American Electric Power Company, Inc. (AEP) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the American Electric Power third quarter 26 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. This call is scheduled to last approximately 1 hour. I will now hand the conference over to Andy Gurgol, vice president of investor relations Andy, please go ahead.

Good morning, and welcome to American Electric Power's Third Quarter 26 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under the events and presentation section. Joining me today are William J. Fehrman, chairman, president, and chief executive officer and Trevor Ian Mihalik, chief financial officer. In addition, we have other members of our management team in the room, including Kate Dixon, senior vice president, controller, and chief accounting officer and Darcy Reese, vice president, investor relations. We will be making forward-looking statements during the call. Actual results may differ materially from those projected in any forward-looking statement we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings. Please refer to the presentation slides that accompany this call for reconciliation to GAAP measures. We will take your questions following opening remarks. Please start on Slide 5 as I hand the call over to Bill.

Thank you, Andy, and good morning. And thank you for joining us for our third quarter 26 earnings call. In my remarks this morning, I will briefly cover our third quarter results before turning to the unique advantages of AEP's portfolio and outline how they are driving sustained outsized growth and differential value for both customers and shareholders. A summary of our updated strategic outlook and financial plan can be found on Slides 5 and 6. To be very clear, AEP is extremely well positioned to capitalize on the opportunity ahead through what I would consider a best-in-class leadership team strong relationships with state political leaders and regulators, intense focus on financial performance, balance sheet strength, and exceptional execution driven accountability across the entire organization. Combined with the size, scale, and diversification of our portfolio, AEP provides reliable and affordable electric service, delivers the growth investments our customers need, and creates substantial long term value for our shareholders. Today, we are pleased to introduce a new long term expected annual operating EPS growth rate of 9% to 11% for 2027-2031. We also expect a compounded annual growth rate of >10% through 2031 based on the original 2026 guidance midpoint. This outlook is supported by a $100 billion 5-year capital plan 1 of the largest in the industry. Anchored by significant and durable investments in the safety, reliability, and resilience of our system. Particularly across generation and transmission. In support of this growth, this past quarter, we finalized commercial agreements for both the Wyoming fuel cell project and the 765 kV transmission build in Pikton, Ohio. Allowing us to incorporate both into the updated capital plan. Construction is well underway on the Wyoming fuel cell project. Which is underpinned by a 20 year power purchase agreement with Google. The Piketon project is supported by a 20 year offtake agreement with SP Energy which will fund the project cost and is backed by highly rated investment grade counterparty. With construction expected to begin in the first quarter of 27, we have secured substantially all of the rights of way and plan on submitting the required regulatory filing shortly. We are also pleased to share that AEP reported third quarter 26 operating earnings of $2.23 per share, or $1.2 billion As a result, we now have confidence to expect full year operating earnings to be at or above the high end of our recently increased 2026 guidance range of $6.25 to $6.55 per share. Given the visibility we have in our growth, and confidence in our execution plans, we are excited to share 2027 and 2028 operating earnings guidance ranges of $6.75 to $7.05 per share and $7.40 to $7.70 per share respectively. Year over year, the midpoints of these ranges imply an approximate 9.5% increase based on the original 2026 guidance midpoint. Kate in the call, Trevor will walk through third quarter performance drivers, and provide additional details regarding our updated financial plan and long term outlook. Please turn to Slide 7. The US utility sector is experiencing an unprecedented surge in electric demand AEP is right in the center of this opportunity. Given the scale of contracted and committed load across our service territory, we expect demand on our system to more than triple by 2031 created by substantial economic development activity throughout our footprint. What sets AEP apart is not simply the scale of that growth, but where it is occurring. The 11 states we operate in generate roughly 1/4 of U.S. GDP, and are attracting significant investment from data centers, manufacturing activity, energy infrastructure. These trends are driving a durable increase in electricity demand and creating substantial opportunities for long term infrastructure investment. Importantly, the states served by AEP pair robust business fundamentals with supportive state political leadership constructive regulation, and strong investment recovery mechanism. The combination of compelling demand growth, constructive regulation, and transparent cost recovery frameworks position AEP to capitalize on this growth opportunity and reflects the characteristics that investors continue to reward with premium valuation. Turning to Slide 8, AEP's scale, expertise, and leadership in transmission. Particularly 765 kV infrastructure, provide a sustainable and increasingly valuable strategic advantage. We own and operate the nation's largest transmission network. Which positions us to capture significant organic growth opportunities while offering customers a differentiated single provider solution across multiple RTOs and states. AEP pioneered the 760 transmission system in North America. And has spent more than 6 decades refining the capabilities expertise, and institutional knowledge required to efficiently operate and expand this infrastructure at scale. That experience continues to drive innovation today. As an example, our engineering team has recently developed a new proprietary design that materially reduce both tower height and right of way requirements. Allowing 765 kV infrastructure to be deployed with physical characteristics largely in line with 345 kV transmission, but deliver 6x the electricity. These types of innovations reinforce our ability to deliver transmission solutions more efficiently support growing customer demand, and create differentiated value for our customers, communities, and shareholders. Please turn to Slide 9. 1 of the most compelling aspects of our growth strategy is that it simultaneously supports both investment and affordability. As new large load customers connect to our system, they contribute incremental revenues that help offset fixed costs for existing residential customers. Supported by fully executed take-or-pay ESAs, we estimate that this could now generate up to $21 billion for existing residential customers across our vertically integrated utilities over the life of the contracts. This is up from $16 billion discussed on AEP's prior earnings call. This creates a powerful virtuous cycle in which economic development and load growth support customer affordability. We are already seeing this dynamic play out in real time. In Indiana, new large load growth enabled us to file a second rate decrease this past quarter. In short, growth when managed responsibly can benefit both customers and shareholders. I would now like to briefly address AEP's early stage nuclear strategy. Last week, we announced a development agreement with 2 exceptional companies, XEnergy and Amazon. To evaluate a potential small modular reactor project in Indiana which is the only early stage nuclear project we are currently advancing. Importantly, the agreement with X Energy and Amazon is limited to development activities and feasibility work requiring minimal investment by AEP. Any potential project would need to successfully progress through multiple stage gates before a final investment decision is made. The earliest that could occur is sometime in 2030, subject to meeting clear strategic and financial objectives. And as we have consistently stated regarding our approach to nuclear development, we remain highly disciplined to ensure that we are protecting our existing customers shareholders and balance sheet. Please turn to Slide 10. This has been an extraordinarily productive year so far for AEP. As we continue to execute with urgency to serve our customers and capture what we believe is a once in a generation growth opportunity. Our scale, diversification, and exposure to some of the most attractive growth markets in the country position AEP exceptionally well to drive sustainable long term value for both customers and shareholders. To deliver on our commitments, we are advancing projects through standardized designs, early procurement of long lead equipment, long standing key relationships with industry leaders such as Kiwit, GE Vernova, and Mitsubishi and a formalized partnership with Quanta. Supported by decades of experience designing, building, and operating large scale infrastructure, these key suppliers are providing top craft labor teams manufacturing capacity, and technical expertise needed to execute our plan with speed and certainty. A key component of our execution strategy is continuing to work with our state to achieve constructive regulatory outcomes and enhance cost recovery across our portfolio. In Texas, a constructive unanimous settlement was filed for SWEP base rate case with a proposed 9.53% ROE. Up from 9.25%. And a proposed 51.98% equity layer up from 49.4%. This position SWEPCO well to advance growth plans and enhance safe, reliable, and affordable electric service for customers. In Virginia, APCO filed a constructive rate case settlement with a proposed 9.8% ROE up slightly from 9.75%. There are 2 key features of this settlement. First, a substantial portion of operating costs, including vegetation management, are proposed to move from base rates to annual riders. Thereby reducing earnings lag. Second, base rates are expected to decrease in the first year following an order. Further supporting efforts to drive customer affordability. To summarize, the key takeaway is simple. We are not preparing to execute this plan We are already well into executing on it. We have the experience, partnerships, and operational capabilities in place to deliver this plan at the pace our customers need and create differential long term value for our shareholders. I could not be more confident than the team we have assembled the strategy we are executing, the improvements we have made, and the opportunities ahead. With that, I will turn the call over to Trevor who will walk through our third quarter financial performance and provide additional detail on our long term growth and financial outlook. Trevor?

Thanks, Bill. I will begin with our financial results, then review our updated financial plan, starting with the increased long term earnings growth rate. I will also discuss details about the capital plan, rate based growth, and financing strategy before closing with why we believe AEP is uniquely positioned to capture the significant growth opportunities across our footprint. Please turn to Slides 12 and 13 of the presentation. For the third quarter of 26, AEP delivered operating earnings of $2.23 per share compared to $1.80 per share in the third quarter of 25. Each segment contributed higher earnings versus the prior year. Driven by constructive regulatory outcomes, strong demand growth across our footprint, and continued transmission and generation build out. And as Bill shared, given our strong performance year to date, we expect full year operating earnings to be at or above the high end of our 2026 guidance range of $6.25 to $6.55 per share. Looking ahead to 2027, you will notice that our operating earnings guidance on page 22 in the appendix includes a new segment AEP infrastructure. This is driven by the evolution of the generation and marketing business towards infrastructure investments, supported by contracted and highly predictable cash flows. A good example of this is the recently announced fuel cell project in Wyoming, supported by a 20 year take-or-pay PPA with Google. The new AEP infrastructure business brings together our contracted generation assets legacy PPAs, and other infrastructure investments under a single reporting segment. Going forward, we expect this business to move towards projects backed by high quality, long term contracts. Turning to Slide 14. The most important takeaway from today's update is that we are entering the next chapter of AEP's growth story with greater confidence in both the magnitude and durability of our long term growth opportunity. Historically, we have provided only the prompt-year of earnings guidance. Today, we are providing more visibility into our expected financial performance with guidance ranges for both 2027 and 2028. That confidence goes well beyond the near term. We are now increasing our expected annual operating EPS growth rate to 9% to 11% through 2031, up from our prior 7 to 9% range. We are also increasing our expected 5 year operating earnings CAGR to >10% through 2031. The breadth and durability of opportunities across our portfolio provide confidence that our growth extends well beyond the 5 year plan. Accordingly, we are also projecting a 10% operating earnings CAGR through 2033 based on the original 2026 guidance midpoint. Today's update represents a meaningful step change in AEP's growth profile. We are growing faster, and with greater visibility than ever before. Further underscoring AEP's position as 1 of the premier high growth companies in the utility sector. And we are doing this while maintaining a focus on improved reliability, and affordability. Please turn to Slides 15-17. As Bill highlighted, we are excited to introduce our $100 billion 5-year capital plan through 2031. 1 of the largest investment programs in the utility industry. With this new capital plan, we expect rate base to increase from $87 billion in 2026 to $162 billion by 2031. Nearly doubling over the next 5 years. That translates into a rate based CAGR of >13% up from 11% in our prior 2026 through 2030 capital plan. This expected step up in growth becomes particularly visible beginning in 2028 and 2029 as large generation and transmission projects are placed into service. Transmission remains 1 of AEP's most attractive investment opportunities reflecting the scale and strategic advantage of operating the nation's largest transmission business, Our transmission capital plan increased to $37 billion through 2031 and now includes the Pikton project in Ohio. We expect transmission rate base to nearly double over the next 5 years approaching $70 billion by 2031. Moving to generation. Our updated plan incorporates $36 billion of investment through 2031. Regulated gas generation represents the largest opportunity. Increasing by $7 billion versus the prior 5 year capital plan. The rationale is simple. Contracted customer demand is growing faster than the operating output of our existing fleet. Creating a clear, durable need for new face load generation. Importantly, these generation investments are supported by fully executed take-or-pay ESAs within the VIUs. Providing a higher degree of confidence in the underlying demand. They also benefit from constructive regulatory and cost recovery frameworks such as Oklahoma's generation preapproval mechanism, which allows for concurrent rider and construction work in progress recovery. Finally, distribution investment increased to $22 billion over the next 5 years, focused on grid modernization, reliability, resiliency, and infrastructure replacement. These are foundational investments required to strengthen the system and efficiently serve customers. Just as important is the quality of investment recovery. Roughly 90% of planned utility investments is expected to be recovered through reduced lag mechanisms, including riders, trackers, and 4 test year rate cases. These constructive frameworks provide greater cash flow and earnings visibility while supporting more timely recovery of invested capital. Taken together, this $100 billion 5-year capital plan reflects a significant expansion of our investment opportunity. Supported by contracted customer demand highly visible transmission investments, and essential distribution infrastructure needs. Turning to Slide 18. We now have 84 gigawatts of incremental contracted load through 2031. This represents a 15-gigawatt increase from the 69-gigawatt contracted load we outlined on our second quarter earnings call. This step change is driven by the addition of Piketon, and other ESAs signed since late July. In total, we now have 35 gigawatts of incremental contracted load backed by firm take-or-pay ESAs. That leaves only 3 gigawatts not under take-or-pay ESAs in PJM and SPP. Which we anticipate will be converted in the near term. And in ERCOT, our entire 46 gigawatts of contracted load is backed by fully executed SP-6 compliant letters of agreement. Tying it back to the new financial outlook, contracted load we have signed in PJM and SPP is largely reflected in the capital plan. For AEP Texas, we continue to see significant investment opportunities. However, we are taking a measured approach to how we add capital to the plan as the batch process and broader transmission planning continues. Therefore, most of our Texas plan reflects system reliability and resiliency while only a portion of the transmission build out required in Texas is incorporated. Which includes the recently approved Howard to Solstice line. As these processes evolve, we expect additional capital opportunities be secured in Texas. We also anticipate incremental generation investment opportunities given strong customer demand as well as continued growth in organic and competitive transmission. Taken together, these upside opportunities provide a long runway for future capital investment and earnings growth. Turning to Slide 19. Our expanded capital plan is supported by strong operating cash flow and a disciplined financing strategy. As noted on the slide, we expect to generate approximately $55 billion of cash from operations over the 5 year forecast period That strong and growing cash flow represents a significant source of funding for our investment program. Supporting more than half of our $100 billion capital plan. In addition, we remain committed to returning capital to our shareholders through consistent dividend growth. A key differentiator of our financing plan is the relatively modest incremental equity requirement. Because we have been forward leaning in issuing equity over the last few years, we have created significant financing flexibility and expect to fund growth with meaningfully less equity than the industry norm of 30% to 40%. Specifically, we have added $22 billion to our capital plan while increasing equity funding by only $5.2 billion. That means 24% of the incremental investment is expected to be funded through new accretive growth equity. It is also worth noting that $2.5 billion of the incremental equity assumption relates to marketed growth equity over the next 2 years of the plan. Simply put, we are funding a significantly larger investment opportunity with only modest equity needs to maximize shareholder value. We are entering this period from a position of financial strength with both Moody's and S&P FFO to debt currently within our 14% to 15% target range and well above the 13% downgrade threshold. Reflecting meaningful progress we have made over the last several years. Combined with our strong operating cash flow, this positions us well to execute our plan while maintaining our strong balance sheet. Please turn to Slide 20 where I will conclude with a brief summary of what you heard today. First, you heard that the business is performing exceptionally well. Our strong third quarter results reflects the benefits of disciplined execution, constructive regulatory outcomes growing customer demand, and continued investment across the business. In fact, the strength we are seeing across the company gives us the confidence to deliver 2026 operating earnings at or above the high end of the guidance range. Second, you heard that we continue to expand our investment opportunity. Our new $100 billion 5-year capital plan drives our expectation for rate base to nearly double to $162 billion by 2031. Third, you heard that our new update reflects a meaningful uplift in AEP's growth profile. We are raising our expected annual operating EPS growth rate to 9% to 11% for 2027-2031. As well as increasing our expected long term operating earnings per share CAGR to more than 10% over the same period. Also, given the robust growth we are seeing across our portfolio, we expect this growth to continue well into the next decade. As we project a 10% operating earnings CAGR through 2033 based off of the 2026 original guidance midpoint. Lastly, you heard that we remain committed to balancing growth with affordability. Through large load tariffs, customer funded infrastructure arrangements, and other innovative structures, we are working to have new growth help fund needed investments while also delivering meaningful affordability benefits for existing customers. Fully executed take-or-pay ESAs in the vertically integrated utilities are now expected to generate up to $21 billion in fixed cost offsets increased from our previously announced $16 billion for existing residential customers over the life of the contracts. When you step back the investment thesis is straightforward. AEP is 1 of the largest and most visible growth opportunities in the utility sector, supported by durable capital plans, constructive regulatory frameworks, strong execution capabilities, and a disciplined financial strategy. We believe these advantages position us to deliver top tier growth generate 12% to 14% annual total shareholder return through 2031, and create meaningful long term value for our customers, and shareholders. With that, I will now ask the operator to please open the line for your questions.

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Shar Pourreza with Wells Fargo. Shar, your line is open. Please go ahead.

Guys. Good morning.

Good morning, Shar.

Good morning. Good morning.

Big congrats on these results. So, Bill, just $100 billion CapEx is obviously fairly large. You are now guiding to a 10%+ CAGR through 31. Can you just help better frame what could dictate that plus? So does Texas get you >10% or extend the 10% runway? And then why assume the CAGR steps down to 10% through 33 just given this robust plan? Is it the law of large numbers or just being conservative in the near term? that is.

we see a really substantial pipeline of potential investment opportunities Yeah. Thank you, Shar, and really appreciate the question. Obviously, out there that is in excess of the capital plan we just discussed. Really particularly in transmission and generation. And directly to your point, on the transmission side, additional 765 kV in Texas. We have got projects emerging from SPP's integrated transmission plan. We have got the competitive RFPs that we are very active in and then, of course, continued organic growth across the system. And then on the generation side, the combination of really super robust load growth and future plant retirements that we have coming up. Creates a significant and really visible need for new gas plants. And so taken together, our long term investment pipeline really remains exceptionally robust well into the next decade. And so in working with Trevor and the team here and given this visibility along with our focus on ensuring we execute on this, I am really confident in our ability to deliver the 10% EPS CAGR through 2033. And obviously, as time goes on, we will continue to refine that, and so we want to make sure we under promise and over deliver. And so, I am excited about giving you visibility out that far, and I am I am really confident on where we sit.

Got it. Perfect. And then just the 300 basis points of lag between rate base and the EPS CAGR. Mean, obviously, financings key part of it. Can you just give us a sense around the timing of that equity? Any equity needed in 2026? I mean, I have to imagine sort of the cash flow profile that comes with these large load customers kind of further helps you be more flexible, especially if they are paying some upfront. Just kinda curious on timing of equity. that is.

Yeah. Shar, this is Trevor. I will take that 1.

Hey, Trevor.

Look. I think 1 of the things we have done, and we mentioned it in prepared remarks, is we have been very forward leaning in the equity and we are sitting on over $5 billion of equity forwards right now in support of this capital plan. And so by doing that, that is given us a great deal of flexibility What we are looking at right now is, continuing to have the ATM option open to us. And then we kind of layered in that $2.5 billion at some point that we will do over the next 2 years. In support of this plan. But what we will probably see us do is bring some of that equity forward that went out all the way to 2028. We will we will utilize those equity forwards. And then at some point over the next 2 years, we will either go to the market and do either a block equity or equity linked securities or continue to run the ATM. When you looked at us this last year, we said we would do $1 billion of ATM and we got that billion dollars done well before, the end of the third quarter. So there is a lot of opportunity for us to get that equity in multiple different structures. And, again, I think we have been very conservative in ensuring that the equity we do issue, is done in a in a very shareholder friendly way. So it is it is given us a great deal of flexibility with how proactive we have been Perfect.

Thanks, guys. Appreciate it. Big congrats. See you this weekend. that is.

Yeah.

Thanks, Shar. Thanks, Shar.

Your next question comes from the line of Steve Fleishman with Wolfe Research. Steve, your line is open. Please go ahead.

Yeah. Hi. Good morning. Can you hear me okay?

Yep. Morning, Steve.

Yeah. Okay. Great. Good morning. So just first of all, on the generation builds in Indiana and at APCO, are those gonna be done in the regulated businesses, or are those being considered for kind of the Genco structure still?

So we continue to view the Genco concept really favorably and are actively evaluating where it can create the most value for customers. We are also completing a detailed assessment of which jurisdictions would be best suited for a genco structure from a regulatory perspective. We are making sure that we are socializing this with our with our regulators and our state policymakers really given the urgency of meeting the growing customer demand, our focus right now has been on securing the load and moving forward with generation investments that we need to support that growth in the vertically integrated utilities And the financial plan that we laid out today also preserves that flexibility. And so should a Genco structure emerge as a viable pathway in any given state, particularly West Virginia and Indiana, we could ultimately look to house a portion of the plant or future gas plants in that framework. And so continuing to work it, continuing to socialize it, making sure that we have got the proper regulatory and other support in the states where we view these as most interesting. Okay.

Great. And then maybe just on the I think if I saw it right, of your 84 gigawatts of load that you have got locked up, I think there is only 35 of that kind of baked into your plan. Is that correct?

And Yeah, Steve.

So what you have seen us do is Yeah. Is we grew the amount of contracted load from 69 to 84. A majority of that is really the Pikton project, which represents 9 gigs. And then there is an additional 2 gigs in Ohio and 2 gigs in APCO. there is a gig in PSO. So what we are seeing is strong growth there. But what you are really looking at, and I think what the crux of your question is as we look at Texas, what is really kind of in the plan related to the 45 gigs or the 46 gigs that we have under LOAs. And, generally, what we are seeing there is the question.

Yeah. Yeah. Yeah.

And so what we are seeing there is the opportunity to continue to invest in Texas Right now, what we are seeing is most of that is really that the Texas capital plan is $17 billion, and it is been designed and focused around system reliability and resiliency. So there is really incremental investment to expand around 765 system, such as, you know, the Panhandle RPG initiative. And that spend is not included in the plan. And so I would say what you are looking at is probably a fairly conservative capital plan in Texas especially as it relates to the incremental LOAs that we have got associated with Texas.

Okay. Great. Thank you.

Thanks, Steve.

Thanks, Steve.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien, your line is open. Please go ahead.

Hey. Good morning. Gotta echo the comments made thus far. Really quite an impressive outcome here altogether. You really did deliver as you say, high quality. With that said, actually, let me just pick it up where Steve left it off there. Right? First off, how do you think about recutting that Texas conversation against batch zero versus batch 1? And as much as it would appear that some of that upside you were just alluding to in terms of what is in versus not in the plan could indeed fold in as you look at the. These batch 1 filings as soon as next year, and that could be within the 5 year certainly within the 7 year window. Do you wanna talk a little bit about that timing of when some of this other load could get. Shar to firm up, if you get what I am saying? I do not want to get too ahead of but at the same time, I want to make sure I am hearing you right and how you are describing Yeah.

Thanks, Julien, and good morning. With regards to the timing of batch zero our understanding is that ERCOT expects to file its data center audit report on December 10th which will then be discussed during a PUCT open meeting that following week. ERCOT originally planned to complete the batch zero process in April, So while this is being delayed, we do not expect it to be really pushed out materially further then, of course, I want to reiterate that our sign load in ERCOT is real. We have collected over $2 billion of cash or collateral just for Texas and of the 45 gigawatts we submitted as part of that batch zero filing, 16 gigawatts were categorized as base load and the remaining 29 gigawatts as study load. So the conditional load classifications that ERCOT communicated in early September are really generally consistent with our filings, so we feel very strong and good about that. However, we do view these classifications as being more sort of administrative in nature as they work through the overall process. And clearly, we will have more clarity in the coming months. But our customers, as we have had our discussions with them, they remain very committed to connecting to our system, and we continue to be very excited about our business opportunities in Texas.

Excellent. And just in terms of more substantive EPS question, you know, you have got this 10% number in the later years. Your last year, if you think about that rule for. Because you obviously provide some more discrete rate based numbers. You know, if you think about rolling forward 2030 to 2031, for instance, you. You have got a, like, a 7% growth in that final year. How do you think about what is baked into rate base in what you are showing here versus what is kinda baked into your EPS numbers and commitments here for the 9 to 11 or 10 or however you wanna characterize it.

Yeah. Julien, this is years. Are you affected? Go for it. Yeah. Yeah. So, look, I. What we wanted to do with this was really provide a look just a little bit beyond the 5 year plan. And so what we did is rolled out that 7 year look on that 10%. What I do not want people to assume is that we are walking down or stepping back from what we are seeing is robust growth across the system. We really just have not the capital into those years and the associated financing. But I think you have seen us continue to show that this capital plan has a long runway for increased growth and we are very confident about sustaining that 10% over the long term period. And when you get 7 years out into the plan and still being able to say we are growing at a 10% CAGR, yeah, you may be right if you actually run the calculation that you see a slight drop off. But what I am saying is that we do not even have a lot of these incremental growth opportunities baked into the plan at this point yet. So this, I would say, is really a conservative look around the corner and we feel very, very good about where things are going. Especially within the historical 5 year window. And then in the 7 year window, as we continue to update that, I think you will see that continue to show strong robust growth like we are seeing in that 29, 30, and 31 time frame.

Yeah. Indeed. And is. Are there any lumpy items that you would be looking out for those final years as you think turn around the corner here that could move the needle? You have made some pretty big moves here of late. I am just curious if there is anything that stands out that you would be here as you think about lumping into that you know, call it that 31 rate base.

Yeah. I would say, Julien, what you would wanna watch for is the continuation of the build out in Texas. I think we have been fairly conservative in the Texas capital plan, especially around 765 build out. I think you can also take a look at the generation needs as we lean into the incremental generation opportunities across the VIUs. And so from that perspective, both transmission and generation are gonna be big projects coming in and incremental projects as we continue to roll out the capital plan in subsequent years and then we also. On the transmission side, also have the competitive transmission projects, and you have seen us pretty active in MISO with the projects that we announced up in Wisconsin. And so I think this will be a very much a continuation of the under promise and over deliver mantra this management team is doing.

Excellent, guys. Thank you. Nicely done.

Thanks, Julien. See you.

Your next question comes from the line of Nick with Evercore ISI. Nick, your line is open. Please go ahead.

Hey. Good morning, everyone. And I did wanna just say congrats to Darcy, and thanks for all the help over the years. I do wanna just ask. On the $37 billion for transmission, $17 billion is RTO driven, $11 billion reliability, and $9 billion individual customers. Just as we think about the RTO piece in particular, how much of that has been awarded versus pending regional planning or competitive bids?

Hi, Nick. it is Kate here. So when we put that into the plan, that has already gone through a regional transmission planning process. So that is work that has already been identified and the needs identified, whether an SPP, MISO, ERCOT, or PJM. So all of that is been through the process. The majority of that is now ready to construct, and we continue to work through the final stages of the regulatory process. Process on the other items in that. But I want to reiterate all of that has been through kind of the regional needs process. That does not include any of the upside that Bill talked about that we may see in the future as these planning processes continue.

Perfect. Makes sense. Then just as we think about kind of the new segment, AEP infrastructure, I guess with the fuel cell project I mean, not targeted to come up into service until 2028, Just, I guess, what is driving the 26-cent accretion in truck. From contracted assets versus maybe retail and wholesale?

Yeah. So, Nick, what we are seeing is within the Wyoming fuel cell project, it is gonna come on in stages And so there is, I think, 5 or 7 stages of when those fuel cells are coming on. So we are actually seeing earnings contributions in 2027 and then the entire project would be fully in service by December 2028 on. And it would be then a full run rate in 2029. So that is really kind of what you are seeing in the step up there on the on the AEP infrastructure.

Kate, anything you wanna add?

No. I think that is right.

And when we see your AEI, we will provide all the breakout of the earnings drivers. So. But Trevor's absolutely right.

Perfect. Look forward to it. Thanks, guys.

Thanks, Nick.

Your next question comes from the line of David Arcaro with Morgan Stanley. David, your line is open. Please go ahead.

Oh, hey. Thanks so much. Good morning. Maybe continuing on that question a little bit on the infrastructure side of things. I was just wondering how do you frame capital allocation to the AEP infrastructure side of things? A fairly minor amount of CapEx being allocated to that currently. And I am wondering, is that going to be largely driven by some of these individual large project opportunities that you identify or, you know, maybe shaped by more of a more of a generation business in West Virginia and Kentucky. I guess, what defines that? And maybe what is the time frame that you consider additional CapEx opportunities there?

Yes. So David, here again, we have taken a fairly conservative approach in putting capital into that business. And Greg has done a good job of continuing to grow that business as we have seen with the Bloom fuel cells. But what we are really looking at, and I think the heart of your question around capital allocation is those dollars that get allocated to that unregulated business need to compete at a higher-than-return on a regulated business. And so from that perspective, as Greg across his business, looks at opportunities we are looking at, again, substantially higher returns than what we would get on the regulated side in order to justify the capital allocation to that. And we certainly saw that with the fuel cell project in Wyoming. The other thing that is that is pretty important, and that is why we have really kind of now driven towards this new segment and calling it AEP infrastructure. Is because we are seeing more long term contracted infrastructure with highly, creditworthy counterparties. And that is what we are really looking for. This is not about us just trying to go find merchant generation. This is where can we augment our existing footprint and where can we augment our existing capabilities to bring incremental shareholder value at an amount and at a at a return appropriate for that unregulated business.

Got it. Thanks, Trevor. That makes a lot of sense. I will leave it there. Appreciate it.

Thanks, David. Yep. See you.

Your next question comes from the line of Ross Fowler with Bank of America. Ross, your line is open. Please go ahead.

Morning, Trevor. Morning, Bill. How are you?

Good morning, Ross.

So just a couple questions for me. Really quick on incremental equity here that is running at about 24% of capex, and I apologize if I missed this in an answer because there was 300 calls going on. But Trevor, is that sort of the expectation I should think about going forward as I look at modeling any new incremental CapEx? You have talked a lot about CapEx upside from the 100 billion How do I think about that as the right ratio?

Yeah. Ross, we have we have kind of been pretty public about the fact that across the industry, you generally see roughly 30% to 40% of incremental equity for incremental capital And, given the strong cash flows that we have within the business, you are looking at this plan generating, $55 billion of free cash flow off of the business, and then looking at how we have leaned into the equity needs that we had before and putting a lot of that 5.2 billion into forward contracts, that is giving us a great deal of flexibility What I would not wanna do is box ourselves in at this point and saying, you know, all incremental capital is gonna be, financed at sub 25%. Again, you are gonna see us be very shareholder friendly. We realize just how precious shareholder capital is and how that. How precious that equity is. So we do not take it lightly when we go out with issuing it. But when we do issue equity, it needs to be accretive to the earnings and to the to the plan And so from that perspective, we are gonna always try to find the most efficient ways to finance and fund the growth of this business. And so as we continue to roll out revisions to the capital plan in subsequent years, you can see us looking at multiple different equity or equity linked, instruments as well as seeing the significant amount of cash generation from these existing businesses being generated that will help finance growth in the future. But, again, we wanna be as conservative as we possibly can with shareholder equity.

Yeah. I expect nothing less, Trevor. Maybe. And I do not want to beat a dead horse here, but maybe picking or winding back to Texas and following on to Julien and Steve's question. If I think about what you are showing in Texas right now, and I go to Slide 17, that $6.4 billion of that distribution. Right? And then I get about $7.4 billion of transmission. Now part of that transmission is Howard-Solstice, I think. that is in there. Right? that is the first question. And then the next question is, of what is left after I take Howard-Solstice out of that $7.4 billion You know, can you give me any scope of what you know, get into a pretty small number in the context of your 100 billion plan, but, like, what is in there for batch zero? Is it anything? Is it a very small proportion of what left? I think you kinda talked about that, but I am just trying to scope out for the LSAs what is left in that remainder?

Yeah. So I. I will let Kate kind of get into to the detail on this. But I will say 1, for sure, the Howard-Solstice line is included in the plan right now. That $7.65 is in there. But, Kate, why do not you walk through a little bit with regards to what is in and what is not in and why we think the Texas capital plan is actually fairly conservative at the at this point.

Hi, Ross. So we have taken a pretty. As Trevor a pretty conservative approach to the AP Texas capital plan in this update. Just while we wait for the batch zero process to play out. And the broader transmission planning. You know, if we look at AP Texas' capital plan, about 85% of that is currently allocated to you know, system reliability, resiliency, replacing infrastructure. And modernizing the grid. To Trevor's point, that does include you know, approved lines like the Howard-Solstice line. But I would think about most of the APT Texas plan as being related to resiliency and reliability at this point. As we look forward, as batch zero progresses and as the broader transmission planning process progresses, there is absolutely upside, which as that become. You know, as that crystallizes through the process, we will think about when to add that to the plan at the appropriate time.

Okay. That makes complete sense. Thank you.

Thanks, Ross.

Thanks, Ross.

Your next question comes from the line of Richard Sunderland with Truist Securities. Richard, your line is open. Please go ahead.

Hey. Good morning, and thank you for the time today. We have spent a lot of Q&A on transmission. But you highlighted generation as another opportunity. I believe if I recall correctly from 2Q, you would laid out some of the kind of gas turbine position both on a 5 year basis and beyond. Do you mind revisiting that and just speaking to kind of what is in the plan versus out of the plan now on a secured or reservation basis, and then you know, have you had any activity since 2Q and kind of any other thoughts around positioning into the middle of next decade around gas gen?

Yeah, thanks for the question on generation. Richard. Obviously, we have been very aggressive in this regard. Our really been super proactive in securing turbine slots, and that is positioned us exceptionally well to support the load growth that is occurring across the footprintprint And, really, that is also then allowing us to deliver outsize value for the customers and, of course, our shareholders We continue to see really, really strong customer demand across the footprint And we continue to find opportunities for more it is really only a matter of time that these turbines are allocated to specific projects. And we continue to have more coming through the door Trevor will give you a little more detail on this but, again, this is an area where we have been very forward looking, and it is really positioned us well to get after these customers and give them what they want when they want it. Trevor? Yeah.

Thanks, Bill. So Richard, what we have been pretty public about is that in the VIUs, we have secured about 15 gigs of, load under firm long term take-or-pay ESAs. And that load growth per. Provides really the foundation for investing in new baseload generation. So we have the demand, and we need the generation now really to support it. I would say we do have framework agreements with blue chip turbine suppliers and craft labor companies that is really put us into a position to build a generation needed to serve this load. So there are a number of gas plants that have already been filed for or approved, and we have been clear about saying that we have a path to advancing the remainder given the resource need and the positive regulatory construct. So when you look at, say, for example, INM and PSO, they have a combined 10 gigs of ESAs. And both Indiana and Oklahoma recently passed legislation that actually accelerates new generation resources with favorable cost recovery. So, ultimately, I would say we feel very good about both the need for these projects and our ability to deliver on them. And there is absolutely a clear demand and broad local support. So here again is, I think, when you take a look at the generation, that is in the plan, we feel very, very good about what is there and what we can deliver on.

Thanks for running through all that. And then circling back to AEP infrastructure, certainly understand conceptually that sort of market shift to long term contracts How do you see that playing out in terms of the opportunities you are looking at and the timing to realize those opportunities? Do you see, you know, the potential to advance more solutions there? Over the next year or 2? Or is this more about finding the right spots on a 5 year basis I guess, given the high profile revamp of that segment, are you thinking about the actual opportunity in adding dollars there versus the conceptual shift you are seeing with, you know, what counterparties are seeking? Thank you.

Yeah. I would say the way we look at this segment is like you say, we have seen a lot of growth opportunity there. They have. That team has been really proactive in identifying opportunities that are gonna add value. But we also wanna be careful that we are not growing that segment at a rate that is going to create any type of you know, heartburn for us with regards to the reg versus the unreg side of the business. So we are gonna be very opportunistic as we identify new projects that can add a meaningful increase to the overall earnings per share while we are managing the overall balance between regulated and unregulated side of the business. But, again, I think you hit the nail on the head This is a business that really is going to have long term contracted, you know, cash flows with very creditworthy counterparties, and it is it is something that I think given what we are seeing, in the marketplace for these types of solutions, I think we are very well positioned to capitalize on this.

Great. Thank you for all of that.

Our final question comes from the line of Jeremy Tonet with JPMorgan. Jeremy, your line is open. Please go ahead.

Hi. Good morning.

Morning, Jeremy.

Sorry if I, you know, missed it earlier here, but what was the, you know, large load number specifically baked into the plan? Just wanted to make sure I was clear on how many gigawatts is baked in there.

Yeah. So I would think about it, like, think about let's talk about Texas, and let's talk about the rest of the plan. So the majority of the large load in the rest of the plan is now baked in to the capital. In Texas specifically, know, we have said we have been pretty conservative about the AP Texas capital plan. You know, 85% of that is based on system reliability and resiliency. So, you know, some of the broader Texas load and the infrastructure needed to support that is not in the plan at this time, and that would. Right. Represent incremental upside.

Got it. Thank you for that.

And just 1 last 1 real quick.

You know, appreciate retaining cash offers a lot of value given how fast the company is growing here. But just wondering if you could refresh us, I guess, with the goalpost, how we should think about dividend growth going forward here.

Yeah. So, Jeremy, I think we are, 1, I would always preface this by saying the dividend is always at the discretion of our board, and we make recommendations to our board But what we wanna do is continue to get value to our shareholders, and a big part of that is through an increasing dividend. We have moderated the growth of the dividend over the last year. And we are forecasting a similar type of modest growth to the dividend. At roughly 2% over the 4- or 5-year period. We will continue to reassess that and make recommendations to our board. And, again, you will continue to see us allocate capital to the dividend growth But when you have got this size capital plan, it creates a lot of value to ensure that we are driving a $100 billion 5-year capital plan while maintaining a modest dividend growth. So it is roughly at about that 2% per annum that you could see us growing the dividend at.

Got it. Thank you very much. I will leave it there.

Thanks, Jeremy.

Thanks, Jeremy.

We have reached the end of the Q&A session. I will now turn the call back to Bill for closing remarks.

Yeah. Thank you, everybody, for joining us today. As always, we are very excited about the future of AEP and the significant opportunities that we have ahead of us. As we advance this incredible growth strategy and drive affordability and create long term shareholder value I am also extremely proud of the entire AEP employee base. And the incredible support we get from our board of directors. We are intensely focused on executing this $100 billion 5-year capital plan and delivering on all of our commitments to our customers, our community, shareholders, and all of our other stakeholders. So if any of you have any other follow-up items, please reach out to the IR team with questions, and we look forward to seeing many of you at EEI in a couple of weeks. Now this concludes our call. And, again, thank you for your continued interest in AEP.

This concludes today's call. A telephone replay of this call will be available until November 3rd. To access the telephone replay, please dial in. US toll free +1 (833) 309-1.85 thousand and enter the meeting ID 222 million Thank you for attending. You may now disconnect.