Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power Third Quarter 2020 earnings release conference call. At this point, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions. You may ask a question by pressing one, then zero on your touch-tone phone, and you can withdraw your question by repeating the one-zero command. As a reminder, today's call is being recorded. I'll turn the call now over to the Managing Director of Investor Relations, Ms. Darcy Reese. Please go ahead.
Thank you, John. Good morning, everyone, and welcome to the third quarter 2020 earnings call for American Electric Power. We appreciate you taking the time to join us today. Our earnings release, presentation slides, and related financial information are available on our website at aep.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning for opening remarks are Nick Akins, our Chairman, President, and Chief Executive Officer, and Brian Tierney, our Chief Financial Officer. We will take your questions following their remarks. I will now turn the call over to Nick.
Okay, thanks, Darcy, and welcome, everyone, to American Electric Power's third quarter 2020 earnings call. The third quarter has been another strong quarter for AEP. Despite the continued challenges of COVID-19 and its effects on the economy, we continue to be optimistic about our ability to execute and provide the consistent quality of earnings and dividend growth our shareholders expect and provide focus on our customers and communities we serve to get past the multiple challenges we face as a result of the pandemic. I know many of us have had the feeling during 2020 with its multiple challenges that Lenny Kravitz sang about in his song "Fly Away," singing, "Oh, I want to get away, I want to fly away. Yeah, yeah." Probably figuratively and literally. There is light at the end of the tunnel.
As we move through this memorable year, AEP continues to drive firmly within the guidance range with targeting the midpoint as we move to the last quarter. We're accomplishing this by executing on cost control in response to the pandemic, keeping our employees safe through the crisis by taking all the extra precautions, and working with our customers to alleviate the economic pressures during this time. We are also learning a lot during this crisis. The value of efficient work-from-home environments, the focus on capital and O&M management, the acceleration of our Achieving Excellence program, and the focus on social issues that drive a cultural brand that brings everyone into the journey of being the premier regulated utility AEP strives to be. In fact, AEP just made the Forbes JUST Capital 100 list for 2021, being the highest-ranked utility on the list.
We've also been involved with two major storm events, Hurricanes Laura and Delta in SWEPCO's Louisiana territory. I'm proud of how our employees stepped up during these major weather events in the midst of COVID-19 protocols to effectively and efficiently return service to our customers in a safe manner, just as they do every day to keep the lights on. Now it's even a more important service during work-from-home and stay-at-home environments. Financially, our operating performance continues to be strong in the face of these challenges. AEP's operating earnings for the quarter came in at $1.47 per share versus $1.46 per share last year, bringing us to a $3.56 per share for year-to-date 2020 versus $3.65 per share last year at this time.
We continue to be firmly within the stated 2020 guidance range of $4.25-$4.45, we continue to be optimistic regarding our progress going into 2021. We are reaffirming our current guidance range and our long-term 5%-7% growth rate. As I have said previously, I would be disappointed not to be in the upper half of that 5%-7% range. Our board just approved a dividend increase of approximately 6% in line with our earnings in the middle of our targeted payout ratio of 60%-70% and consistent with our long-term growth rate of 5%-7%. An incredible accomplishment given the headwinds we expected we were facing in the first quarter and the second quarter of this year. Even with this success in turbulent times, we are not out of the woods yet, we are seeing improvement in industrial and residential loads.
Commercial loads such as churches, restaurants, hotels, and schools, not surprisingly, are still challenged. Brian will get into more detail on the economy later. We could not have achieved the outcome that AEP has achieved thus far during the year without our employees' attention in cutting our costs to compensate for losses from the COVID economy. Our Achieving Excellence program is going very well, and not only has it helped us compensate for the revenue losses due to the pandemic, but it set an excellent catalyst for the future in terms of continued O&M cost control. More to come on this at November EEI.
Most economists believe the 2021 economy will improve. While we are seeing positive progress going into fourth quarter, industrial and commercial progress has slowed, perhaps until after the election cycle or during the second wave of the COVID-19 cases or during dependency of upcoming therapeutics and vaccines. With all of that said, it has been a very productive quarter. We expect improvement to continue into 2021. We continue to adhere to COVID-19 pandemic-related protocols of temperature testing, mask requirements, social distancing, and hygiene-related activities. Our confirmed cases are increasing with the apparent second wave. We are doubling down on messaging around practicing safeguards outside of the work environment as much as inside. Thankfully, we have not lost anyone due to the virus. Vigilance and fighting complacency is key here. We also have continued our outreach to employees and the communities we serve regarding racial injustice.
As I mentioned last quarter, our Seize the Moment initiative is important to reach a deeper understanding of the racial divides that exist and gain perspective from one another about actionable next steps. Before I get to the regulatory updates, I'll just head this off at the pass.
Questions about HB6 in Ohio. I'll just say flatly that we have nothing new to report from AEP's perspective. Any potential legislative change is not imminent, particularly given the noisy election cycle, so perhaps we'll hear more after the election. As we said earlier, any change to the existing legislation is likely to be financially insignificant to AEP, and we will still be pushing for forward-looking legislation regarding clean energy options, energy efficiency, and other technology enhancements at grid scale and with our customers. Regarding the legal issues surrounding HB6, also nothing new to report, and my previous comments stand on this subject.
Now for the regulatory update. If there's one observation that has become apparent through this pandemic, it is the acknowledgement of the criticality of the service that we provide to our customers and communities. This year, we have weathered through the effects of the pandemic and overcome significant storm activity that have challenged our system and our workforce. As we work with our regulators to position the company to be able to continue to meet the expectations of our customers and communities, we are stressing the fundamentals of a strong balance sheet. Now more than ever, it is essential for our operating companies to be well-positioned to have the cash flows and returns needed to attract the capital necessary to meet the ongoing needs of our customers and communities.
As you all know, we have a number of regulatory proceedings pending before our state regulators this quarter, most of which are needed to conform with previous regulatory stipulations, stay-out provisions, or to address the timing needs of critical investments. Ohio filed its most recent base case June 1st, as required under the terms of our prior ESP4 settlement. We are seeking a $41 million rate increase with a 10.15% ROE. A procedural schedule has not been established yet on that case. APCo filed its base rate case in March, as required by Virginia law. We have completed hearings, and the case has been submitted to the commission for a decision. Our Virginia residential customers have not experienced a rate increase over the past 10 years. In this case, we have asked for $37.9 million net of depreciation with an ROE of 9.9%.
We were disappointed with the position taken by both staff and the AG, which fails to recognize our need to have an opportunity to earn our authorized return over the next triennial period. We remain confident that the commission will see through these arguments and recognize their obligation under the law to allow the company an opportunity to earn a fair return. A decision is expected in November. Kentucky was subject to a stay-out provision until June of this year. We subsequently filed our base rate case on June 29th, 2020, where we asked for a $65 million increase and an ROE of 10%. The company has also sought to use the remaining unprotected ADIT funds in Kentucky to offset bills for customers who cannot afford to pay their bills. The commission elected to combine this request with a base rate case filing, and we expect resolution by year-end.
Last but not least, in our SWEPCO jurisdiction, we received approval from the commission to create a regulatory asset for the costs associated with Hurricane Laura. We will ask for similar treatments for the costs associated with Hurricane Delta, and we are hopeful that we can put this year's hurricane season safely behind us. In Texas, SWEPCO made its base rate case filing on October 13th, 2020, where we are seeking a $90.2 million increase with an ROE of 10.35%. We are also seeking to increase the storm reserve and increase our vegetation management expenditures to minimize the risk of future outages to our Texas customers. We continue to make progress on our North Central Wind projects, which will benefit our customers in Louisiana, Arkansas, and Oklahoma. Foundation work has commenced at the Sundance facility, which is expected to be in service by the end of first quarter 2021.
Invenergy is currently completing final site preparation on both the Maverick and Traverse locations. We continue to expect to acquire the Maverick facility by December 2021 and the Traverse facility end of December, the first quarter of 2022 timeframe. We have followed our settlement true-up in Arkansas and are finalizing our settlement true-up in Oklahoma. We are looking forward to the benefits that these projects will bring to our customers by providing access to some of the nation's richest wind resources and helping SWEPCO and PSO advance a greener energy future. Now to the equalizer chart. I'll talk about that. I think it's on page five of the presentation. Our current ROE is about 9%, and we generally target these returns to be in the 9.5%-10% range. The ROEs below are not weather normalized.
Certainly keep in mind that we're also thickening equity layers as well. I'll talk about AEP Ohio first. I just mentioned the rate case there. It's above authorized primarily due to favorable regulatory items, partially offset by the roll-off of the legacy issues that we've been talking about for years regarding the PUR and the RSR. We also expect the year-end ROE to trend around the authorized levels of 10%. For APCo, which I had mentioned earlier, is slightly below authorized due to lower normalized usage and higher depreciation from increased capital investments, partially offset by continued management of the O&M expenses. Effective January 2020, costs associated with the last 17.5% of Wheeling Power's interest in the Mitchell plant became recoverable through APCo and Wheeling rates. I already discussed Virginia's triennial review.
Kentucky, already discussed the rate case there. They're below, and as you can see, well below, authorized due to loss of load from weak economic conditions and loss of major customers, along with higher expenses during the stay-out period. We have a lot of work to do there. I&M. The ROE for I&M at the end of third quarter was 10.4%. Its ROE was above authorized due to continued management of O&M expenses, reduced interest expense, and rate true-ups, partially offset by lower commercial industrial sales. I&M's ROE is projected to trend slightly below 10% by year-end, consistent with authorized ROEs, in Michigan and in Indiana. PSO, its ROE is 8% at the end of third quarter. It was below its authorized level, primarily due to lower normalized usage and unfavorable weather in 2020, partially offset by continued management of O&M expenses.
PSO's 2019 base case, as you recall, approved a transmission tracker, a partial distribution tracker, and an ROE of 9.4% authorized. We'll continue to make progress there. SWEPCO. The ROE for SWEPCO is about 7.4%. As you recall, much of that is related to the Turk plant not being in retail rates in Arkansas, and that impacts it by about 110 basis points. SWEPCO received an order in its Arkansas base case settlement in December 2019, and effective 2020, approved a $24 million revenue increase and ROE of 9.45%. In October 2020, we also filed the rate case in Texas, as I mentioned earlier. In AEP Texas, its ROE is around 7.5%. It was below authorized due to lag associated with the timing of annual cost recovery filings. We did not make those filings during the pendency of the previous rate case.
Of course, one-time adjustments from our finalized base rate case itself. Favorable regulatory treatment allows AEP Texas to file annual DCRF and TCos filings, and we've since filed many of those at this point. I think there's been three cases that have been filed. While earnings should improve in 2020 with the base rate case finalized and annual filings now resumed, continued levels of investment in Texas will impact the ROE. The expectation is for the ROE to trend towards an authorized ROE of 9.4% in the long term, but be around probably 8% by the end of 2020. As far as the transmission company is concerned, AEP Transmission Holdco, was 9.8%, and it was below authorized, primarily driven by the annual revenue true-up in the second quarter of 2020, to return the over-collection of 2019 revenues.
Transmission has forecasted an ROE of 9.8%-10.1% range in 2020. It is also interesting to note that when you look at the average equity in our operating jurisdictions, the Transmission Holdco is now the largest, which that's happened for the first quarter. This first quarter that has actually occurred, making a lot of progress. At the same time, though, the investment that is being made relative to transmission is certainly improving the quality of service to our customers. Very happy with the progress we're making around our T&D investments and its ability to improve customers' experiences. As I close, I'd be remiss in not thanking our employees at the Oklaunion Power Station that was officially retired from service a couple of weeks ago after several decades of providing generation resources in meeting the needs of our customers' electricity demands in Texas and Oklahoma.
Oklaunion was under construction about the time I joined AEP out of college. When you see people and assets retiring, it just further illustrates the resiliency of AEP over the last 114 years. Also, that change occurs. We have to change with it. Thanks again to all the Oklaunion employees through the years. All in all, a solid quarter for AEP. I can't resist when thinking about AEP's future post-COVID with the latent value of the need for resiliency and reliability of the grid to support work-from-home environments, moving forward with the transformation to clean energy resources, which we at AEP are in the beginning stages of. The further electrification of the economy. We would say in the words of the late Eddie Van Halen, "It's about time. This time is our time.
Right on, we'll let it shine." I am convinced in overcoming the challenges of 2020, this company will be even stronger as we move into 2021 and beyond. Brian?
Thank you, Nick. Good morning, everyone. I will take us through the third quarter and year-to-date financial results, provide some insight on load in the economy, review our balance sheet and liquidity, and finish with a preview of what we will present at the EEI conference. Let's stop briefly on slide six, which shows the comparison of GAAP to operating earnings for the quarter and year-to-date periods. GAAP earnings for the third quarter were $1.51 per share, compared to $1.49 per share in 2019. GAAP earnings through September were $3.56 per share, compared to $3.58 per share last year. There's a reconciliation of GAAP to operating earnings on pages 15 to 16 of the presentation. Let's turn to slide seven and look at the drivers of quarterly operating earnings by segment.
Operating earnings for the third quarter were $1.47 per share or $728 million, compared to $1.46 per share or $722 million in 2019. Operating earnings for vertically integrated utilities were $0.85 per share, down $0.04. This was driven by unfavorable weather, primarily due to warmer than normal temperatures last year, particularly in September. Other drivers included lower wholesale load and other operating revenue, as well as higher depreciation in taxes, primarily due to timing that were reversed in the fourth quarter. Favorable items included lower O&M, favorable rate changes, and higher transmission revenue. The transmission and distribution utility segment earned $0.31 per share, up $0.04 from last year. Favorable items included higher rate changes in transmission revenue, as well as lower O&M. These favorable items were partially offset by unfavorable weather, depreciation, taxes, and interest expense.
The AEP Transmission Holdco segment continued to grow, contributing $0.28 per share, an improvement of $0.03. This reflected the return on investment growth as net plant increased by $1.5 billion, or 16%, since September of last year. Generation and marketing produced operating earnings of $0.13 per share, down $0.03 from last year. This was driven by timing around income taxes and lower wholesale margins. Finally, corporate and other was up $0.01 from last year, primarily driven by lower taxes related to consolidating items that were reversed by year-end. Let's turn to slide eight and review our year-to-date results. Operating earnings through September were $3.56 per share, or $1.77 billion, compared to $3.65 per share, or $1.8 billion in 2019. Looking at the drivers by segment, operating earnings for vertically integrated utilities were $1.90 per share, comparable to last year.
Favorable items in this segment included lower O&M, the impact of rate changes across multiple jurisdictions, and higher transmission revenue, primarily due to true-ups. Weather was unfavorable due to warmer than normal winter temperatures this year and a warmer summer in 2019. Other decreases included higher depreciation and tax expenses, primarily due to timing and lower revenue items in AFUDC. The transmission and distribution utility segment earned $0.84 per share, down $0.01 from last year. The negative variance was primarily driven by the 2019 reversal of a regulatory provision in Ohio. Other smaller drivers included higher depreciation and interest expense, the roll-off of legacy riders in Ohio, prior year Texas carrying charges, unfavorable weather, and tax expenses. These items were mostly offset by higher rate changes, the recovery of increased transmission investment in ERCOT, and the impact of the Ohio transmission true-up on both O&M and transmission revenue.
Other O&M was also favorable due to the concerted effort to decrease O&M expenditures through one-time and sustainable reductions. The AEP Transmission Holdco segment contributed $0.75 per share, down $0.07 from last year, due to the impacts of the annual true-up and prior year FERC settlements. Our fundamental return on investment growth continued. Generation and marketing produced $0.31 per share, up $0.01 from last year. The renewables business grew with asset acquisitions more than offsetting lower wholesale and retail margins and timing around income taxes. Land sales and other one-time items offset the impact of weaker wholesale prices on the generating business. Finally, corporate and other was down $0.02 per share due to higher interest in taxes related to consolidating items that were reversed by the year-end and offset by a prior year income tax adjustment. Partially offsetting these items was lower O&M.
Overall, we are pleased with our financial results and are confident in confirming our annual operating earnings guidance of $4.25 - $4.45 per share. Turning to slide nine, let's review the assumptions we shared during the first quarter earnings call to reaffirm guidance. Starting with the top line, we recently updated our retail sales forecast. Third quarter sales came in higher than previously projected. We now expect 2020 normalized sales to come in 2.7% below last year, which is seven-tenths of a percent better than the load forecast from the first quarter. While the outlook has improved, it is still below the pre-recession forecast used for our original guidance. The favorable sales mix in 2020 has helped to mitigate the impact on earnings. The second item was the impact of weather.
While the first quarter weather produced a significant drag, the second quarter and third quarter weather impacts were slightly favorable. In the second quarter presentation, we mentioned that July's weather was quite favorable. However, August and September weather was mild. As a result, we have revised the weather impact on 2020 earnings and now expect a $0.08 drag to 2020 results. The next item was on-track O&M expense. We had originally planned to drive O&M costs down to $2.8 billion from $3.1 billion in 2019. In response to the expected sales decline, we identified an additional $100 million of savings from both one-time and sustainable reductions and are on track to hit this lower expense target. Finally, we identified approximately $500 million of capital expenditures in the first quarter that could be shifted out of 2020 and into future years.
We made this decision to support our cash position through the expected downturn during the pandemic. As we discussed at the second quarter earnings call, results have come in better than expected, and we have reinstated approximately $100 million of the $500 million back into 2020. Given the progress we have made on these key assumptions, we are able to reaffirm our 2020 operating earnings guidance range. Now let's turn to slide 10 to provide an update on our normalized load. Starting in the lower right corner, our third quarter normalized load was down 2.6%. This was slightly better than the forecast we shared with you in the first quarter. Through September, our normalized sales were down 3% from last year. In the upper left quadrant, our normalized residential sales increased by 3.8% in the quarter. Year-to-date residential sales were up 2.6%.
We saw significant increases in our residential load at the beginning of the pandemic. The growth in residential sales has moderated as people return to work over the summer. Weather-normalized residential sales are up across all jurisdictions. Moving clockwise, our normalized commercial sales decreased by 4.6% in the third quarter, bringing the year-to-date decline to 4.9%. As expected, the biggest declines in this class came from schools, churches, restaurants, and hotels. Finally, in the lower left chart, industrial sales decreased by 7.8% in the quarter, bringing the year-to-date decline to 7%. A number of factors have changed the outlook for this class, but the biggest driver is overall economic activity. The industrial sectors that posted the biggest declines for the quarter were mining, oil and gas extraction, and primary metals. By contrast, plastics and rubber manufacturing posted a strong quarter related to the recovery of the automotive industry.
Overall, load growth across the service territory followed the pattern we anticipated earlier in the year. During the second quarter, residential sales peaked and commercial and industrial sales hit their lows. Since then, our service territory has been working its way back to more normalized levels. Because some businesses will continue to work remotely, we expect our residential sales to continue at higher levels for some time. Let's take a deeper look into why we raised our outlook for normalized load on slide 11. The solid bars represent weather-normalized load growth by quarter in 2020. The green lines represent the updated load forecast we shared during the first quarter earnings call. At that time, there was still a lot of uncertainty regarding the depth and duration of the economic slowdown and how customers would respond.
While that forecast accurately predicted the depth of the contraction in the second quarter, our third quarter results indicated a better recovery than forecasted. Our latest view anticipates a continuation of this trend, barring another shutdown of the economy. Now let's move on to slide 12 and review the company's capitalization and liquidity. Our debt-to-capital ratio remained unchanged in the third quarter and stands at 61.1%. Our FFO to debt ratio decreased 1.3% during the quarter to 12.8% on a Moody's basis, primarily due to timing of fuel recovery, storm cost deferrals, and a pension contribution. Importantly, we expect this metric to end the year in the low to mid-teens, consistent with the guidance we have provided. Our liquidity position remains strong at $3.8 billion, supported by our revolving credit facility.
Before providing an update on pension funding, I would like to discuss the plan to finance the North Central Wind Project. As a reminder, we have stated that we intend to use equity to finance approximately two-thirds of this $2 billion project. We plan to issue equity in coordination with the completion of the three individual projects that comprise North Central Wind. For this reason, we will take a flexible approach, which could include an at-the-market mechanism, asset rotation, as well as traditional secondary offerings. This approach avoids unnecessary dilution and helps us deliver on the 5%-7% earnings growth rate. Turning to our pension, I am pleased to report that funding increased 3.6% during the quarter to 97%, and our OPEB funding increased 5%- 141%. Strong equity returns was the primary driver for the increases.
The pension plan also benefited from a company contribution in the amount of the plan's annual service cost of $111.5 million. Let's wrap this up on slide 13 so we can get to your questions. We are reaffirming our existing 2020 operating earnings guidance of $4.25-$4.45 per share. Our message at EEI will be that we are leading the way forward as a premium regulated utility with an ESG focus, delivering 5%-7% earnings growth, with dividends growing in line with earnings. Our plan includes the $2 billion North Central Wind Project in Oklahoma, benefiting our customers in PSO and SWEPCO as we transition to a cleaner energy future. We will provide detailed drivers for 2021 earnings guidance by segment and updates to our capital expenditure and financing plans.
We look forward to talking with many of you at the virtual EEI conference in a couple of weeks. One final item. In 2021, we will release 2020 fourth quarter and full year earnings in late February, coincident with the filing of the 2020 10-K, like we did last year. With that, I will turn the call over to the operator for your questions.
Thank you. Once again, ladies and gentlemen, if you wish to ask a question, please press one then zero on your telephone keypad. You may withdraw your question at any time by repeating the one zero command. And if you use any speakerphone, please pick up the handset before pressing the numbers. And again if you have a question may press one then zero at this time. One moment for our first question. We will go to Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please go ahead.
Good morning, Julien. Good morning. [crosstalk]
Hey. Howdy. Thanks for the time, guys.
Yep, sure.
Perhaps just to kick things off, you talk about rolling out and reaffirming or perhaps preemptively reaffirming in the EEI of the 5%-7%. Can you talk a little bit about what's backstopping that? Specifically, in the last few months, we've seen some pretty substantial changes from some of your peers in Virginia. How can that play into APCo and perhaps also similarly in Indiana? Many of your peers are talking about opportunities. You all have perhaps Rockport. Just curious if you can talk about or perhaps foreshadow some of the conversations here on that roll forward, if you don't mind, at the outset.
Julien, I think a lot of the things that we're going to talk about are renewable opportunities in addition to North Central Wind, how we're transitioning from a carbon-based generating fleet much more to a lot of the renewables that the Virginia Clean Economy Act enables and legislation in Indiana enables as well. We're going to provide a lot more detail on that at EEI and take you through what that looks like.
You have the renewable requirement in Virginia. You mentioned APCo. We've got the requirement there. Also Indiana Michigan, we continue to do renewables in various areas there. We're also doing renewables just at Fort Sill in Oklahoma. Then we also have renewable applications here in Ohio that are brewing as well. We'll have plenty to talk about. I think we don't spend, and maybe we should spend more talking about the opportunities we've got available to us from a renewables standpoint. The way I see it is that we are just on the precipice of a massive transformation to renewable resources, and AEP, if you look at the runway, is pretty substantial. That'll continue, particularly as we do individual relationships with customers, but also in terms of the regulated side as well through the integrated resource planning process. We'll certainly talk more about that at November EEI.
Got it. Thanks for entertaining me there. Perhaps if I can get more detail here, if you don't mind. I know you all provided a little bit more of a view on 2023 here, but in tandem, you gave an updated view on FFO to debt under Moody's definition of low to mid-teens versus perhaps prior characterizations of mid-teens. Is that simply a factor of rolling forward a year, or how are you thinking about this at this point?
Julien, the low to mid-teens is completely consistent with our prior messaging on FFO to debt. That outlook was incorporated in Moody's when they made their adjustment back in August.
Remember, that'll continue to improve as some of this Accumulated Deferred Income Taxes that is being repaid to the regulatory jurisdictions are occurring much more quickly than we thought. We were originally thinking 10 years, and it turned out to be five years. That's occurring more quickly. That FFO to debt metric will pick up as that rolls off.
Got it. Excellent. Thank you.
Yeah.
Our next question is from Durgesh Chopra with Evercore ISI. Please go ahead.
Hey, good morning.
Hi there. Good morning.
Hey, good morning. Thanks. Great. Just digging in a little bit into 2021. I appreciate you'll sort of share more color at EEI. Could you quantify for us what that 2%-2.7% sales degradation was year-to-date, part one? Part two, should we assume some of that $51 million year-to-date O&M savings to be carried forward into the next year?
Let me start with the 2.7% load degradation. It's what you would expect. It's largely commercial and industrial sales decreases being offset by residential. What we've seen is it takes more than just looking at the raw numbers on residential, commercial, and industrial. It's really the mix. You remember, we make more margin on residential sales than we do on commercial and industrial, and that mix has come in better than we had anticipated at the beginning of the pandemic. It's not been as dire as what we thought it might be because of what's happened with the sales mix rather than just the overall decreases. That's been positive. Looking forward on O&M, we have, for a number of years, been tightening our belt and been very tight around untracked O&M in that $2.8 billion-$3.1 billion range.
With what we're doing with Achieving Excellence and everything else we're doing with sustainable and non-sustainable O&M cuts, I anticipate us being towards the lower end of that range going forward.
When we look at the load forecast, if you assume 2021's going to be better, which we believe it is, and you look at that mix, we don't see residential. Obviously, it'll moderate as the economy comes back on the industrial and commercial side, commercial in particular. But still, you're going to have a continued longstanding remnant of improved residential support just by virtue of what companies have learned from the work-from-home environment. So I'm a little bit bullish on the load, and then at least a financial picture associated with the load. When you look at the O&M, this Achieving Excellence program, it has truly been a fundamental change for us, an augmentation of all the lean activities and other things that we did before.
It really is focused on a regular part of our budget process to ensure that we're capturing savings in every step along the way. Feeling pretty good about the continual progress year on year of Achieving Excellence.
That's great, guys. Thanks for that color. Maybe just initial thoughts, and I appreciate the devil is going to be in the details, but initial thoughts on elections, taxes, climate plan, and implications for AEP?
Yeah. I guess, well, first of all, the election. Certainly is a noisy election cycle, and who knows what's going to happen here? We never know. We've got 114 years history of managing between the goalposts here, so we'll continue to do that. Our focus is on moving to that clean energy economy. Really, the only difference I see is maybe the pace at which the change will occur if there's a Biden administration versus Trump. Nevertheless, it doesn't change that much for us because we're focused on moving to that clean energy economy as quickly as we can to ensure that we are making that transition into the future that we know is going to happen. Now, who knows where technology will go, even for fossil fuels.
Nevertheless, we'll continue that transition to renewables and certainly some natural gas to ensure that we are delivering for our customers in the future. From a climate perspective, we have an excellent record. Matter of fact, that's why we get seen from the ESG community. They know what we're doing. They know what our message is. We're making continual progress, and we'll continue to make that progress. When you think about, as I said in my original write-up, I used the word latent, because it is somewhat of an undeveloped or emerging activity around electrification of the economy, certainly around O&M and what we find with digitization and automation. Of course, as we move forward with the transformation, the generation transformation that we see ahead of us. That's why I'm feeling pretty good about where this company's heading.
Just a quick update on taxes. If we were to have an increase in taxes, we anticipate that our commissions would handle it really one of two ways, and not dissimilar to how they handled tax reform three or four years ago. We anticipate that they would either allow the increase to be deferred until the next rate proceeding, or we anticipate that they'd have kind of a one-issue order come out where they would allow us to adjust rates just to reflect the new expected higher income tax rate. In any event, we wouldn't expect it to be a significant driver to earnings or cash for the company going forward.
Right. Thanks, Brian. Could be a modest tailwind to cash flow, given sort of a reset in ADIT and amongst other things?
Nick can help FFO to debt.
Yeah. Again, we don't anticipate it to be significant one way or the other.
Understood. Thanks, Brian. Thank you, Nick.
Thank you.
Yep.
Our next question is from James Thalacker with BMO Capital Markets. Please go ahead.
Morning, James. Hello.
James, is your line on mute, possibly? Your line is open.
Hey. Thanks, guys. Apologize about that.
There you are.
Hey. Good morning.
Good morning.
Two real quick questions. Just first, I guess, Brian, just addressing North Central Wind. I noticed in the slides that Traverse looked like potentially the in-service could be pushed out maybe by a quarter or so. Could you talk a little bit about, is that just a supply chain issue related to COVID, or was there something else that was kind of driving that extended outlook?
Yeah, a lot of it has to do more so than actual physical things. It's our ability to get permitting and the like done. During the shutdown, it was hard to be able to get into the offices, do land acquisitions, title searches, and things like that, and that just potentially pushed us back a bit, James. We're not anticipating anything material there. We still anticipate late this year to early next year, but just wanted to signal that due to some of those unanticipated issues, largely associated with COVID, that that project could have a range of when it would come online.
Hey, James, we feel like it's still going to be the end of December. Obviously it could fall into that range in the first quarter. We're confident of that particular range. Remember, we're not making any progress payments either. We acquire it when it's done. From a financial perspective, it's fine.
Okay. Great. Thanks.
Yeah.
I guess, just following up on that same issue, Brian, you talked about three sort of potential ways to finance the final acquisition of those. This has been beaten to death, as you guys look to give 2021 guidance, obviously an ATM would be something that would be spread over the full year. Asset rotation or even block equity would be probably something, I think, as you were saying, sort of coordinating it with the final close would be something maybe closer to the end of the year. How are you guys, I guess, thinking about that from a modeling perspective as you present 2021?
It kind of matches what Nick was saying, is that we don't get the projects until commercial completion is done. Given the discrete nature of them, we can really time the equity issuance very closely with when the project comes online. James, the reason we need that flexibility, you look at Sundance, which we're anticipating in the first quarter of 2020. That's about a $300 million project. We'll be able to time the equity issuance, if that's what it is, closely with when that project comes online. The next one, which we're anticipating at the end of 2021, is about a $400 million project, Maverick. The last one is Traverse, which is about $1.3 billion, and we talked about that being late 2021, early 2022.
We believe that whether it's an at-the-market program, a follow-on issuance, or asset rotation, we're going to be able to time those very closely with when those discrete projects go online. From a modeling standpoint, the timing that we're talking about really is going to be insignificant to 2021. And I'll start repeating myself. It's insignificant to 2021.
James, Brian mentioned the options we're looking at, and rest assured, internally, we are also beating it to death. We'll make sure that we're making the right decisions relative to the timing associated with those investments.
No worries. I understand the in-service dates, and it gives you guys a lot of flexibility. The last question I guess I just had, and you kind of answered my initial question, was going back to the trailing 12-month FFO. It kind of dipped down. You guys are looking for that to sort of trend back into where you guys are thinking, sort of low to mid-teens, I guess. Are you still targeting that in the sort of 2021, 2022, 2023 timeframe? I know you just updated your cash flow forecast for that recently.
Yeah, we are. It's that timeframe. Yep.
Okay, perfect. Thank you so much for the time.
Thanks, James.
Next, we'll go to Michael Lapides with Goldman Sachs. Please go ahead.
Hey, guys.
Morning, Michael.
Morning, Nick. Thank you guys for taking my question. Nick, sorry about your LSU Tigers rough man.
Yeah. Alabama's doing good, though. I'm sure you're happy with that.
Yeah. Let's hope Nick keeps coaching. I want to come back to tax a little bit and who the heck Uncle Sam's going to do in the next year or so regarding corporate tax rates. If there's a change in administration, if there's a higher corporate tax rate, I think we've seen numbers floated around of 27% or 28%. I get that it's probably not much of an impact on the earning power one way or the another for AEP. If you're talking to state commissioners or staff at the PSCs or PUCs or others, it is a rate increase on the customers. It's a double whammy because the cost of service goes up due to the higher tax rate, and that just kind of flows through rates. Also, the flow back of ADIT kind of slows down or declines.
It just strikes me as if I'm a state utility commissioner or a public policy maker in given states, you're asking for what could be pretty decent-sized rate increases on customers coming out of an economic downturn. How does that get offset? I think about it from the customer standpoint. What's the giveback?
I think there's no doubt. Again, I think there was a lot of advantage taken with the tax reductions that occurred. You're right. There's no doubt that there will be headroom that is reduced because it is certainly going to be an impact to put those back in. Now, the question is how it's put back in over what timeframe and that kind of thing. Also, that's why it's so important for us to move forward as quickly as possible and accelerate Achieving Excellence so that we can mitigate that impact as much as possible. Still, you're looking at it in the face of a definite need for rehabilitation and continued capitalization of the grid to ensure that we have reliability and resiliency of supply. Particularly when you came dealing with hurricanes, wildfires, cyber, all those kinds of issues.
We have to respond to that. There'll be rate increases associated with the implementation of new taxes. I think it's unavoidable, but certainly it's incumbent on us to make sure we mitigate that as much as possible with our Achieving Excellence program and other measures. We'll have discussions with the commissioners, just like we had discussions when tax reform occurred. It's unfortunate we didn't do it over a longer period of time like we had suggested, because then it would mitigate even the return of taxes. If we continue vacillating back and forth like this, that's going to be a continual issue for our industry that our regulators need to recognize. We do have to keep some reserve there to ensure that we're not moving customer rates around as much as could be if it becomes pretty volatile.
Your point's well recognized, but we'll do what we can to mitigate the effects, and we'll have those conversations. I think one thing that's also come into play here, though, is the nature of the importance of the service that we provide. For everyone to be able to watch their Netflix or do all the things they need to do at home, work from home, all those types of activities will change the nature of how we look at residential supply. There's no question that that's going to change going forward. That's why I'm always troubled by commissions saying that AMR versus AMI, for example, the investments we want to make in AMI, you don't just look at the cost of the meters of AMI and the underappreciated balances associated with AMR.
You've got to look at what you're leveraging into, that's the customer's ability to adjust to their own energy picture, be able to drive energy efficiency and all those things, give the customer the opportunity to do that as opposed to the system just deciding that for them. I think there's just a lot of things we need to have discussions about with our regulators to really focus on what that future actually means. With electrification of the economy, that's clearly going to be an issue that we need to deal with to make sure our customers are more resilient, more reliable, and as economic as possible, also give them the opportunity to make adjustments on their total bill as opposed to dealing on a headline on rate increases.
Got it. Thank you for that, Nick. One other question, totally unrelated. I'm thinking about states where you've not really talked about sizable rate base growth and investment. One of those that stands out a little bit is West Virginia. How do you think about going forward, the pace of generation transformation in a state like West Virginia?
Yeah, we're looking at all of our states now and all our state jurisdictions. It's really sort of our resource planning on steroids. Even the dog likes it.
He loves it.
I think there's no question that we are in the process of moving forward with that transformation as quickly as possible, making significant T&D investments. You see that based on the changes in capital. When you look at states like West Virginia, I think the first step is going to be how we run coal-fired capacity, for example. Will we have other forms of energy coming in and have lower capacity factors on coal units, but still they be available at those times where you have severe cold weather or really warm weather in the summer? It's the way we run these facilities during the interim, but then it's also that transition that we make going forward. I think that's true for all of the jurisdictions. Our jurisdictions have been fairly conservative in making that transition.
I think that pace can quicken, though, as a result of even the bipartisan focus on continuing to lower emissions at our plants. I think the catalysts are there. Actually post-election, who knows what will happen? You're already seeing some Republican and Democratic legislation that's being proposed that tries to answer that question. If you have that from a national standpoint, and the states are moving forward with their own resolutions, then we can be particularly helpful in ensuring that occurs as quickly as possible.
Got it. Thank you, Nick. Sorry about the dog. My dog Memphis and I both appreciate it. Thanks, guys.
Oh, no, that's fine.
Our next question's from the line of Sophie Karp with KeyBanc. Please go ahead.
Hi. Good morning. Thank you for taking my question.
Yeah, sure thing. Good morning.
I'm curious. I want to go back to the load composition and the rate case activity. As we move forward and the load dislocation continues to persist, where we have this unusual situation where residential maybe is higher, but C&I is suppressed, and that's not really a normalized picture. As you go through your rate cases now and the future rate cases where this period becomes your test here, right, how do you address that? Do you attempt to normalize or do you just go with what the actual looked like? That's my first question, I guess.
Yeah. We have multiple utilities, right? We have the opportunity to move around capital investment to time it with relative rate case activity to ensure that we are spending on the right things at the right time. Not to say that we're trying to load the budgets or anything. What we're saying is that when we go through the rate case filings, it's important to not only have discussions with the commissions about what we're spending on, but what the results of that spending will be. If a load is not increasing, obviously it certainly challenges the rate impacts because the denominator is not growing. If the denominator is growing, obviously that's helpful.
If it isn't, you're still having to make choices about what the priorities are for each regulatory jurisdiction based on discussions with the commissions to help us determine, okay, number one, what are we willing to pay for? Number two, what are those priorities that exist? Some of those are absolute priorities, and some of them are things that, yeah, we'd like to do, but it may be that we have to work out for a longer period of time before bringing that in. There's all kinds of dialogues that occur relative to what that prioritization should be, and we'll continue doing that with our commissions, and we have done, whether the economy's going well or whether the economy's been in a downturn. I think we're moving toward an upturn, so that's going to be helpful.
Sophie, we also have some jurisdictions that have forward-looking test years, so we'll be able to incorporate a forward-looking view. We have places like Ohio, where residential and small commercial are already decoupled. There are lots of mitigants to unusual load circumstances that we find ourselves in right now.
Some of these things are known and reasonable adjustments, too. You have to look at the 2020 test year and say, "Hey, we had to make these changes because of COVID-19," and COVID-19 is going to be sort of a unique circumstance. We had to react. Actually, the commissions themselves, we had moratoriums on customer cut-offs. There's adjustments we all made in that process, and I think we'll make those adjustments coming out of that process as well.
Right. Thank you.
Yeah.
If I may, a quick follow-up on the North Central Wind. You mentioned asset rotation, I guess, as a part of the considerations for equity, part of financing there. What might those be? Is this more of a one-off situation with certain assets in your portfolio, or could we be looking at something more strategic here? Thank you.
Well, when we talk about potential assets, we look at everything. We look at sources and uses. Obviously, we want the use part of it right now is how do we finance North Central Wind, a major project, and the sources can be anything in our portfolio. That's where portfolio management is going to be a key part of what we do in the future. I'm not going to say specifically what we're looking at or anything like that at this point.
What I will say is that it's incumbent on us to be looking at everything from a source perspective and then focusing on how we deploy capital in the best way and transfer that into really projects like North Central and be able to fund it in the best way to ensure our shareholder value. We'll continue to do that. I think you sort of have to let the year play out.
Thank you.
Yep.
With no further questions.
Hey, John.
Yep, I'll turn it back to you.
Great. Thank you for joining us on today's call. As always, the IR team will be available to answer any questions you have. John, please give the replay information.
Certainly. And ladies and gentlemen, this conference is available for replay. It starts today, October 22nd, 2020 at 11:30 AM Eastern Time. It will last until October 29th, 2020 at midnight. You may access the replay at any time by dialing 866-207-1041 or 402-970-0847. The access code is 8222465. Those numbers again, 866-207-1041 or 402-970-0847. Access code 8222465. That does conclude your conference for today. We thank you for your participation. You may now disconnect.