering the access code of 3291585. The replay will be available until May 13, 2020 at midnight. Ladies and gentleman, that does conclude your conference for today. Thank you very much for your participation. You may now disconnect.