American Electric Power Company, Inc. (AEP) Q4 2022 Earnings Call Transcript

American Electric Power Company, Inc. (NASDAQ:AEP) Q4 2022 Earnings Conference Call February 23, 2023 9:00 AM ET

Company Participants

Darcy Reese - VP, IR

Julia Sloat - President, CEO & Director

Ann Kelly - EVP & CFO

Conference Call Participants

Shahriar Pourreza - Guggenheim Securities

Jeremy Tonet - JPMorgan Chase & Co.

Steven Fleishman - Wolfe Research

Nicholas Campanella - Crédit Suisse

Durgesh Chopra - Evercore ISI

Operator

Welcome to nan American Electric Power Fourth Quarter 2022 Earnings Call. [Operator Instructions]. I would now for illustration to move nan telephone complete to our big Ms. Darcy Reese. Please spell ahead.

Darcy Reese

Thank you, Brad. Good greeting everyone and invited to nan Fourth Quarter 2022 Earnings Call for American Electric Power. We admit you taking clip coming to subordinate us. Our net merchandise position slides and related financial accusation are disposable connected our website astatine aep.com Today we will beryllium making guardant looking statements during nan call. There are galore factors that whitethorn origin early results to disagree materially from these statements. Please mention to our SEC filings for talk of these factors. Joining maine this greeting for opening remarks are Julie Sloat, our President and Chief Executive Officer; and Anne Kelly, our Chief Financial Officer. We will return your questions pursuing their remarks. I will now move nan telephone complete to Julie.

Julia Sloat

Thanks, Darcy. Welcome, everyone, to American Electric Power's Fourth Quarter 2022 Earnings Call. I'm happy to beryllium present pinch each of you this morning, and I'm pleased to beryllium joined by our precocious appointed CFO, Ann Kelly, who joined our squad successful precocious November. So present we go.

We're making awesome advancement and person a batch to stock pinch you today, starting pinch nan financial capacity of our 4th fourth and year. I'll supply update connected our Kentucky operations sale, unregulated renewable waste and unit business strategical review. I'll besides supply penetration into nan regulatory and legislative front, arsenic we activity to instrumentality important caller initiatives to guarantee our customers and communities needs, which are met successful turn, and drives our high-quality finance proposition.

Finally, I'll include an update -- aliases I'll reason pinch an update connected our procreation fleet translator arsenic we proceed to put successful regulated renewables and our power transportation infrastructure, a summary of 2022 highlights and our attraction for 2023 tin beryllium recovered connected Slides 6 and 7 of today's presentation. As you know, we person a agelong history of consistently delivering and exceeding our net guidance and 2022 is nary exception.

I'm very proud of nan dedication and accomplishments of nan full AEP squad complete nan past year. While we vanished nan twelvemonth strong, I tin committedness you, we're conscionable getting started. Our robust financial scheme continues to output results. We delivered beardown 4th fourth 2022 operating net of $1.05 per stock bringing our afloat twelvemonth 2022 operating net to $5.09 per share. We're besides -- we besides accrued our quarterly dividend from $0.78 to $0.83 per share, which we announced backmost successful October. AEP's teamwork-driven capacity successful 2022 has established a beardown instauration from which we tin reaffirm our 2023 afloat twelvemonth operating net guidance scope of $5.19 to $5.39, each while mitigating inflationary costs pressures, proviso concatenation pressures and higher liking rates arsenic good arsenic constructively navigating regulatory and legislative frameworks. Formula rates successful respective of our authorities jurisdictions and successful our high-growth transmission business thief america to negociate accrued liking disbursal and higher costs.

Importantly, arsenic we support customer affordability apical of mind, we are actively moving pinch our states connected nan economical improvement beforehand to thrust description successful our work territory, and we are incorporating efficiencies and disbursal containment into our complaint betterment filings to proceed to thief offset nan effect of accrued costs pressures. As a matter of fact, nan economical improvement efforts complete nan past respective years are proving to beryllium appreciably beneficial, and we'll talk astir normalized load successful a fewer minutes. But to exemplify my point, I tin show you that normalized business income were up 4.5%, mostly arsenic a consequence of those efforts, not to mention nan added use of attracting jobs, residents and different cascading upside to our communities, each of which helps to negociate customer rates fixed nan bigger denominator.

We worth our stakeholder relationships, and we made dependable advancement connected nan regulatory beforehand complete nan past year, including achieving constructive guidelines complaint outcomes successful Arkansas and SWEPCO Texas and a favorable Supreme Court entreaty related to Virginia's past complaint lawsuit and nan securitization of Winter Storm Uri costs successful Oklahoma. Our resulting earned regulated ROE arsenic of December 31 was 9.1%, which suggests we still person activity to do connected this front, and I'll talk astir our regulatory activity that we person underway to reside this. So bent pinch maine for a fewer minutes, and I'll get there. AEP is starring nan modulation to a cleanable power system arsenic we prosecute successful 1 of nan largest procreation fleet transformations successful our industry, successful 2022, our 1.5 gigawatt North Central upwind portfolio became afloat operational pinch nan completion of nan Traverse upwind workplace project, which marked nan opening of our cleanable power fleet transition. We'll proceed to execute connected our fleet translator strategy pinch nan opportunity to adhd astir 17 gigawatts of caller procreation resources betwixt 2023 and 2032, while mitigating substance costs volatility and creating a much divers assets portfolio to use our customers. This will importantly lend to AEP's reduced c emissions floor plan and put america connected a way to execute our upgraded nett zero extremity by 2045.

Importantly, nan caller transition of nan Inflation Reduction Act provides support for our cleanable power goals, and this will widen our finance runway arsenic we proceed to reside nan needs of our procreation fleet. Since assuming nan domiciled of President and now CEO, I prioritize simplifying and derisking our business profile, which has go a halfway modular by which we measure our business activity. By actively managing our portfolio and demonstrating a clear committedness to nan successful execution of initiatives and transactions, we proceed to present important benefits to our stakeholders.

As you are very overmuch aware, we are moving diligently to complete nan waste of our Kentucky operations to Liberty. You tin find nan related regulatory clip statement connected Slide 8 successful nan position today. As an update, AEP and Liberty followed nan blueprint provided by nan FERC bid and revenge a caller FERC 203 exertion connected February 14 of this year, requesting a shortened remark play and expedited support to meet nan contractual April 26, 2023 transaction adjacent date. Immediately aft nan filing was made, FERC issued a announcement incorporating a shortened 45-day remark deadline related to nan application. The shortened remark play is simply a bully motion signaling nan committee is unfastened to considering our exertion connected an accelerated basis. AEP and Algonquin are successful regular connection discussing various aspects of nan transaction, nan way guardant and our partnership. We're mindful of nan April 26 day successful nan banal acquisition statement and are cognizant of nan tight clip framework fixed nan March 31 remark play deadline.

The nonsubjective of some AEP and Algonquin remains clear, and that's to adjacent nan transaction. And some parties are firmly committed to moving guardant and bringing distant nan benefits of this transaction to customers. Related to our unregulated statement renewables portfolio, aft beardown purchaser interest, we're pleased pinch our announcement made yesterday for nan waste of our 1,365 megawatt portfolio to IRG Acquisition Holdings, which is simply a business owned by Invenergy, CDPQ and costs managed by Blackstone infrastructure. A summary of nan waste tin beryllium seen connected Slide 9 of nan position today.

We're presently targeting a 2nd 4th 2023 close. The utilization of nan proceeds from nan waste is now reflected successful our updated multiyear financing scheme connected Slide 39, and nan transaction proceeds will beryllium directed to support our regulated businesses arsenic we heighten nan power transportation infrastructure and toggle shape our procreation fleet. Our near-term attraction remains closing connected our 2 pending waste transactions Kentucky and our unregulated renewables. Once some of these transactions are complete, we scheme to revisit nan equity needs successful our existent multiyear financing plan. As we've been clear successful nan past we will usage nan plus income to responsibly destruct equity while maintaining a beardown equilibrium sheet, nary alteration successful messaging connected this.

And that's important that I reiterate that. No alteration successful nan messaging. Finally, successful October 2022, we announced nan strategical reappraisal of our unit business. We're looking astatine this business to find really aliases if it fits pinch nan existent AP portfolio and we'll support you updated connected our progress. We're expecting to complete nan strategical reappraisal successful nan first half of 2023.

Let maine touch connected our regulatory and legislative initiatives that we person underway. We stay focused connected reducing our authorized versus existent ROE gap. As I mentioned earlier, our 2022 earned regulated was ?ROE 9.1% and -- our 2023 net guidance scope assumes a 9.4% earned ROE, and we are already making advancement successful that direction. In January, we reached nan colony and summation committee support for our Louisiana guidelines case, which allows america to reestablish a look complaint scheme -- arsenic we beforehand done nan year, nan squad will beryllium progressive successful completing our existent guidelines lawsuit successful Oklahoma and rider betterment of nan 88 megawatts of nan Turk plant, which is not presently successful Arkansas rates. We besides revenge an electrical information scheme successful Ohio, which will return america into 2024.

Let maine displacement gears and supply you pinch an update connected our deferred substance betterment efforts that are presently underway. As we've antecedently shared pinch you complete nan past respective months, we person made adjustments to our accepted costs betterment methods successful a number of our states to let for betterment while spreading nan costs retired for our customers to make them much affordable.

In West Virginia, we proceed to prosecute support of nan pass-through of substance costs nether nan substance clause. We besides intend to propose an replacement way to betterment of these costs nether projected legislation, if Approved, that would let america to securitize these costs and minimize customer impact. The West Virginia Commission precocious instructed its unit to decorativeness its prudence reappraisal of nan 2021 and 2022 substance costs. The authorities legislature continues to move nan securitization authorities guardant pinch nan Commission Chair precocious testifying successful support earlier nan lawmakers.

I'll reason my remarks pinch an update connected our regulated renewables strategy and execution. Our capacity needs proceed to thrust america guardant connected nan regulated renewables front, and we proceed to activity pinch our regulators, policymakers and different cardinal stakeholders to guarantee a durable and sustainable transmission -- modulation to a cleanable power system successful our vertically integrated state.

The precocious enacted Inflation Reduction Act will thief america beforehand our goals successful this area and will supply further worth to our customers arsenic we activity to get resources accordant pinch our plan. We've made sizeable advancement connected SWEPCO's 999-megawatt renewables application, which represents a $2.2 cardinal finance for AEP. Parties revenge a unanimous colony successful Arkansas connected January 27 and for a portfolio of owned upwind and star resources. A proceeding was held successful Texas successful January, and we proceed to person constructive colony speech pinch parties successful Louisiana, and nan proceeding day has been formally extended to March 21 to accommodate this. We look guardant to receiving nan commission's orders, which are expected successful nan 2nd 4th of 2023 connected Louisiana and nan 3rd 4th of 2023 for Texas.

In November of 2022, PSO made a regulatory filing successful Oklahoma to ain 995.5 megawatts of star and upwind projects representing a $2.5 cardinal investment. A procedural schedule was issued past period which includes a proceeding day successful April and an expected committee bid successful nan 3rd 4th of this year. Separately, we're besides seeking to get nan 154-megawatt [indiscernible] upwind installation successful Oklahoma from EDF. FERC approved this acquisition connected February 16, and we're pursuing complaint betterment of this finance done nan ongoing PSO guidelines complaint case.

The task is already successful work and will supply contiguous capacity for PSO's customers. Our regulated renewables goals are aligned and supported by our integrated resources plans. In accordance pinch those plans, we issued petition for connection successful 2022 for wind, star and different resources astatine APCo, INM and erstwhile again astatine SWEPCO. We expect making nan related regulatory costs to get further resources nether these RFPs passim 2023.

We proceed to spot accelerated changes successful our manufacture and expanding request and request from customers and communities crossed nan United States. At nan extremity of 2022, arsenic I prepared to presume my caller position astatine AEP, nan squad and I dedicated a sizeable magnitude of clip and power to determining really AEP would proceed to present safe, clean, affordable and reliable power and really we could present this power faster and much efficiently to our customers while generating enhanced worth to our stakeholders. Our semipermanent net maturation complaint of 6% to 7% is underpinned by a robust $40 cardinal superior finance scheme for 2023 done 2027, which includes $15 cardinal successful transmission and $9 cardinal successful regulated renewables investments.

As evidenced by our 4th fourth and afloat twelvemonth 2022 capacity AEP has had a long-standing way grounds of consistently delivering connected our strategical objectives, our translator strategy is moving and nan investments we're making proceed to support our affirmative net maturation and results. Now please subordinate maine successful welcoming Ann to her first AEP net call. I'll time off you successful her very tin hands arsenic she provides penetration and position into our capacity drivers for 2022 and nan specifications supporting our financial targets. Ann?

Ann Kelly

Thank you, Julia and Darcy. It's awesome to beryllium pinch you each this greeting and acknowledgment for dialing in. I'll locomotion america done our 4th fourth and afloat twelvemonth results, stock immoderate updates connected our work territory load and our outlook for 2023 and decorativeness pinch commentary connected in installments metrics and liquidity arsenic good arsenic immoderate thoughts connected our guidance, financial targets and portfolio management.

So let's spell to Slide 10, which shows nan comparison of GAAP to operating net for nan 4th and year-to-date periods. As Julie mentioned, we had a beardown operating results successful some nan 4th fourth and for nan afloat year. GAAP net for nan 4th fourth were $0.75 per stock compared to $1.07 per stock successful 2021. GAAP net for nan twelvemonth were $4.51 per stock compared to $4.97 per stock successful 2021. For nan quarter, I'll mention that we person reflected further charges related to nan expected waste of Kentucky Power and Kentucky Transco arsenic nonoperating costs. This is mostly a consequence of nan hold successful nan closing from nan request to record a caller 203 exertion pinch nan FERC. There are elaborate reconciliations of GAAP to operating net connected Pages 18 and 19 of nan position today. Today, I'm going to attraction much connected our afloat twelvemonth results, but I did want to supply a fewer highlights connected nan 4th fourth arsenic we show connected Slide 11. Operating net for nan 4th fourth totaled $1.05 per stock compared to $0.98 per stock successful 2021.

This is simply a $0.07 aliases 7% summation year-over-year. While we had a batch of puts and takes, our vertically integrated and T&D inferior segments continued to execute well, resulting from complaint changes, transmission gross and immoderate favorable weather. We did spot a $0.03 diminution successful our normalized unit margin, but that was owed to a alteration successful income operation arsenic debased arsenic favorable for nan quarter.

I'll talk load successful much item successful a mates of minutes. We were besides capable to support an summation successful our O&M expenses arsenic a consequence of nan beardown net that we were seeing. Transmission Holdco was favorable by $0.03, moreover aft factoring successful nan nonaccomplishment nan Ohio RTO adder arsenic we proceed to spot nan benefits of our investments. Generation and Marketing produced $0.16 per share, up $0.10 from past year, driven by accrued unit power margins and favorable procreation performance, chiefly driven by less mean days year-over-year.

And finally, Corporate and Other was down $0.05 per stock driven by accrued liking disbursal and finance losses, partially offset by favorable income taxes. Now let's person a look astatine our year-to-date results connected Slide 12. Operating net for 2022 totaled $1.09 per stock compared to $4.74 per stock successful 2021. This was an summation of $0.35 per stock aliases 7%. Looking astatine nan drivers by segment. Operating net for vertically integrated utilities were $2.56 per share, up $0.30. Due to complaint changes crossed various operating companies, favorable weather, accrued transmission gross and besides summation normalized load. Offsetting these favorable variances were higher O&M, accrued depreciation disbursal and accrued liking expense.

Once again, nan alteration successful accounting astir nan Rockport Unit 2 lease results successful $0.23 of favorable O&M offset by $0.23 of unfavorable depreciation. In nan Transmission & Distribution Utilities segment, earned $1.16 per share, up $0.06 from past year. Favorable drivers successful this conception included complaint changes successful Texas and Ohio, favorable upwind and accrued normalized unit load and transmission revenue. Offsetting these favorable items were unfavorable O&M and depreciation. With nan favorable upwind and different items that we knowledgeable successful 2022, we were capable to responsibly deploy further O&M successful some inferior segments to walk connected items for illustration accrued vegetation guidance to amended strategy reliability.

The AEP Transmission Holdco conception contributed $1.32 per share, down $0.03 from past year. Favorable finance maturation of $0.12 was much than offset by an unaffared true-up of $0.04, nan nonaccomplishment of nan RTO adder successful Ohio and accrued income taxes. Remember, our 2022 guidance had this conception down by $0.08 year-over-year arsenic a consequence of nan finance maturation being much than offset by nan yearly true-up to immoderate unfavorable comparisons for taxes and interest. Generation and Marketing produced $0.50 per share, up $0.24 from past year. The affirmative variance present is chiefly owed to nan waste of renewable improvement sites, improved procreation capacity successful onshore income successful nan procreation business, improved unit margins and accrued wholesale margins stemming from favorable marketplace conditions.

And finally, Corporate and Other was down $0.22 per share, driven by finance losses unfavorable liking successful accrued O&M, partially offset by little income taxes. The finance losses proceed to beryllium impacted by nan year-over-year comparisons for our ChargePoint finance that we exited successful nan 3rd quarter. As we mentioned earlier, we are reaffirming our guidance scope for 2023. For convenience, we've included an updated waterfall connected our existent 2022 results to nan midpoint of our guidance for 2023 connected Slide 36. While nan variances changed owed to nan 2022 existent results, location is nary alteration to our 2023 conception aliases wide guidance. We are assured that our regulatory actions to supply timely returns connected our distribution and renewable investments, continued finance successful transmission assets, nan effect of economical improvement efforts and prudent O&M guidance will offset headwinds specified arsenic rising liking rates and inflationary pressures.

Now turning to Slide 13, I'll supply an update connected our normalized load performance. Overall, 2022 was a singular twelvemonth for normalized load maturation crossed nan AEP work territory. Despite nan Federal Reserve's intentional actions to slow down nan economy, AEP knowledgeable its strongest weather-normalized load maturation successful complete 15 years pinch 2.8% yearly growth. The astir awesome portion is that this is acquisition connected apical of a betterment year. As a reminder, 2021 was nan strongest twelvemonth for AEP's normalized maturation successful complete a decade until 2022. The maturation successful 2022 was dispersed crossed astir each operating institution successful each awesome unit class. Starting successful nan little correct area of nan slide, normalized unit income accrued by 1.9% successful nan 4th fourth and ended nan twelvemonth up 2.8% compared to past year. For nan quarter, nan maturation successful commercialized and business income will much than offset nan humble diminution successful residential sales.

Looking forward, you will spot that we are expecting maturation of 7% to 10% successful 2023. The communicative is changing somewhat to further region distant from nan pandemic. In 2022, nan boost from fiscal argumentation overwhelmed nan Federal Reserve's efforts to constrain nan system done monetary policy. In 2023, we expect nan fiscal boost to day fixed nan legislature changes aft nan election, while nan Fed's efforts to tame ostentation stay successful place. We expect this to consequence successful a flimsy moderation of economical maturation for nan equilibrium of this year.

Moving to nan precocious near corner, Normalized residential income decreased by 0.8% successful nan 4th fourth but vanished nan twelvemonth somewhat supra 2021. For nan quarter, residential customer counts accrued by 0.4%, but this was offset by a 1.2% diminution successful upwind normalized usage.

This is not astonishing erstwhile you see nan effect that higher inflation, power costs and liking rates connected customers' disposable income to extremity nan year. You will announcement that we now expect residential income to alteration by 0.5% successful 2023 for nan aforesaid reason. Moving right, weather-normalized commercialized accrued by 5.4% for nan 4th and ended nan twelvemonth up 4.2% compared to 2021. The maturation successful commercialized income was dispersed crossed astir each operating company. fastest-growing commercialized sectors, master technological and tech services that includes information centers, which -- wherever load was up astir 30% compared to past twelvemonth for some nan 4th and nan year-to-date comparisons.

The outlook for 2023 is showing a humble 0.6% growth. While we do spot momentum successful this people driven by economical development, nan sustained effect of nan labour shortage ostentation precocious liking rates and power costs will enactment arsenic a headwind successful 2023. Finally, focusing connected nan little near corner, you spot nan business income maturation moderated successful nan 4th quarter, up 1.5% and while nan twelvemonth ended 4.5% supra 2021. Industrial income accrued astatine astir operating companies successful galore of our largest sectors.

We proceed to acquisition robust maturation successful nan lipid and state sectors, which were up 6% compared to nan 4th fourth of 2021. Outside of lipid and gas, which tends to tally countercyclical to nan remainder of nan economy, we did announcement softer business income maturation accordant pinch galore of nan economical indicators. As you know, nan ISM manufacturing scale fell beneath 50 successful nan 4th quarter, which is simply a motion of an business contraction. The operation of sustained inflation, proviso concatenation disruptions, expanding borrowing costs, beardown dollar and elevated power costs person formed important challenges for home manufacturing. Fortunately, AEP's past economical improvement activities are providing an offset and are keeping AEP's business income maturation successful affirmative territory. You spot that nan outlook is showing business income maturation of 2.1% successful 2023, which is mostly attributable to nan accordant economical improvement activities from nan past. I'll supply further item connected nan effect of these efforts successful nan adjacent slide.

To summarize, nan AP work territory knowledgeable a singular twelvemonth for load maturation successful 2022 contempt nan inflationary pressures connected wages and power and a national reserve that was intentionally trying to slow down nan economy. We are yet seeing grounds that these measures are starting to person an impact, which will consequence successful slower maturation successful 2023. Fortunately, AEP's disciplined committedness to economical improvement should support our load maturation successful nan achromatic moving forward.

For example, absent economical development, our indebtedness maturation would person been fundamentally level successful nan 4th fourth and up 1.1% for nan year.

Turning to Slide 14, I want to item really our committedness to economical improvement is helping to prolong load maturation moreover successful nan look of challenging economical conditions. The floor plan connected this descent illustrates why nan strategy is truthful important to us. The bluish bars connected this floor plan show nan maturation of gross location merchandise for nan AEP work territory complete nan past year. You tin spot that it has been slowing complete nan period. And successful fact, for nan 4th quarter, maturation successful AEP's GRP was somewhat antagonistic compared to nan 4th fourth of 2021. However, nan greenish bars present show our business income maturation complete nan aforesaid period. You'll announcement they person been resilient passim 2022 without immoderate thief from GRP. A batch of nan maturation successful business load that we are seeing coming is simply a consequence of economical improvement projects from erstwhile years. And our attraction connected economical improvement is not conscionable astir nan further load that we study to you connected a quarterly basis. We are besides focused connected attracting employers to nan work territory. We cognize that adding caller loading customers are a cardinal strategy to providing worth to each customers. This allows america to proceed to prioritize investments that will amended nan customer acquisition while mitigating nan complaint impacts connected our customer base.

By making this a cardinal constituent of our strategy, AEP is helping to mitigate nan effect of nan economical downturn connected our customers, communities and shareholders. And AEP's economical improvement squad has a proven way grounds of helping to bring these caller customers to our work territory pinch an accent connected jobs and load. In fact, nan AEP work territories added complete 141,000 jobs successful 2022.

Let's move connected to Slide 15 to talk nan company's capitalization and liquidity position. Taking a look astatine nan precocious near quadrant connected this page, you spot our FFO-to-debt metric stands astatine 13.2%, which is simply a alteration of 1.3% from nan anterior quarter. The superior logic for this alteration is nan effect connected some FFO and short-term indebtedness from a alteration successful our mark-to-market collateral positions associated pinch nan diminution successful earthy state and powerfulness prices. arsenic good arsenic a continued summation successful our deferred substance balances.

We stay committed to our targeted FFO-to-debt scope of 14% to 15%, and we scheme to inclination backmost into that scope adjacent nan extremity of 2023 arsenic we proceed to activity done nan regulatory betterment process of our deferred substance balances, which tin thrust immoderate volatility successful nan metrics. You tin spot our liquidity summary connected nan little near quadrant side. Our 5-year $4 cardinal slope revolver and 2-year $1 cardinal revolving in installments installation support our liquidity position, which remains beardown astatine $2.6 billion. The $1.1 cardinal alteration from past 4th is chiefly owed to an summation successful commercialized insubstantial outstanding for nan reasons I mentioned earlier.

On a GAAP basis, our debt-to-capital ratio accrued from nan anterior 4th by 1.5% to 62.9%. On nan qualified pension front, our backing position remained strong, ending nan 4th astatine 102.4%. While assets performed arsenic expected during nan quarter, nan superior driver for nan funded position decreased was owed to an summation successful nan liability caused by changes successful actuarial assumptions influenced by nan rising liking complaint situation successful 2022.

Now turning to Slide 16. I'll springiness a speedy recap of today's message. First, we are focused connected execution. The Kentucky transaction is backmost successful beforehand of nan FERC and Liberty and AEP are committed to moving guardant pinch this transaction. We conscionable announced nan statement to waste our unregulated statement renewables portfolio and are moving done nan strategical reappraisal of nan unit business. Each of these actions will thief america to simplify and derisk our business. Even arsenic we worked connected these initiatives, we didn't return our oculus disconnected nan shot of managing nan business. We vanished 2022 pinch coagulated net and made important investments to support our customers moreover pinch nan backdrop of proviso concatenation challenges and inflationary pressures.

We proceed to beryllium committed to our semipermanent maturation complaint of 6% to 7% and continued dividend maturation and a beardown equilibrium expanse while derisking nan company, focusing connected nan customer and actively managing nan portfolio. We really admit your clip and attraction today. I'm going to inquire Brad to unfastened up nan telephone truthful that we tin reply immoderate questions that you whitethorn have.

Question-and-Answer Session

Operator

[Operator Instructions]. And we'll first spell to Shahriar Pourreza pinch Guggenheim Partners.

Shahriar Pourreza

So a mates of speedy ones here. Looking astatine conscionable nan West Virginia substance costs recovery, hearings were evidently held successful 4Q, and location was a chat astir moving to quarterly clip periods arsenic good arsenic securitization. I guess, tin you springiness america possibly an update connected really you're looking astatine nan business wherever we mightiness beryllium headed from here? There's a batch of moving pieces I guess. So really is nan speech going? And benignant of immoderate consciousness of measure effect ranges, particularly pinch nan caller state value collapse?

Julia Sloat

Yes. I still admit nan mobility because shares, I'm judge you tin imagine, it is perfectly apical of mind for us. And arsenic Ann mentioned successful her comments, apical of mind from a CFO perspective, astir definitely. As you know, we did get an order.

The unit is going done its paces arsenic we had to activity done nan prudency review. And successful nan background, what's playing is simply a authorities that could perchance accommodate securitization of nan dollars we person outstanding, our substance equilibrium successful West Virginia $520 cardinal -- truthful it's not insignificant and it's highly important to beryllium capable to digest this successful a measurement that tin accommodate customer rates. So we're hoping that we'll beryllium capable to beryllium successful a position we'll beryllium capable to utilize nan securitization legislation, if approved, to beryllium capable to soft this retired and return attraction of customer needs successful position of nan measure successful path. And I don't know, Ann, do you person immoderate different thoughts connected that, really we mightiness do that?

Ann Kelly

Yes. No, it's perfectly right. I mean utilizing nan securitization allows america to dispersed it retired complete clip and minimize and really support our customer rates comparatively flat, which is really nan intention. Now this will return immoderate time. It will beryllium effective successful June, and we request to committee nan order. So we would expect nan securitization to return spot successful nan first half of 2024.

Shahriar Pourreza

Got it. Okay. Perfect. And past conscionable lastly, connected nan financing needs. Obviously, we've noticed that you now see some nan $1.2 cardinal expected rate proceeds from Kentucky arsenic good arsenic I deliberation for nan first time, nan expected $1.2 cardinal from nan contracted renewable sale. I conjecture looking astatine nan sources and uses, why hold to update your backing needs connected nan equity side, particularly if you're including nan proceeds already. Is location thing we should beryllium reasoning astir here?

Julia Sloat

No hidden connection location astatine all, Shahriar. We want to make judge that we get some of these transactions successful nan bag, get them taken attraction of and past we'll recalibrate. And arsenic you know, our nonsubjective is twofold. We want to make judge we person a beardown equilibrium expanse because we don't want anybody worried astir immoderate dilutive different actions that we would person to take. So that's first and foremost. So apical of mind for america is making judge that equilibrium expanse is successful check.

And arsenic you know, we put retired a target extremity for FFO to indebtedness of 14% to 15%. That being said, to nan grade that we will past beryllium capable to destruct early equity needs, we don't person a important magnitude of equity financing erstwhile you look retired complete nan horizon. But if we're capable to benignant of propulsion that backmost a small spot and still deed nan nonsubjective connected nan beardown equilibrium sheet, we'll perfectly do that. So nary hidden message. Obviously, some of these are moving along, contractor renewables caller for us. We cognize that, that will adjacent successful nan 2nd quarter. We judge that's nan scheme to adjacent successful nan 2nd quarter. And arsenic you know, Kentucky is pending pinch its 203 application. So enactment tuned. We conscionable want to make judge that we sewage this wholly correct for you each and that you're not concerned.

Operator

And next, we'll spell to Jeremy Tonet pinch JPMorgan. .

Jeremy Tonet

I conscionable want to pivot towards nan unit business a small bit. And if you could conscionable peel back, I guess, a small spot really that process stands astatine this point. Just wondering, immoderate thoughts that are beryllium considered present of why that would stay successful nan portfolio, what mightiness forestall you from trading it? I'm conscionable wondering if you mightiness beryllium capable to supply a small spot much colour of what's successful that business, EBITDA net aliases thing other to wrap our heads astir there?

Julia Sloat

Yes, absolutely. And I emotion nan mobility because that's precisely what we're doing successful our location correct now is going done nan paces to find precisely does it fresh -- if there's thing that does fit, what does that look like? Stay tuned. That will beryllium a first half communicative for AEP. So expect america to beryllium coming to you astir apt successful nan 2nd 4th pinch a small much granular item because we're virtually going done that study now and moving pinch nan troops to make judge we person that finally, too, truthful we tin get backmost retired to you.

As acold arsenic quantifying really large is this business and what does it mean presently to AEP, nan nett plus position or, I guess, equity position, if you portion retired nan liabilities, we're talking astir $193 cardinal -- nan immense mostly of that is moving superior to nan tune of astir $150 cardinal of nan $193 million, and nan remainder is mostly IT software, and past we person a small smidge of goodwill successful location of astir $1 cardinal to springiness you immoderate parameters.

And past different point that I would deliberation astir is what does that mean from an EPS perspective, successful 2022, this unit business contributed $0.05 of EPS. And successful 2023, we person $0.04 embedded successful our guidance to springiness you that goalpost to. Hopefully, that helps.

Jeremy Tonet

That's very helpful. And conscionable going backmost to nan renewables waste here. Was location an EBITDA number that you mightiness beryllium capable to stock pinch america aliases person shared connected that?

Julia Sloat

We haven't disclosed an EBITDA number. I tin show you that successful our guidance for 2023, we're looking astatine $0.01 that renewable business contributed, I deliberation it was $0.08. Does that sound right, Ann? $0.08, yes?

Ann Kelly

$0.08, yes.

Julia Sloat

$0.08 successful 2022 to springiness you those parameters.

Jeremy Tonet

Got it. That's helpful. And conscionable 1 past one, if I could. Touching connected what Shahriar was talking astir pinch nan substance business what person you. And I conjecture if moving pieces here, getting backmost to what nan agencies are looking at, really should we deliberation astir nan cadence of substance equilibrium normalizing immoderate different items arsenic we get to nan 14% to 15% FFO indebtedness target scope by year-end '23, I think?

Julia Sloat

That's right. We expect to get our -- up to nan -- get nan shot betwixt nan uprates successful nan past portion of nan year. We do expect to person a small spot of unit connected nan beforehand extremity arsenic we proceed to activity done immoderate of nan substance balances. As I mentioned, erstwhile you look astatine West Virginia stand-alone, it's astir $520 million. Does that sound right, Ann?

Ann Kelly

Yes, $520 million. And arsenic I mentioned, nan securitization of that will return immoderate time. So apt won't beryllium done by nan extremity of this year. But -- successful position of our different substance balances successful different jurisdictions, we person affirmative mechanisms to retrieve that. And besides earthy state rates and powerfulness prices are declining, truthful that will thief somewhat arsenic well.

Operator

And next, we'll spell to Steve Fleishman pinch Wolfe Research.

Steven Fleishman

Yes. So conscionable benignant of akin -- akin mobility connected nan deferred fuel. If you conscionable looked astatine nan year-end number connected FFO to debt, really overmuch do you deliberation deferred substance represents successful position of effect that's lowering that number? Looking astatine FFO to debt?

Julia Sloat

So we're astatine 13.2% arsenic of year-end. And truthful if we get supra that 14%-ish scope by year-end 2023, I don't cognize that looks astir -- I don't opportunity wholly 100 ground points, but it's beautiful significant.

Ann Kelly

Yes. I deliberation it really mightiness beryllium a small spot little than 100 ground erstwhile you deliberation astir it because we person $1.7 cardinal of deferred substance astatine nan extremity of nan year.

Steven Fleishman

Okay. That's very helpful. And past conscionable connected nan ROE betterment to nan 9.4 successful this year's guidance. Is it -- is location immoderate states that are really driving a batch of that? Are location immoderate states that they're still benignant of nan astir room to spell aft '23?

Julia Sloat

Yes. So here's wherever I'll tie your attraction to. And I cognize we person nan small equalizer floor plan present successful nan descent platform somewhere. I deliberation it's connected Page 41. And truthful you tin get a consciousness of benignant of wherever we are hanging retired connected each of nan respective operating institution entities. But what we do person successful play correct now is that astatine PSO, truthful Oklahoma, we person a guidelines lawsuit underway. So that should thief america to statesman to heal nan ROE, nan earned ROE astatine PSO. So enactment tuned for that. So guidelines lawsuit successful play there. And past arsenic I mentioned successful my opening remarks, we precocious were capable to finalize our Louisiana guidelines lawsuit and past reactivate this look complaint plan. So that will get underway to, again, to thief move SWEPCO's ROE backmost up person to its authorized levels. Kentucky, obviously, you cognize what we're doing pinch Kentucky. And APCo, I deliberation APCo, that's why nan authorities successful Virginia becomes truthful important to us. because we're successful an under-earning position correct now. We sewage nan result of nan Virginia triennial case, which should beryllium beneficial to america successful 2023, but I would still expect APCo's ROE to beryllium nether unit until we get, hopefully, immoderate solution astir Virginia authorities that to nan grade that we're capable to modify nan regulatory betterment methods that are being employed successful that peculiar state, we'll statesman to spot immoderate treatment connected that peculiar ROE, too. So our triennial versus opportunity a biennial, AEP is going to lead much toward a biennial aliases an yearly type look versus needfully that triennial because unluckily benignant of tracks america successful an under-earning position, truthful enactment tuned. We'll spot really nan Virginia authorities process moved along. Our squad is perfectly astatine nan array pinch each nan different stakeholders. So that sounds constructive. So we're hopeful and we'll spot this processing business done and past we would expect thing to beryllium successful nan betterment territory for APCo.

Steven Fleishman

Just for clarity connected that past constituent successful Virginia, why does -- what are things that would thief you successful nan Virginia law, it spell into nan biannual truthful you don't person to spell truthful acold betwixt cases aliases thing else?

Julia Sloat

Anything shorter, Steve, is going to beryllium amended for america -- truthful that will move america successful a much productive business aliases guidance for APCo successful particular. I mean an yearly complaint trout would beryllium fine, too. But again, you tin spot nan direction. So that will beryllium important for america arsenic we activity done nan different solutions that are being contemplated now because I cognize we have, I think, 3 bills that are being evaluated aliases astatine slightest shopped successful Virginia. But arsenic I mentioned, AEP is perfectly astatine nan table, and we'll spot really this yet shakes out. Obviously, nan use needs to spell to nan customers, but past besides our investors arsenic we activity to amended nan ROE.

Operator

Next, we tin spell to Nick Campanella pinch Credit Suisse.

Nicholas Campanella

I conjecture conscionable very clear from nan filings that person been made truthful acold connected nan Kentucky transaction that nan parties are committed present and you're moving towards closing and what is somewhat of a tight deadline. Can you conscionable benignant of springiness america a consciousness really that changes, if your backing strategy changes astatine each if this woody weren't to spell done and really that would wide benignant of alteration your strategy if it went there.

Julia Sloat

Yes. Nick, I still admit nan question, and I'll fto Ann jump successful present successful a 2nd connected what our thoughts are connected funding. But I person earlier I do that, I person to say, we're committed to nan transaction. I cognize you constituent that out. And I cognize we do person a tight clip line. That's precisely why I threw that retired location successful my opening comments. The nonsubjective is to, I'll say, push for nan portion because I cognize we've sewage that April 26 date. But importantly, I request you guys to person this takeaway some nan AEP and nan Algonquin squad members proceed to person a regular speech and activity intimately together.

So we're each successful and we'll proceed to push to effort to do this arsenic expeditiously arsenic possible. But I deliberation we're besides successful a bully position from a financing perspective. Ann, you want to talk a small bit...

Ann Kelly

Yes, absolutely. So I mean should Kentucky not close, we would expect to support our equity needs nan same. So nary caller equity if that happens. We'll conscionable beryllium managing our FFO to indebtedness arsenic tightly arsenic imaginable and don't expect immoderate changes.

Nicholas Campanella

Okay. That's helpful. I admit that. And past I conjecture conscionable I cognize we talked a batch astir deferred fuel, but we noticed that nan CFO is somewhat depressed successful '23 versus benignant of what you outlined astatine nan Analyst Day. And I deliberation you're making up for that successful nan backmost portion of nan plan. But is that purely conscionable deferred substance impacts? Or is location thing other basal there? That would helpful.

Ann Kelly

Yes, there's really 2 main drivers. Deferred substance is nan biggest piece, but nan different portion is we've had immoderate return of collateral from a mark-to-market owed to nan simplification successful earthy state and powerfulness prices that has impacted that arsenic well.

Operator

Next, we tin spell to Bill Appicelli pinch UBS.

Unidentified Analyst

Just going backmost to nan Kentucky sale. I cognize you said that FERC provided for a 45-day remark play truthful that was look for illustration it was going to beryllium supportive of possibly an expedited ruling. But will we get further indications from FERC, if they will norm an expedited manner? Or do we conscionable person to hold and see?

Julia Sloat

Yes. So nan adjacent gating point for america is March 31. That ends nan commentary period, and we'll conscionable proceed from there. We cognize nan different backdrop for america aliases backstop for us, arsenic I mentioned successful my comments, is nan April 26 date. So that's apical of mind for america arsenic well. But here's wherever I proceed to spell successful my mind. None of nan benefits yet to nan customer until we adjacent nan transaction. They don't commencement successful advance. So that's incredibly important. And I deliberation we've sewage everyone's attention.

And Bill, nan different point that we were peculiarly delicate to, and I cognize Darcy has astir apt shared this pinch you, if you've called in, successful nan interim here, but we really made an effort to return nan FERC blueprint to make judge that we were accommodating aliases addressing nan concerns that FERC voiced arsenic it relates to taking attraction of customers and making judge there's nary harm.

And arsenic a matter of fact, if you astatine nan application. I deliberation we spell successful pre done nan caller 203 exertion successful beautiful granular form. I deliberation it's Pages 4, 5 and 6. Clearly, I've publication this a fewer times. Take a look astatine that if you want to get a amended consciousness of what nan parties person travel up pinch to beryllium capable to return attraction of nan customers successful nan authorities of Kentucky and specifically Kentucky Power's footprint. So I deliberation everybody is going to beryllium moving connected an expedited ground and schedule.

And clearly, we very overmuch appreciated nan shortened remark play because I do deliberation it's indicative. So we'll proceed to activity done it and remainder assured that some nan AEP and Algonquin squad members will proceed to beryllium successful regular interaction pinch 1 different because astatine this point, we're partners successful each of this.

Unidentified Analyst

Okay. No, that's very helpful. And past I guess, what happens if we get to nan April 26 date, and we don't person a determination from FERC. Can that beryllium extended or...

Julia Sloat

Excellent question, fantabulous question. And here's really we tin reply that for you. I mentioned that nan teams are successful changeless interaction and regular contact. I would expect that if we get person to that date, that nan teams will beryllium talking specifically astir this. So enactment tuned.

Operator

And next, we'll spell to Durgesh Chopra pinch Evercore. .

Durgesh Chopra

Just first, a speedy clarification. The -- I deliberation you mentioned $0.08 for nan renewables business EPS. That's conscionable half year, right? So that's what's embedded successful nan guidance and nan afloat twelvemonth net are double that to $0.16, right?

Ann Kelly

No, $0.08 is past year. So nan 2022 EPS from renewables, arsenic we mentioned, for 2023, we expect that to beryllium $0.01.

Durgesh Chopra

Got it. So that's nan afloat twelvemonth publication for 2022?

Julia Sloat

That's correct. Yes, $0.08 for 2022, $0.01 for 2023. And truthful nan measurement I would qualify it, and I deliberation this is really we had nan property merchandise neutral to possibly somewhat dilutive to nan tune of $0.01. So from my chair, I'm not worried astir it.

Durgesh Chopra

Got it. Okay. And past just, again, I want to spell backmost to nan benignant of nan financing slide. Can you conscionable updated thoughts connected usage of proceeds here. Clearly, nan renewable waste is connected way and get $1.2 cardinal successful cash. So really should we deliberation astir usage of proceeds? Should that astatine slightest destruct equity for 2024?

Julia Sloat

Yes. So do you want to return that?

Ann Kelly

No. Right now, we are not going to trim immoderate equity successful nan outer years. But arsenic Julie mentioned, erstwhile we adjacent nan Kentucky transaction, nan renewables transaction, we're going to we reevaluate and spot whether aliases not we tin responsibly return retired equity successful nan early while keeping successful mind and having a beardown equilibrium sheet.

Operator

And next, we tin spell to Paul Fremont pinch Ladenburg.

Unidentified Analyst

Great. So I conjecture nan first question, correct now, nan income proceeds from nan 2 transactions really are successful excess of nan equity that you had identified past year. So we should presume though that nan income proceeds don't destruct your equity need, they conscionable trim it. Is that a adjacent characterization?

Julia Sloat

I deliberation that's a adjacent characterization. And conscionable arsenic a reminder because Ann wasn't present erstwhile we made these announcements past year. But Paul, you whitethorn remember, we took retired of nan 2022 scheme -- nan 2022 plan, $1.4 cardinal of equity because we presume that nan Kentucky transaction would person closed. We ne'er put that equity backmost in. And truthful correct now, we're conscionable benignant of waiting to person that peculiar transaction close. And past we introduced nan contracted renewables transaction connected apical of that. So what you spot coming is versus what we primitively had planned, we had already stripped retired $1.4 cardinal of equity. So that's already assumed successful this scheme versus what we primitively had erstwhile we announced Kentucky. And truthful arsenic Ann mentioned, what you should expect is we've already assumed each nan process some of these transactions are assumed successful nan multiyear forecast you person connected Page 39.

And that erstwhile we adjacent connected some of them, we for illustration cash. We for illustration rate coming successful nan door. So erstwhile we adjacent connected those, we'll beryllium capable to recalibrate to make judge we're doing -- hitting 2 objectives: number one, make judge that we're getting to that 15% -- 14% to 15% FFO-to-debt and past being capable to tweak, meaning different translator trim immoderate of those equity needs successful those early periods. So don't expect america conscionable piping each of that retired because we've already assumed nan Kentucky utilization was successful there, but we whitethorn person immoderate wiggle room present to return immoderate further dollars retired successful position of equity erstwhile we adjacent connected nan transaction.

And truthful nary hidden connection there. We're conscionable hold until we person nan dollars, and we'll beryllium correct backmost to you to beryllium capable to return immoderate of those equity needs retired assuming we tin get nan metrics that we request to deed from an FFO-to-debt perspective, and I deliberation we tin do it.

Unidentified Analyst

Great. And past moving to Virginia. You guys -- aliases there's a bill, I deliberation that's nether long SB 1075, would you expect that to survive, travel retired of convention and yet beryllium adopted? Or I guess, what's your thought process connected what will hap successful Virginia?

Julia Sloat

Yes. So here's what I have. I person that SB 1075 was amended successful nan location and past we -- it was transitioned to a biennial. And past we're continuing to activity pinch our legislators and nan governors to scope immoderate statement connected nan language. And if this does pass, what you should expect is that AEP aliases APCo would record its past triennial successful 2023, and that would screen nan play done 2022. So we'll spot if we tin get this crossed nan extremity line.

I cognize we've sewage immoderate different competing bills aliases authorities that is being projected arsenic well, besides looks for illustration a biennial situation.

Unidentified Analyst

Great. And tin you break retired for 2022, conscionable nan publication from generation?

Julia Sloat

From each of our generating assets aliases nan procreation market...

Unidentified Analyst

In nan G&M section, truthful nan merchant -- successful different words, nan merchant procreation publication successful 2022.

Julia Sloat

Yes. I tin springiness you nan renewable part, that was $0.08. I person that disconnected nan apical of my head. I tin springiness you nan -- truthful I'm going to activity it a small spot backwards. I springiness you nan unit portion of nan business, and that's not nan procreation component. So that was $0.05. So past you've got, what, $0.13 location of nan full earned. We tin circle backmost pinch you, Paul, and get you that number, though. That would beryllium nary problem.

Unidentified Analyst

That would beryllium great. And possibly nan past mobility for me. nan income taxation changes and different and firm and other, tin you possibly springiness a small spirit arsenic to what drove those?

Julia Sloat

Hang connected 1 2nd here. We're benignant of moving done my notes because I don't person that successful beforehand of me.

Ann Kelly

Yes. So nan income tax, there's a small spot of surface science present pinch respect to nan genitor institution nonaccomplishment that's driving that impact. And past -- nan different is conscionable a batch of very mini items that are indebtedness together.

Operator

And pinch nary further questions successful queue, I'll manus nan telephone backmost complete to Darcy Reese.

Darcy Reese

Thank you for joining america connected today's call. As always, nan IR squad will beryllium disposable to reply immoderate further questions you whitethorn have. Brad, would you please springiness nan replay information.

Operator

Certainly. Thank you. Ladies and gentlemen, this convention will beryllium disposable for replay aft 11:30 Eastern coming and moving done March 3 astatine midnight. You tin entree nan AT&T replay strategy astatine immoderate clip by dialing 1-866-207-1041 and entering nan entree codification 3625886. International parties whitethorn dial 402-970-0847 pinch nan entree codification 3625886. That does reason our telephone for today. Thanks for your information and for utilizing nan AT&T teleconference. You whitethorn now disconnect.