10-K: American Electric Power Reports Increased Earnings in 2024, Driven by Favorable Regulatory Outcomes and Weather

American Electric Power (AEP) saw a rise in earnings attributable to common shareholders in 2024, primarily due to favorable regulatory decisions and increased sales volumes.

Summary

• American Electric Power's earnings attributable to common shareholders increased from $2.2 billion in 2023 to $3.0 billion in 2024.
• The increase was primarily driven by favorable impacts from IRS Private Letter Rulings (PLRs) related to Net Operating Loss Carryforwards (NOLCs) in retail rate making, favorable rate proceedings, investments in transmission assets, and increased sales volumes due to favorable weather.
• These increases were partially offset by a revenue refund provision related to SWEPCo's 2012 Texas Base Rate Case and the Turk Plant, an increase in operating expenses due to the EPA's revised Coal Combustion Residual (CCR) rule, and increased severance and pension settlement expenses from a voluntary severance program.
• AEP announced a five-year, $54 billion capital investment plan focused on transmission and distribution infrastructure upgrades and new generation to support increasing customer demand.
• The company plans to add more than 20,000 MW of diverse generation resources through 2034 to support resource adequacy, resiliency, affordability, and increasing customer demand.
• AEP is committed to reducing Scope 1 and Scope 2 GHG emissions to net-zero by 2045, but its performance will be driven by the needs and desires of the states it serves.
• In January 2025, AEP announced a partnership to sell a 19.9% noncontrolling interest in OHTCo and IMTCo for $2.82 billion, with proceeds to help finance the capital plan.
• In December 2024, SWEPCo acquired the 201 MW Diversion wind farm in Texas.
• In September 2024, AEP completed the sale of AEP OnSite Partners for approximately $318 million, net of taxes and transaction costs.
• In April 2024, the EPA finalized revisions to the CCR Rule, leading to a $674 million increase in Asset Retirement Obligations (ARO).
• AEP is recommitting to fundamental principles of excellence by integrating human performance fundamentals into operational practices to ensure a safer work environment for all.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with increased earnings and a significant capital investment plan. However, it also acknowledges risks and challenges, such as regulatory hurdles and environmental compliance costs, preventing a higher sentiment score.

Positives

• Favorable regulatory decisions, including IRS PLRs related to NOLCs, positively impacted earnings.
• Investments in transmission assets resulted in higher revenues and income.
• Increased sales volumes due to favorable weather conditions boosted earnings.
• The sale of AEP OnSite Partners generated $318 million in proceeds.
• AEP is committed to providing reliable affordable power to its customers.
• AEP is engaging with regulators and policymakers and our decisions around generation resources are reflected in the preferences of these states.
• AEP has embraced the advancement of low-carbon generation solutions where supported, which may include early-stage projects to bring small modular nuclear reactors to Virginia and Indiana as an example.

Negatives

• A revenue refund provision related to SWEPCo's 2012 Texas Base Rate Case and the Turk Plant negatively impacted earnings.
• Increased operating expenses due to the EPA's revised CCR rule.
• Increased severance and pension settlement expenses from a voluntary severance program.
• AEPs employee Days Away, Restricted and Transferred (DART) rate and Total Recordable Incident Rate (TRIR) increased in 2024.

Risks

• electric utility
• transmission
• generation
• regulation
• environmental
• cybersecurity
• financial risk
• credit risk
• market risk
• capital markets
• litigation
• climate change
• supply chain
• labor
• nuclear

Future Outlook

AEP forecasts continued growth in customer demand in 2025 and is committed to providing reliable, affordable power to its customers.

Industry Context

The electric utility industry is undergoing a historic transformation driven by load growth, changing customer needs, evolving public policies, and technological advancements.

Comparison to Industry Standards

• The document does not provide a direct comparison of AEP's results to specific industry standards or benchmarks.
• However, it mentions AEP's membership in PJM and SPP, which are regional transmission organizations that operate and plan utility transmission assets to provide open access and prevent discrimination.
• This implies that AEP's transmission operations are subject to the rules and protocols of these RTOs, which are designed to promote efficient and reliable electricity markets.
• The document also mentions that AEP's vertically integrated public utility subsidiaries compete with self-generation and distributors of other energy sources, such as natural gas, fuel oil, renewables, and coal.
• The primary factors in such competition are price, reliability of service, and the capability of customers to utilize alternative sources of energy other than electric power.
• With respect to competing generators and self-generation, the public utility subsidiaries of AEP believe that they currently maintain a competitive position.

Management Changes

Legal Proceedings

• AEP Parent and AEP Texas are named in approximately 100 lawsuits alleging multiple claims of wrongful death, personal injury, property damage and other injuries and damages.
• In January 2025, AEP and the SEC reached a settlement concluding and resolving the SECs investigation concerning AEPs relationship with and statements about Empowering Ohios Economy, a 501(c)(4) organization and AEPs related internal accounting and disclosure controls.
• In November 2022, the Federal EPA issued a final decision denying Gavin Power LLCs requested extension to allow a CCR surface impoundment at the Gavin Power Station to continue to receive CCR and non-CCR waste streams after April 11, 2021 until May 4, 2023 (the Gavin Denial).

Related Party Transactions

• The member companies of AEP have contractual, financial and other business relationships with the other member companies, such as participation in AEP savings and retirement plans and tax returns, sales of electricity and transportation and handling of fuel.
• The member companies of AEP also obtain certain accounting, administrative, information systems, engineering, financial, legal, maintenance and other services at cost from a common provider, AEPSC.
• A UPA between AEGCo and I&M (the I&M Power Agreement) provides for the sale by AEGCo to I&M of all the energy and capacity available to AEGCo at the Rockport Plant unless it is sold to another utility.
• AEP and several nonaffiliated utility companies jointly own OVEC.
• APCo, I&M, KGPCo, KPCo and WPCo own and operate transmission facilities that are used to provide transmission service under the PJM OATT and are parties to the TA.
• PSO, SWEPCo and AEPSC are parties to the TCA.
• AEPTCos principal transmission service customers are AEP affiliates.
• Most of the real property rights on which the assets of AEPTCo are situated result from affiliate license agreements and are dependent on the terms of the underlying easements and other rights of its affiliates.

Stakeholder Impact

• Customers energy needs vary with weather conditions, primarily temperature and humidity.
• For residential customers, heating and cooling represent their largest energy use.
• To the extent weather conditions are affected by climate change, customers energy use could increase or decrease depending on the duration and magnitude of the changes.
• Increased energy use due to weather changes may require AEP to invest in additional generating assets, transmission and other infrastructure to serve increased load.
• Decreased energy use due to weather changes may affect financial condition through decreased revenues.
• Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stress, including service interruptions.
• Weather conditions outside of the AEP service territory could also have an impact on revenues.
• AEP buys and sells electricity depending upon system needs and market opportunities.
• Extreme weather conditions creating high energy demand on AEPs own and/or other systems may raise electricity prices as AEP buys short-term energy to serve AEPs own system, which would increase the cost of energy AEP provides to customers.
• Severe weather and weather-related events impact AEPs service territories, primarily when thunderstorms, tornadoes, hurricanes, fires, floods and snow or ice storms occur.
• To the extent the frequency and intensity of extreme weather events and storms increase, AEPs cost of providing service will increase, including the costs and the availability of procuring insurance related to such impacts, and these costs may not be recoverable.
• Changes in wind patterns or in precipitation resulting in droughts, water shortages or floods could adversely affect operations, principally wind generation facilities for changes in wind patterns and the fossil fuel generating units for changes in precipitation.
• A change in wind patterns or a negative impact to water supplies due to long-term drought conditions or severe flooding could adversely impact AEPs ability to provide electricity to customers, as well as increase the price they pay for energy.
• AEP may not recover all costs related to mitigating these physical and financial risks.
• To the extent climate change impacts a regions economic health, it may also impact revenues.
• AEPs financial performance is tied to the health of the regional economies AEP serves.
• The price of energy, as a factor in a regions cost of living as well as an important input into the cost of goods and services, has an impact on the economic health of the communities within AEPs service territories.
• Climate change may impact the economy, which could impact our sales and revenues.
• The cost of additional regulatory requirements, such as regulation of carbon dioxide emissions , could impact the availability of goods and prices charged by AEPs suppliers which would normally be borne by consumers through higher prices for energy and purchased goods.
• To the extent financial markets view climate change and carbon dioxide emissions as a financial risk, this could negatively affect AEPs ability to access capital markets or cause AEP to receive less than ideal terms and conditions in capital markets.

Next Steps

• AEP will continue to execute its strategy to provide reliable, affordable power to its customers.
• AEP will continue to engage state commissioners and legislators on alternative rate-making options to reduce regulatory lag and enhance certainty in the process.
• Management expects to refine the assumptions and underlying cost estimates used in recording the ARO as further groundwater monitoring and other analysis is performed.
• AEP is in the early stages of evaluating and identifying the best strategy for complying with this rule while ensuring the adequacy of resources to meet customer needs.
• AEP will seek recovery from customers through regulated rates if actual decommissioning costs exceed projections.
• Management monitors pending matters before the FERC, including inquiries and challenges related to ROEs and transmission formula rates, that have the potential to reduce AEPs future transmission formula rates and/or the transmission ROE methodology.

Key Dates