Good afternoon, everyone. I'm Darcy Reese. I'm Vice President of Investor Relations at American Electric Power, and I'm delighted to welcome you to our 2022 Analyst Day here at Nasdaq. It's been quite some time since we hosted our last Analyst Day, and it's a real pleasure to have so many of you with us in person today, as well as those joining us on today's webcast. We have an exciting agenda planned for you. In just a moment, you're gonna hear from our team here at AEP. Chair and CEO Nick Akins will kick things off with an overview of our business and talk to you about the status of our Kentucky sale. He'll be followed by President and CFO Julie Sloat, who will walk you through our commitments and robust financial plan.
Executive Vice President and Chief Commercial Officer, Greg Hall will cover our competitive business portfolio. Senior Vice President of Grid Solutions, Antonio Smith will highlight some of our regulated investment opportunities. Senior Vice President of Regulatory, Matt Satterwhite is gonna cover all of our regulatory initiatives. Then finally, Executive Vice President of External Affairs, Raja Sundararajan will sum things up, walking us through economic development as well as customer affordability. Please save all your questions till the end of today's event, at which we will proceed to a Q&A session. Before I turn things over to Nick, an important reminder, wouldn't be an Analyst Day if I didn't cover safe harbor statements. I wanna remind everyone that during today's presentation, we will be making forward-looking statements.
There are many factors that may cause such results to differ materially from these statements, so we encourage you to refer to our SEC filings. With that, I will turn the presentation over to Nick.
Hi, everyone. Good afternoon, everyone. It's great to be with you here today, both physically and, virtually. I think there's probably some people that are on virtually. Really wanna take the opportunity to talk about some of the great things that we've been doing at AEP recently and obviously thinking about the future. Pretty soon, you're not gonna care what I think anymore. You're gonna care what, Julie, maybe you already don't. Julie Sloat will be taking over. Julie over here, obviously many of you already know her very well, Chief Financial Officer, and now she's President and Chief Financial Officer. Hopefully, as we go forward in the year, we'll get to a point where she's, at the first of the year, will become, CEO of the company.
We're very happy and privileged. The board went through an extensive process to define who the next person would be going forward, and it really says a lot that it's her, because the background she has and the emphasis she places on consistency, quality of earnings and dividends, but also shareholder and customer value, will be very important to this organization going forward. You'll see some of the steps that she's taking as we go forward. We also have a strong leadership team, and it's a young leadership team now. Julie has defined her leadership team that's really in the room today that you'll meet as we go along. Some of them you'll hear from and hear many of the things that are going on with the company.
Of course, we just recently announced a couple of other changes which she'll introduce as well. You know, as far as AEP is concerned, we have certainly moved to a pure play regulated utility. When you look at some of the things that we've done from a strategic plan perspective, we've leveraged our scale, our financial strength, portfolio management, all those activities to ensure that we're moving forward in that vein. With our customers, the focus on customer affordability and those types of issues still remain in play, but certainly is an opportunity for us to invest in ways that we continue to grow in terms of those two pinnacles of growth that we've talked about. Renewables, the transition to renewables for AEP is very pronounced.
Of course, transmission and as well distribution certainly will be a key part of our future and contribute to the long-term growth of the company. You know, we continue, and over the past 10 years, I've been CEO for almost 11 years now, and which is hard to believe. During that time, we've had a great record of consistently exceeding our earnings projections, and we've continued to raise guidance, and today is no exception for this year as well. Today, we have by far the largest electric transmission system in the country, and as you know, a lot of the investment that occurs today is relative to transmission and renewables. You can't do the renewables build-out that this country's talking about doing without transmission. In most parts of the country, you can't do transmission without AEP.
Certainly from our perspective, we feel well-positioned from that. You'll hear more about that a little bit later on as well. You know, despite the global challenges that have occurred from capital markets to supply chain to everything else that's going on in the world today, we certainly leveraged our track record and our scale to continue to perform. As the United States realizes some of the issues associated with climate change, ongoing inflation, and certainly increased strain on their energy grids, AEP's held steadfast in our belief that a cleaner, more resilient electric system certainly is the way to go in the future to support the economy, and we're well on our way of achieving those objectives.
Many of the things we'll talk about today are real, are areas that we're working on our regulators with. There's a multitude of integrated resource plans that certainly Antonio and others will be talking about today that really fortify the benefits of where AEP is going, in relation to these strategic visions that we have. Our ability to achieve these goals and deliver for our shareholders and our customers is predicated on our steadfast commitment and to our prioritization of the five core pillars of our strategic vision and execution. Those you've seen before, we'll talk about those a little bit, and briefly here. First is affordability.
We continue to look at the affordability to customers of the massive build-out that's required to ensure the clean energy economy of the future, but also the resiliency in the future as well. There definitely is a redefinition of what resiliency means, particularly in light of what's going on in the world today. I just was in Norway last week at an international energy conference, and there's no question that European leaders are concerned about the nature of the electric system, given the Ukrainian situation and Russia in particular. But nevertheless, it shows us the importance of how electricity contributes to the economy, not only around the world, but in the U.S. and, of course, in AEP's territory. AEP's territory is centered on growth. We continue to see growth.
You're gonna see a forecast for load that are higher than what we've typically had going into our yearly forecast. Those are really driven by a couple of things from my opinion, and that is really centered on onshoring. Certainly manufacturing onshoring and those kinds of activities being brought back to the U.S. are typically coming to our service territory, which accommodates manufacturing very well. Certainly, when you think about some of the other areas of growth, when you ever have fuel-related issues, energy-related issues, that bodes well in terms of pipeline growth, in terms of whether it's chemicals and other manufacturing, and of course, now chip manufacturing in our territory as well.
Those continue to grow, considerably, and that's something we have to be ready for, to make sure that the American economy and our economy can continue to function, in a very positive way without interruption. Also, how do our customers wanna see that? They wanna see that through the clean energy economy. And the investments that we make relative to clean energy will certainly be front and center in terms of our ability to make sure customers are seeing that clean energy promise, but also ensuring the resiliency of the grid in the meantime.
Of course, advancing our business and achieving these goals will be extremely important in terms of how we process, design our systems, how we make sure that we continue to operate, how much O&M we continue to keep in check and reduce during that period of time, to contribute to the earnings capability of the company. More capital we're deploying ensures us to be able to make accommodation for lower O&M costs, and we'll continue to do that. The final pillar that we have is around our company culture. We spent a lot of time in the last 10 years focused on the culture of our organization. I can tell you in 2014, we do surveys every year. We were about at the 14th to 16th percentile.
Low, very low, in the fourth quartile. Today, we're at the 93rd percentile. We've made considerable progress in terms of how our organization works together to achieve these objectives. It really is centered on diversity, equity, inclusion, all the other activities that we come together to do in a very positive way. We've had that innovative spirit since the beginning of the 116 years of AEP, but we needed to make sure that we had a continued opportunity for everyone to have a voice in terms of the strategies of this company. We've been very successful at that, but we'll continue to grow from that perspective as well. The other is taking bold steps around CO2. Now, AEP has been very rational in the entire process over the several years.
We do a lot of analysis in terms of what can be achieved. We certainly do a lot of analysis in terms of the opportunities ahead of us that we focus on with the regulators. I think it's really important to see every year that goes by, we're making adjustments that are more aggressive because we see the technologies continue to improve. We see the opportunities, and actually, you know, frankly, the public policy discussions continue to support the movement to a clean energy economy. As we look at some of the technologies that are in existence, even with the IRA that was recently passed, it expanded opportunities for not only nuclear, but hydrogen and other forms of technology storage.
Those are opportunities for us to take a look at through our integrated resource plans and ensure that we're able to make that transition. Today, we're announcing that we are changing our goals once again. We plan on achieving net zero by 2045 instead of 2050. We're also changing the benchmark. We used to use 2000 as a benchmark because that's when we really started our process of reducing carbon emissions with the climate exchange and all the other things that we were involved with. Most of the industries use 2005. We changed the base to 2005 and also brought in the other scope one, including OVEC generation, our participation in OVEC generation.
It made the targets even more aggressive when we moved to 2005 and included those aspects of it. Nevertheless, we continue to focus on 2030, making sure that we're at 80%. Also, as we've looked at the current progress, we've reduced it by 63% from those levels. It's really an opportunity for us to continue to help define the public policy, but also be able to look at the technologies and ensure that we're doing the right thing at the right time. Clearly an opportunity. Now, just to give you some insight on that, in 2005, we were at 152 million metric tons, probably the largest in the hemisphere in terms of emissions.
Today, we're at 56 million metric tons, and we plan on being at 26 million tons by 2030. Substantial progress being made. Of course, the upgrading of our near-term reduction target, including scope one emissions, certainly brings in that OVEC, which in itself is another 7 million metric tons that we brought in to that base. Clearly, a lot of progress from that perspective. We're confident in our path forward and our ability to achieve these key objectives. Actually, when you look at our plans, they're reflected in the integrated resource plans that we file in the various regulatory jurisdictions. It's not something that we're just planning to do in the future. We're executing on those goals. Actually, we've been highly successful from a resource planning perspective in multiple states.
As you think about some of the things that we have, from Virginia to west to certainly from Indiana, Michigan, all the the western jurisdictions in terms of North Central, those have really been opportunities for us to continue to advance that picture. Actually, we have filed six integrated resource plans in our vertically integrated jurisdictions in the past nine months. When we told you that we were gonna start executing on the 16,000 MW of generation, we also said that we were gonna be following resource plans in the various jurisdictions, and we've in fact done that, and continue to take bids and doing all the things that we need to do to ensure that regulatory path is positive.
Between 2021 and 2030, we plan to add 16 GW of new renewable resources, which will significantly contribute to our reduced CO2 emissions. The 1.5 GW , 1,484 MW North Central Energy Facilities became fully operational in March this year, and the completion of the 1 GW Traverse Wind Energy Center was concluded. That represents the launch of our clean energy fleet transition. That clearly was a big positive for us to continue that focus. Actually, in today's environment, has produced substantial benefits for consumers. The beauty of what we're doing today is these generation resources are lowering costs to customers and allowing us to actually deploy more capital for needed distribution and transmission investment to reinforce the resiliency of the grid. It's a great recipe for us to continue to grow.
It's a great recipe for our customers to benefit from a clean energy economy. It's great for the country in terms of resiliency of the grid, in general. As we look longer term, we're committed to building a resilient and reliable grid to efficiently deliver clean energy for our customers, and we'll continue to monitor the new technologies that are coming into play, and you're seeing those continually introduced into the resource plans. Right now, they don't show up that much, but as these technologies continue to progress, you'll start to see those integrated into those plans. Of course, the newly passed Inflation Reduction Act, which was something that we were involved with. We certainly wanna make sure that that process continues to advance.
Actually, the permit bill, I know there's the permit part of the solution, that Senator Manchin had done with Senator Schumer, is something that's sort of on hold for now. He pulled that. We hope to get that back on track, certainly after the midterms, and that's a key part as well. The permit reform would be critical for us to be able to actively put in transmission in a meaningful way, but also ensure that we're able to put in the renewables and other applications that are necessary for resiliency of the grid. AEP has a proud history of investment in our generation fleet, and we have made great strides to reduce the environmental impact of our generation.
We've invested over $9 billion in environmental controls, as you know, and obviously have made tremendous reductions in SOx, NOx, and mercury, as well. That's sort of old news. AEP certainly has helped to contribute from those kinds of emission reductions. Now it's about carbon, though. We need to continue to make sure that we advance those kinds of activities, and our CO2 emissions were actually 70% less in 2000. With today's announcement, we're raising that bar even further. It's a real opportunity for us to continue to advance that. Decarbonizing our generation fleet is only part of the story. We're also taking additional opportunities associated with electric vehicles and what they mean to the grid.
We're also advancing broadband in rural communities because there's no question that in our service territory there are people who don't have that kind of access. We have a real opportunity to leverage the systems we're already putting in place, the data transfers for massive data transfers for evaluation of the grid. We can also make broadband available to rural communities to ensure that that connectivity exists. We're also laying the groundwork for the transition on retirements of coal-fired generation. We're at the forefront of the just transition activities at our Pirkey plant. That was one area where we worked with the community and certainly have focused on the transition that employees would make during that process. We've worked actively to ensure that that kind of cookbook is used for other coal-fired generation.
Actually, that's a promise of some of the new technologies. If we're able to maintain jobs, taxes, and the transfer of that as these communities emerge from coal-fired generation, that would be a big positive and investment potential for AEP. Now, as we continue, since 2010, we've made tremendous strides in diversifying our fuel mix, and in doing so, reducing our reliance on coal generation over this time period, we have retired or divested nearly 13 GW of coal generation, the biggest decline in the electric utility industry. We have plans to reduce our coal generation even further, another 5,300 MW by year-end 2028. Today, our coal generation represents only 11% of our total net plant and will represent less than 5% by year-end 2028.
We're working hard to ensure that our remaining coal fleet operates as efficiently as possible. We're not blind to the economic impacts of a coal plant, though, certainly in terms of the retirement of these facilities, where jobs, taxes, as I mentioned earlier, are important. We'll continue to work with the affected communities to ensure that these transitions are fluid and also working from a public policy standpoint, to make sure that the federal government understands these transitions are clearly important as we emerge with other types of resources. AEP has an evolving energy mix to lead the clean energy transformation, including coal, natural gas, nuclear, and renewables. We're determined to transform our entire fleet, to serve the energy needs of the future, as well.
While we're moving away from fossil fuels, we're actively adding and seeking the necessary approvals for renewable energy projects. We believe renewable sources play a key central role to meeting the needs of the clean energy future. When I became CEO of AEP in 2011, we were at the early stages of this clean energy transition. At the time, less than 5% of our generating portfolio was clean generation. Today, it's 23%, and certainly by 2030, we're expecting it to be over 50% of our capacity that exists on the system. There's a lot of work ahead to do that, and the energy transition won't happen overnight.
Certainly it's one where we're having to really look at a balancing act between the speed of that transition, but also enabling us to make that transition in a very positive way for our customers, particularly as it relates to resiliency and reliability of the grid. I know it's been recognized certainly from a global standpoint, but also certainly recognized from our participation in the energy markets in the U.S. that there's clearly an opportunity for us to look at those resiliency aspects of the system. You're seeing increased storm activities and resiliency of the distribution and transmission system will also be a big part of that analysis. I want to share something relative to Kentucky. I know there's probably a lot of questions about Kentucky, and you're probably waiting to hear about that.
We do have an agreement to sell our Kentucky operations to Liberty, a subsidiary of Algonquin Power. While our timeline has shifted over the past year, we are in the final stretch to close this transaction. As we announced on Friday, we're pleased to have entered into a stock purchase agreement amendment with Liberty last week. We negotiated and agreed on an adjusted purchase price of $2.646 billion, which is $200 million less than what we announced in October last year. The adjusted purchase price is based on developments that have occurred since last October. Also last Friday, FERC counsel, our FERC counsel, on behalf of AEP and Liberty, submitted a letter to inform FERC that the parties are prepared to close the transaction after the FERC 203 order.
The letter informed the FERC that we are no longer a condition precedent to close, but for the FERC 203 order. The FERC 203 order is the last thing, then we'll get on with it. We ask for expedited approval to enable rate credits imposed by the Kentucky Commission to be put in place. There really is sort of an incentive to get that done, so the Kentucky customers aren't hit during the winter months. We'll be looking for that approval. Of course, part of that deal was to make sure that the condition precedent was removed relative to the Mitchell Agreements, and that certainly has enabled us to move forward.
Based on the decisions, though, of Kentucky and West Virginia commissions related to the new Mitchell Agreements, we are continuing with the existing Mitchell Agreements, and the operating agreement allows the operating committee to make certain changes. We fell back to that position. Both parties are agreeable to that, and we're continuing on with the transaction. As you're aware, FERC has tolled their approval date to mid-December, December 16th, so therefore we've agreed with Liberty to not close the transaction until January 4th. The certainty of the date, grounded in FERC's current tolling date gives certainty to all stakeholders, including employees, customers, communities, and shareholders. By defining this date, everyone can get ready from the transitional perspective.
We'll get the FERC order at the latest by the 16th, and then we can get on with the transaction. Importantly, the revised deal economics do not alter our earnings guidance for the next year and beyond or revise our needs in relation to equity. Everything's confirmed on that. We're in good shape. While this has been a long process for everyone involved, it is one we're very pleased to have reached this point and are confident that we'll be successful in closing this transaction shortly after the turn of the year. That's the update on Kentucky.
We'll answer questions on that a little bit later. Before I conclude my segment here, I want to take the opportunity to step back to appreciate the work and relentless commitment of our team and to thank our investors, customers, and partners for the support over the years. We're investing in the modernization security of the electric grid, resource diversification, and technology and innovation to enable the transition to a clean energy future, and while keeping affordability and reliability for our customers and communities top of mind. Internally, we have transformed our culture as well. The AEP of today embraces diversity, equity, and inclusion, and certainly strongly believe the lasting development of this positive culture will continue to drive our growth, success, and the innovative spirit that exists within our company.
The past decade has been a tremendous journey for me, and on a personal note, it certainly has been a career-defining role and one of the highlights of my life. For this experience, I'll always be grateful. Since I was appointed CEO of AEP, the company has grown and evolved to become one of the largest providers of energy in the United States, and I'm very proud of the 10 to 11 years of progress this company has made over that time from a shareholder value perspective and certainly what we've done relative to our customers. I didn't do it alone. It was an entire team of 17,000 employees who pushed with the same weight and made sure that we were able to achieve the objectives that we set out for ourselves.
As I transition out of this role to that of executive chairman on January 1st, I'm fully confident that AEP will continue to flourish under Julie Sloat's leadership. She knows AEP and our industry very well, and she is every bit as committed as I am to our strategy, our culture of engagement, and our values. She is a respected leader and a friend, and with her, American Electric Power is in great hands. The future of this discussion will be Julie will be taking over the leadership of this discussion, and I think you probably wanna know what she thinks about the future. Now I'll turn it over to Julie. Julie? Thank you.
All right. Thanks, everyone. It's good to be here with you and great to be back in person. I have missed it so much, so thanks for coming out. I am gonna jump to the next slide, Annie, thank you very much. I'm gonna start by summarizing our stakeholder commitments. A lot of this should sound really familiar to you. First of all, 6%-7% annual earnings growth. Operating earnings growth should sound familiar. Dividend growth in line with earnings growth, and we target a payout ratio of 60%-70%, again, should sound familiar. Absolutely committed to the balance sheet. It all starts with the balance sheet. What we'll be looking at is a targeted FFO to debt ratio of 14%-15%.
That's on a Moody's methodology basis if you wanna go back and do the math. As you heard Nick just discuss, we are rebasing, upgrading, and accelerating our net zero target by to 2045. That's new information to share with you today. Then, you know, I've gotta talk about the customer because it all starts with the customer too, right? That's why we're here. Absolutely committed to making sure that our customer rates are in check, which means we're gonna constantly be looking for efficiencies so we can make that happen in conjunction with delivering on the other commitments to our investors. The other thing you're gonna hear me talk more about today, and you've heard me say this before, is active management of the AEP portfolio.
Specifically what I'm talking about is de-risking and simplifying our business and being able to then take dollars and channel them back to taking care of the customer, which means growing rate base and also taking care of cash flow, earnings growth, and all the stuff that we know and love from utilities. Okay. Perfect. Annie, can we flip to the next slide? There you go. Okay. Let me start by saying, as you know, AEP offers steady, predictable growth. We have a low risk regulated business with a very robust electric infrastructure investment pipeline that we can take advantage of to deliver to the customer and to all of our other stakeholders. With that being said, today we are lifting and narrowing our 2022 guidance range.
We're gonna take it to $4.97-$5.07, which pushes our midpoint up by $0.05 to $5.02. We're also introducing our 2023 guidance for you all at $5.19-$5.39. That is essentially growth of 6.5% off of our 2022 original guidance forecast, so no surprises there. I can go ahead and flip to the next slide here. I wanna do a little bit of a drive-by here for my boss. Okay? We went back and we looked at the points that Nick's put on the board. Specifically, over the past decade when Nick's been in his position, AEP total shareholder return has gone up by 245%.
That compares to the S&P 500 Electric Utilities Index, which was up 194%, so about 50 basis points better than the benchmark. Nick putting points on the board, I need to acknowledge that. We love that. More importantly, and then this is just for me and the rest of the team, Nick, you changed the complexion of our company, and it made such a difference in the lives of all of us who work for you and work for our entire organization, and we are so grateful. We love you, and we love the fact that you put these great numbers on the board because this does matter. More importantly, that cultural complexion change, it does make a difference because it all starts with the team.
Because when investors are looking at us, they're trying to determine which of the utilities are gonna be able to get the ball across the line. It starts with the team. Nick, thank you so much. Can you do me a round of applause for Nick? That's the fun part.
Even better.
Yeah. We'll see. All right. You know, when we're out talking with investors, I get a lot of questions about the Inflation Reduction Act and what does that mean. I'm gonna stick to the math here just a little bit. Keep the old CFO hat on here. I know Antonio is gonna talk a little bit more about the practical aspects of the benefits of the IRA, but we know that this gives us a tailwind, which is a good thing for our business. It allows us to, you know, continue our transition to a clean energy economy, and in a way that gives us more runway and gives us a little more clarity and confidence, so that we can get these large projects done in a reasonable timeline, so we can hit that 2045 goal.
Those are all good things. Admittedly, when I think about it, I'm like, "My goodness, how do I balance that against the BMT, the Book Minimum Tax?" Those mathematics have to work. I gotta tell you, we're still comfortable, punchline being 14%-15% FFO to debt, but that is largely a function of the accelerated depreciation components. It was really important to us. I think we get this whole thing to hang together. I know the devil is always in the detail, but from a modeling perspective, a balance sheet perspective, and for our equity community, you know, no need to worry, we've got this covered. Nevertheless, Antonio will talk a little bit more about the practical aspects of it, but mathematically, we think it hangs together. Okay. All right.
I had to do a quick drive-by on that 'cause I keep getting questions about it. All righty? All right. Let's talk CapEx. Talked about the IRA that helps us with CapEx. We're introducing today a capital forecast for the next five years of $40 billion. That's up $2 billion from the last look that we had. The last five years, it was $38 billion. $2 billion up. That translates to a rate-based compound annual growth rate of about 7.6%. That also translates into roughly annually on average, about a 4% increase in customer rates over that longer period of time. As you know, it's a little lumpy from time to time in between periods, but on average, 4%. Let me dial it in a little bit.
Of the $40 billion, 65% relates to wires. Remember, we've got a very nice, robust, sustained pipeline of projects on the wire side of the business that we're able to shift around depending on where other projects come online, because we know renewables are gonna tend to be a little more lumpy. When we don't have the perfect timing, we can shovel in some of the necessary infrastructure related to T&D investment, kinda push those dollars in and make sure that everything's kinda flowing the way we need it to flow to be able to hit all those stakeholder objectives and commitments. I'm gonna dial it in just a little bit more. Let's just talk transmission. You're gonna hear me beat the drum a lot today about transmission, okay? 'Cause we think that's where it's at.
Of the $40 billion, $15 billion relates to transmission. That's about 38%. As you know, AEP is a leader in the transmission space. We've been the pioneer in the transmission space. We are very well-positioned, particularly so now, given the investment in renewables that everyone's making. That makes the investment in transmission even more important and more necessary. When you look at us, when you look at AEP, I think some of this gets a little masked because we have transmission investment in the transmission holdco, as well as then included in all of our individual operating companies. We got it in two different locations. It may be not as easily seen when you're doing your modeling and analytics. I throw that out there.
Before I go on a little bit further and flip to the next slide, I do wanna call out the fact that our regulated renewables will be investing about $9 billion of the $40 billion, and that is about 22% of the total. This really is a wires or energy delivery and renewable story. Okay? There you go. This graphic kinda tells that story, right? We have this opportunity to serve, and it's shifted over time to a combination of the wires and renewables. That's what you see on these pinwheels here. Effectively, we've almost doubled the investment over time. When you look at the $22 billion going to the $40 billion over the, you know, last couple decades here. You know, 90% of our future investment is gonna be in wires and renewables. It's huge, right?
It gets better because we have a sustained runway in that core transmission investment. As I mentioned, $5 billion of the five-year forecast, $15 billion relates specifically to transmission. If you look out 10 years, that pipeline is actually $35 billion. Inclusive of the $15 I just mentioned, kick it out another five years, that total is $35 billion. I know this may sound a little cliché, but I would tell you or submit to you that I think we have a once in a lifetime or definitely a once in a career situation where we're able to do, like, three things at the same time or concurrently. Invest to the benefit of the customer, so we gotta do these things. Gotta do these things.
Grow the rate base to the benefit of not only earnings and cash flow, but for the betterment and good for all of our investors, and it keeps our capital costs lower, okay? Transmission is a great place to put the capital to work. It also tempers the rate of increase in customer bills when we've got the renewable component, because we know bills are still gonna go up, but they don't go up as much if you're investing in renewables versus the stuff we traditionally had invested in. That makes this possible, this product that we deliver to customers that they need to live, but we keep the cost in check. That's really important.
It's the confluence of the transition to the clean energy economy in conjunction with this, investment opportunity on the wire side that go hand in hand and make it super special. Here, here's the deal. When I think about this, I think that AEP, that this team, we need to do a better job of telling this story and the fact that we've got this incredible runway for transmission investment. We need to make sure that you see that because I think it gets a little opaque or lost in how we're kind of organized with the transcos in the operating company. Let me do something for you here, okay? Let me go to the next page. A lot of you know that I used to be an analyst. I'm sitting here looking at Andy here.
We were just talking about being baby analysts together. I was on the buy side several years ago. Anyway, I was his client, and that's what he just said I was. Anyway, here's the deal. I tried to take a tool out of the tool bag we used to use, okay? I think about AEP, and I think about the earnings stream specifically related to transmission. It's about half of our earnings, okay? What we did, real simplistically, we just grew our earnings up just for giggles at 6.5% and said, "Okay, what's that look like?" 6.5% earnings growth, that means about $2.92 relates to transmission, okay? $2.92. Follow me on this math. That's about 50% of our total earnings.
I can tell you that the transmission plant grows at about a compound annual growth rate of 10%. I would argue that's pretty premium-related stuff. 10% growth, that's darn good, right? I don't think anybody's gonna argue with that. I think about the fact that it's predictable, it's stable, we have a demonstrated track record in it. We like this, and we think you'd like it too, right? Okay. I think about the fact that when we look at different multiples, like where have you know investments like this traded, okay? We look at minority sales. FirstEnergy did a transaction 40x earnings. Boom. That's huge, right? Okay, I look at T&D transactions that have occurred in the past, not too distant past here.
We've got this from our investment banker friends, 28x. They've traded at 28x earnings. I just look at some of our selected high-growth peers, 22x. I say, "What else can we do?" Because you guys are constantly asking me, asking this team, "Would you consider selling part of that business?" 'Cause look at the multiples these things are fetching, even if you do a minority interest sale, like 40x. I know that you know that the value is there and how do you try to unlock it. This suggests that we have a materially undervalued earnings stream.
When I think about the fact then I look back at sell-side reports that do some of the parts analyses and looking specifically at AEP, looking at those reports, it would suggest that we're trading, at least our transmission component is trading at about 19.8x. When I do that math, I think, "My goodness," our earnings stream is at a discount on the order of maybe 2x earnings to 20x earnings. Do that math. 2 × $2.92, that's $6. Or 20 × $2.92, that's $58 a share. I think, "My God, what a screaming buy this is," right? You got opportunities to get in now, while it's still cheap. We are at Nasdaq. We can totally hook you up.
You just come up and see me as soon as we're finished here. The point here is, we have a stable, predictable, necessary investment with superior growth, and it's absolutely demonstrated. I just think to myself, "Really? Come on, you guys. You gotta get in," right? It's a great time to get in. Anyway, you'll hear me continue to beat that drum. Thank you for indulging me on that particular slide. All right. Let's talk about cost recovery. All right. We've made a lot of progress in terms of getting efficient or progressive cost recovery mechanisms in place. About 85% of our capital is recovered through progressive mechanisms, and Matt's gonna talk a little bit more about that here in a minute 'cause we still have more we can do.
Obviously, the lag reduction maintains a healthy earnings growth opportunity for us, keeps our cash flowing, all those things that we need to have happen, sends the appropriate messaging and timing, or timely messaging and price signals to our customers. That's important. I think let's go ahead and break this down, right? Let's take a look at how progressive we've gotten in the different buckets of where we do our investments. I look at historical trackers, forward trackers, forward rates, and then you've got base rates playing in the background. How's that stacked up against the different investments that we're making? You look at transmission here on the left side. Oh my goodness, look how good that looks, right? Transmission's looking really good yet again. We've got great recovery there.
Distribution, we made a ton of progress here. We still have opportunity to go to work there. Matt will talk about that here in a minute. Regulated renewables, another awesome place, for us in terms of, progressive cost recovery. Then again, like we've still got opportunities. It's a continuous effort for us, but we're putting serious points on the board. We'll continue to make the effort, and we'll continue to put the points on the board. Did I mention transmission? I think I thought I mentioned transmission, right? Okay, good. Very good. All right. A couple of things. When I talked earlier about the stakeholder commitment that we have to our customers, cost efficiency is critical to us. This is a new view of our O&M slide.
If you look at our past presentations, what you would see is O&M that's on track. That equates to about maybe 75% of our total O&M. What we wanted to show you here today is really how we manage it. We have to look at the whole thing. It doesn't matter whether it's tracked or not, 'cause we're worried about what's happening with customer rates. That's the different view you have here today. Just so you're not concerned, we broke out on the bottom a little table here, on an untracked basis, so that would map back to the look that you had in previous slide presentations. We thought this was important to call out here, particularly when we think about inflationary pressures and how the company's been able to manage that.
The other thing I will call out here is that we have a proven history of managing our costs despite the rapid growth in net plant. If you look at the left-hand side of the slide here, you can see we've grown the plant substantially over the past 10 years and looking at 2020 through 2023, as projected. We've been able to manage that. I wanna call out, if I could, a couple of examples because these are things that are going on behind the scenes that you don't get to necessarily see, but I wanna make sure that you have confidence in our ongoing ability to manage our costs. 'Cause you see that red line there is our inflation projection.
You can see that, our stack in terms of O&M is south of that. We do play with it from time to time, so depending on where earnings are coming in or different circumstances that we're dealing, we can either dial it down or dial it up depending on the year. That, again, demonstrates the agility and flexibility that we have. Things. I'm just gonna throw a few things out there so that you understand that we're serious about that we keep in mind when we're managing O&M. We think about, everybody says this, but lean management and continuous improvement. We're doing that. We think a lot about our workforce planning, so we think about retirements and attrition 'cause that's bodies and dollars, really important to us. We manage through that particular aspect.
We think about our craft workforce and optimizing when you use internal resources or external resources, depending on the different type of job that you do. I spent a lot of time fussing around with that stuff even when I was the president at AEP Ohio, so I can tell you it is absolutely at work and at play in our house. We think about strategic sourcing, so you know, making sure that you know, we have accurate demand forecasts so that we can manage our supply and manage our category management activities. That's been really important, especially with supply chain pressures. Obviously, it's worked for us, so we continue to run those gauntlets. Then we think about things like data analytics, automation, digitization or digital tools.
When I think about, like, AMI meters, you know, we can deal with or better understand how we can protect our revenue and make sure there's no tampering going on or there's no technology issues going on with our meters. Automation as it relates to our workflow scheduling, we use drones. You know, we manage generation monitoring with digital tools. We also are exploring and engaging in different strategic partnerships or how we manage our contracts with different suppliers, so even down to vegetation management, that type of thing. Every dollar counts. The reason I'm going through this laundry list is 'cause I want you to understand that these things are real, and they're not just words. These are things that we're doing every day, okay?
We've got a handle on this, but it is something we are literally doing every day. Andy, can we jump? Okay, excellent. Thank you. All right. From a more, an additional fundamental piece of our business, today what we're doing is introducing to you our revised look for our 2022 load, 'cause as you know, we've been running kinda hot as we've announced earnings through the first half of this year. This revises what we think that view is for the remainder of the year. We feel pretty confident 'cause we've got more than half the year behind us now, so we're good there. You can take a look at that particular number there.
Effectively, when you look at 2022 down in the lower right corner, our projection now is 2.9% in terms of normalized retail growth or gigawatt-hour sales. It was 1.6%, so we're doing well on pretty much every different aspect here in terms of our customer classes. We're good with that. The other thing I will introduce to you today is we're actually giving you a three-year forward look. We typically don't do that. We usually only go out one year, but we wanted you to see a little more runway as we kinda work through the different cycles here. That's what you see here today. I wanna leave you with a couple of different thoughts and points.
We're really starting to see the fruits of our efforts as we focus on economic development. There was a time where we always just focused on just load, we wanted load. It really began to shift over the last handful of years, where we're focused on load's important, but what you really need is jobs. You need to bring jobs to the service territory 'cause that's how you're able to then, you know, spread the cost over a bigger base, and that ultimately just reduces customer rates in terms of how those are being experienced. That's been top of mind for us, and it's been working.
For example, just quickly, you know, residential, we expect to be largely flat in 2023, kinda coming back down, and then kinda just being sustained as people work through the business cycle and have those stimulus dollars kinda run out and run through the process. I don't think there's anything concerning there. Commercial, we expect that to be up pretty significantly, despite the success we've had in the near term. Most of that is largely driven by data center load that we know is gonna be in the pipeline for us, so we have confidence in those numbers, so data centers in particular. To give you an order of magnitude, on average from 2020 to 2025, commercial sales are expected to grow about 3.3%.
Compare this to 2015 to 2020, which is not on the slide here, but they were down 1.7%. That, again, that improvement there is largely driven by our efforts on the economic development front. Similar situation when you look at the industrial load. We expect industrial load to be up on average from 2020 to 2025 about 2.4%. You can see the year-over-year comparisons there on the page. Then you, what you do is kinda compare that to looking back from 2015 to 2020, our average industrial growth was, actually it wasn't growth, it was maybe a 40 basis point decline. Again, attribute to that economic development effort that has changed substantially the shape and pace of our load growth. Good story there.
On the economic development front for industrials, you know, they're, it's coming in across all sectors, but you know, mostly pronounced in metals, plastics, defense and agriculture. We'll have more detail available for you, on this in particular when we go to EEI, 'cause as you know, we put that fact book together and all the fine details. We wanted to get the punchline out in front of you here today. Here's the other point I wanna make while we're on this slide, if I could. When you think about AEP, you know, we don't swing wildly from peak to trough as it relates from whether you're in a recessionary period to an inflationary period to growth periods, you name it, right? It's pretty stable.
Not entirely exciting, but it's a really good place to be when you do have a recessionary or pressure type situation. For example, let me give you a couple data points when I think about our load. Historically, not a lot of volatility through any of the business cycles. Not super crazy big, not super crazy down, okay? The job market's been really stable, quite frankly, even through the pandemic. We didn't see a lot of fallout there too, so that's been a good thing for us. We have a concentration of some energy producing sectors. Those tend to be a little countercyclical. Again, those economic development efforts, super important.
I think those will pay dividends, particularly, if we do encounter some type of recessionary circumstance, which I think the market seems to be betting on. Nevertheless, those should be beneficial to us. You know, I would say, you know, again, am I biased? You bet I am. Now's a good time to own AEP because we've got all these built-in buffers. It's not super sexy when things are going crazy on fire, but I'm telling you, there's a lot of downside protection here too. To me, when I think about investing in a utility company, that's what I want. Of course I have to give you that pitch. You know, I think about cost management in terms of our levers.
I think about the fact that we've got these characteristics in the economic development aspects that I just mentioned here in terms of those buffers. Here's another thing that I don't have on the slide. You know, worst case scenario, 'cause I like belts and suspenders, like how am I gonna navigate different circumstances? If we were to see a situation where I needed to toggle and manage so I can get through the goalposts that I gave to you in terms of our stakeholder commitments, the other thing I could do is I could play a little bit with my CapEx. If I cut back a little bit, I don't necessarily impact my longer term growth opportunity.
With interest rates where they are, even just the short term right now, let the dollars fall to the bottom line 'cause I don't need to finance them. I don't wanna go there, but I can and still make all the stakeholder commitments and promises that I've delivered to you today. Got lots of levers is my point. I think it's a good time to think about AEP if you're not in the stock. Okay? All right. The other slide I like is cash flow. I'm a former treasurer. I'm a CFO. I love this stuff, and I think it's really important 'cause nothing works if this doesn't work, right? Let me show you what we've got laid out for you here today. We've made some modifications. Number one, we're introducing 2027, so that's new information.
The other thing, you guys is, we've updated the view for 2022 and 2023. In particular, what we've done is that we've taken the proceeds from the Kentucky sale from 2022, 'cause now we expect to close in January of 2023 and move those to 2023. Keep that top of mind. You see that called out on the second line here on this particular slide. What we've had to do to make that coverage in 2022 is we're gonna do a little more financing on the debt side of the markets, and that's perfectly fine for us. Our metrics still completely hang together, still committed to 14%-15% FFO to debt. All good there.
As it relates to 2027, since that's the new piece, the only equity component that we have included there is really on the same order of magnitude that you see in the prior two years. 2025, 2026, you're talking about maybe $700 million. Totally digestible. Don't expect to do block trades. Something we can easily manage with an at the market mechanism, et cetera. I say all that, but also keep in mind what we don't have incorporated here, we have nothing in here for the cash flow associated with sales of assets. For example, you know that we're in the process of selling our unregulated contracted renewables portfolio. None of that is in here. That would work to the benefit of making sure all this stuff hangs together.
Particularly, here's what you can expect us to do. Over time, we'll try to target those dollars that we bring in the door to reducing our equity need, but we will do that responsibly so that our balance sheet metrics hang exactly where they need to hang. We can do this, and it will absolutely hang together and work accordingly. Whether it's the unregulated renewables sale or any other future asset sales, we don't incorporate those until we know exactly what those dollars are, okay? Stay tuned for that, and we'll keep you abreast of what's going on there. The same commitments stand, right? 60% debt to cap on a GAAP basis, roughly. That's our target. That 14%-15% on the FFO to debt, that's our target.
The only other thing I'll call out here is when you look at the capital investments and the JV equity contributions, they tend to be a little lumpy year-over-year, and that's only because we've got renewables that tend to be a little more lumpy as they come into the plan. If you ask why that might swing around a little bit, it's based on what we have in our IRPs and our expectations around that particular piece of the business. As I said, if those move a little bit, no problem. We're able to move in transmission and distribution spend here or there. We've got that covered. All right? Okay. I'm getting close here, and I'll be able to hand it off to somebody here in a minute. His name is Greg Hall.
Before I do, I just wanna do a quick drive-by on our active management and capital recycling. As you know, we have a very robust portfolio of regulated investment opportunities in front of us. When I talk about active portfolio management, it's really about constantly scrubbing our portfolio to determine, does this make sense? This stuff I own with the earnings stream associated with it, cash flows and risk profiles, does it make sense based on what we're seeing in the economic backdrop and where we wanna go with the business? We've been pretty busy over the last several years.
As a matter of fact, if you include the dollars that we're gonna bring in the door associated with the Kentucky Power sale, we will have essentially, you know, recycled about $6 billion into the regulated business. That's the plan. That's a lot. We're not done. This is part of our fabric, and we'll continue to engage in this activity on an ongoing basis. When I think about active management, I think about just this rigorous review process, you know, pushing expectations, making sure that we're moving at a faster pace, 'cause my goodness, the industry's moving at a faster pace. We gotta make sure our paces are kinda matching in that regard.
When I think about what's next. We're gonna talk about the strategic review of the retail business, and that's where Greg Hall's gonna come in. But before I hand it to Greg, I wanna mention something to you. Just a little bit of background to help Greg tell the story. We've been in the retail business for the past, I don't know, in excess of 10 years. That sound about right? Yeah. It was largely a defensive move when we got into the business. It began really when Ohio went through its transition to competition. We ultimately found ourselves, through corporate separation, with a merchant generation portfolio that was at a long position of, like, 7,000 MW. It was huge.
Over the years, though, we've sold part of that off, we've retired some plants. It's actually down to what we have today from a merch perspective is a 600 MW PPA. The business has changed dramatically in terms of the asset profile, so it makes sense we need to review this. Does it make sense that we're in this business? Greg's gonna talk about that here in a minute, but before I hand it to Greg, I know I keep saying that. I apologize, Greg. Drum roll, right? I'll get there. I do wanna do something. I wanna introduce a couple of my new team members in terms of the executive leadership team. Greg Hall, you wanna raise your hand? I know you'll be up here in a minute.
Greg Hall is our EVP and Chief Commercial Officer. Greg is responsible for all of our unregulated businesses, commercial operations, and actually Grid Solutions reports to you. Everyone knows Antonio Smyth reports up through Greg as well. The whole idea there is customer touch point. That's where it starts, and we wanna make sure we're having that commercial mindset, so those kind of go hand in hand. Peggy Simmons, who's sitting right up front here, she is EVP of Utilities. You guys may have seen this in the press release we issued on September 22. Anyway, Peggy's here with us. All of our operating companies report up to Peggy, as well as some of our customer support activities as well. Peggy is the former president of PSO, tried and true, battle-tested, awesome leader.
It's a privilege to work with her. Sitting next to her is Chris Beam, who is our EVP of Energy Services. Reporting up to Chris is generation, nuclear, energy delivery, supply chain, and health and safety. Chris is our former APCO president and COO, and I've had the privilege of also working with Chris over several years. He is a very, again, battle-tested leader, and I can't wait to get after it with these guys. With that, Greg, I'm gonna hand it to you, and take it away. All right.
Thank you, Julie. First of all, I'd like to say, you know, I've been the great beneficiary of Nick's leadership over the years, so it's, you know, bittersweet to see him give his last Analyst Day, but it's tough not to get excited about working under Julie. You can feel her passion and her energy. I call her the Energizer Bunny. You know, you got vampires in an organization, you got Energizer. She is the main Energizer. Every meeting's like that. It's amazing. I'm gonna spend a little bit of time today talking about our competitive business platform. It's not something we talk about a lot. Makes up a very small part of our company, and, you know, we've been active in managing that portfolio over the years.
Hopefully, at the end of my remarks, you'll, you know, have a little bit appreciation about the history of this business, and a little bit of the why we've gotten into that space over time and understanding on our philosophy of managing the portfolio and have clarity around the current actions we're taking. You know, AEP has a great history of building competitive businesses in areas of the industry that are undergoing significant change. Those changes could be customer preference changes, technology changes, but most often we've reacted to regulatory or legislative changes. Even though we've been great at building those businesses, we've also been good at rotating companies out of the portfolio when those companies no longer have strategic value to us, the risks outweigh the rewards, or we need to rotate that capital into more predictable regulated investments.
I'm gonna go through each of the four business units that are within the competitive platform now. I think the one you're most familiar with is our contracted renewables business. Why do we get into that business? If you remember, you know, the middle part of last decade, renewable cost curve was declining rapidly. At the same time, you had an ascending interest from customers around renewable supplies. We knew at AEP we needed to build that muscle. Our regulated companies weren't quite ready to start building that investment within the operating companies themselves, so we spent the last seven years building a diverse, attractive set of wind and solar assets across the U.S. In 11 states, seven power markets underpinned by a portfolio of customers who are high credit quality.
Those contracts have roughly 10 years left on them, and the vast majority of the EBITDA is settled with busbar PPAs. You might remember in February, Julie and Nick announced that we were gonna strategically review this business. I'm happy to report we finished that review in August. We've launched the process to sell that portfolio in late August. We've had a very robust response from a handful, a significant amount of financial and strategic buyers, so all kinds of buyer types interested in this portfolio. I think you saw from over the weekend, we're hoping for that same sort of result with our solicitation. Initial bids are due in two weeks. Once we get that initial bid list, we'll evaluate that. We'll narrow the field.
We'll share with them further, you know, further due diligence items, have a management presentation, and we expect final bids at the turn of the year. We hope to have a signed PSA by the end of January and a financial close in the first part of the second quarter of next year. Contemporaneous to that action, we also worked out a deal with our partner at the Flat Ridge 2 wind site. We've signed a purchase and sale agreement with them. We've delivered that to FERC for approval. The expectation is FERC will give us that approval here shortly, and we'll be able to close that transaction in this quarter as well. Hopefully, you can tell by these actions, this confirms our philosophy on actively managing the portfolio.
Specifically, you know, when our regulated companies had the ability, and they started to get, you know, momentum in building out the renewable portfolio, there was no longer a need for us to continue to maintain the competitive portfolio, and we're able to transfer a lot of that knowledge and human capital into our regulated side to continue with that massive transition going on with our regulated companies. What's left in the portfolio? Our portfolio is built around the customer. I think you'll hear that consistent message throughout our presentation today.
We have a retail company, AEP Energy, a distributed technology company, AEP OnSite Partners, and the company that kinda optimizes the whole portfolio in the wholesale markets is our, actually, our original competitive business, AEP Energy Partners, that was started back in 2007, and they optimize the whole portfolio in the wholesale marketplace. These businesses infuse into AEP, not only the competitive side of the business, but throughout the organization, a customer-centric commercial mindset, and a set of progressive capabilities that are difficult to engender quickly within regulated utilities. Let's go to the retail business. You guys have heard about this one before. Why'd we get into retail? I think Julie did a good job introducing why we got into retail. I'll just say, look, this is our customer expert within the platform.
We gotta earn our customers every day, and we got to delight them to make sure they hang around to continue to build our business. That same customer focus has allowed us to build the company to 650,000 customers who consume roughly 24 terawatt hours of annual electric load and 10 MCF of annual natural gas load. Every business has its time and season, and it's time for us to review whether this business is we need to keep it in the portfolio or not. We commit to you that we will conduct that strategic review over the coming months and keep you in the loop on what the ultimate outcome is. Our next business is our distributed technology business.
I talked a little bit about how, you know, the first two businesses were started, or the retail business was started by legislative action. This one was started by customers asking us about behind-the-meter generation solution sets. Oftentimes, it got asked about customer savings. What customer doesn't wanna know about saving costs? The resiliency plays that they were asking us about. Some wanted to move towards sustainability goals, and some wanted to just darn all of the energy independence or localized generations they had control over. We've allocated modest capital to the business over the years. That modest capital has built us 98 projects with 91 customers and just over 300 MW of capacity. We've invested in a diversity of technologies, solar plus storage, fuel cells, reciprocating engines, standalone batteries, even substations.
A full diverse set of technologies that are underpinned by a portfolio of customer contracts that have on average about 18 years left on them. It's a very stable sort of earnings profile for us. They've become our technology expert within the platform. We've been able to hone engineering and system design skills in these technologies. We've learned how to construct these projects, operate and maintain them, and manage their asset over their lifetimes. At this point, we believe the distributed energy resource market is still an emerging market. In order to stay sharp and be able to transfer that knowledge into the broader AEP, we feel like we should stay in that business for now.
Last of all, the original competitive business was AEP Energy Partners, which was started way back in 1999 by the former governor of Texas, George W. Bush. You might recall him. He signed Senate Bill 7 into law in 1999. We sold our customers down in Texas at the time, disposed of most of our generation assets, but we still had a coal plant and two cogeneration plants, a couple of wind farms, and a portfolio of muni and co-op wholesale customers that we had to deal with. Finally separated those businesses from our wires business in 2007.
Three main primary responsibilities of this business over that time is to continue to originate customer business, bring value to the shareholders of AEP, manage the output from the generation assets that have been transferred over time within this competitive business platform, and we've seen it start with Texas, go to Ohio, come up with contract renewables, and have the distributed generation platform. They've managed that output throughout all those phases of our growth. Last of all is to optimize the whole set of opportunity within the competitive business platform. Take the long positions from our generation output, from the PPAs we've entered into, and the market purchases we've made, and match them up with our short positions created by our wholesale sales and our retail customer loads. They are a risk appetite expert within the platform.
We run a very well-controlled environment with a tight risk policy. We're not out there swinging size. We have small position limits. We run mostly a hedged book, and that creates a very small variance at risk. Rarely gets above, you know, $600,000-$700,000. We only operate in the markets that we know. We're not trying to be, you know, tackle all markets throughout the U.S. We only operate in PJM, SPP, MISO, and ERCOT. We do have legacy positions within this business. Julie talked about the 600 MWs from Cardinal. We have legacy positions down in ERCOT and PJM. As of this point, and we need to continue to optimize the distributed generation portfolio, so we're gonna stay in this business for now as well.
In conclusion, hopefully you've gotten a feel that, you know, AEP's competitive businesses have served us well over the years. Beyond just the earnings they've created, which have been significant over that 15-year period, they've infused intellectual capital into the DNA of AEP that can be felt on both sides of the house. It's engendered expertise and built muscle in renewables and distributed energy resources. It's delivered a customer focus that we wouldn't be able to have otherwise, and a set of risk management capabilities that we've been able to engender throughout the portfolio. That being said, as Julie mentioned, we remain committed to actively managing this portfolio in order to de-risk, simplify, and rotate capital into predictable regulated investments along the way.
With that, I'm gonna send it over to Antonio, who's gonna talk about that deep reservoir of regulated renewables and transmission and distribution investments here to come. Thank you.
Well, thank you, Greg, and good afternoon, everybody. It's great to be here with you today. We are no doubt in a period of great transformation in our industry, and you've heard a bit about that today. But it also means we're in a great period of growth and opportunity here on the capital investment side as well. As we look out over the next five years, we're gonna invest $35 billion or 90% of our capital plan in electric transmission, electric distribution, and regulated renewables. All of these investments are gonna be geared toward transforming our infrastructure to better serve our customers, de-risking our asset base, and putting us on that path to achieve our enhanced carbon reduction goals that Nick had talked about earlier.
Our capital plan is strategically designed to maximize flexibility, and it's gonna allow us the ability to shift investment around among these segments as and if needed. This optionality really at a large scale, the scale in which we can do that, is really kind of makes AEP unique and provides great value to investors because it really enhances our ability to continue to deliver on that strong track record of EPS growth well into the future. We're also working to grow our investment pipelines beyond our planning horizon so we can introduce even more flexibility and optionality into our capital plan going forward. You've heard quite a bit about electric transmission from both Nick and Julie. You know, for AEP, it all starts with transmission.
We are the leader in the transmission space in North America. We develop, own, operate, and maintain the largest transmission system in the country. We have over 40,000 line miles of transmission, over 2,200 substations, and a net transmission plant balance of approximately $26 billion across the 13 states that we own and operate this infrastructure in. We also have a very low cost structure, which you can see here, on the bottom left-hand side of this graph. We're gonna continue to use our scale and our buying power to drive down our unit costs, for the benefit of our customers, in this growth area. Our system is critical. It's critical not only to serving our customers directly, but it's critical to moving bulk power across the entire Eastern Interconnection, and ERCOT.
As you can see from the map here, we are uniquely situated in four different RTO/ISOs and across multiple market seams. On average, we own a little more than 20% of the transmission systems in PJM, SPP, and ERCOT. These three regions combined serve about 1/3 of the total U.S. population. If you think about the size of our system, it's not only large in scale, but it's also very critical insofar as delivering power across the eastern half of the United States. The investments that we make in the transmission space, those are among the highest value investments that we make on behalf of our customers. They serve to increase reliability, resiliency, and grid security.
They're gonna drive down costs through the reduction of congestion and the facilitation of economic dispatch generation in the markets that we serve. They're gonna decrease emissions. We have over 20 GW of renewables interconnected to our transmission system on a direct basis today. We expect that to increase here in the future. These investments are really gonna serve as the linchpin as Nick mentioned as we transition to a clean energy economy over time. Transmission's role in decarbonization sometimes is overlooked and it can't be overstated here. We believe that we are in the best position in the industry to enable this transition. If you're long the transition to the clean energy economy, you should be long electric transmission as well.
Our investments in this segment also support our important economic growth and development in our regions as well. We're seeing this in areas like Central Ohio, where we're seeing multi-gigawatt load growth in that area. That doesn't happen without the development of the transmission system, which we've been working hard to do over the last few years. It doesn't happen without that system being there. It also doesn't happen without the confidence in AEP to continue to develop that system to accommodate the follow-on load growth that is sure to happen in that area. Raj will talk a bit about that in the future.
Finally, we are leaders on the federal regulatory and policy front, and we're gonna continue to partner with our regulators and other key stakeholders, to drive to the right outcomes for the grid and the customers in which we serve. Looking ahead, as Julie mentioned, we have a significant need for transmission investment in our system over both the near term and the long term. We have $15 billion in our five-year capital plan and over $35 billion of identified needs on our system over the next ten years. Asset replacement, local reliability investments, those are the key drivers of our investments in transmission.
Approximately one-quarter of our system, so over 10,000 of our line miles, nearly 400 of our transformers, and over 1,100 of our circuit breakers are already past or will be past their useful lives over the next 10 years. Putting that into dollars and cents for you all. The original competitive business was AEP Energy Partners, which was started way back in 1999 by the former Governor of Texas, George W. Bush. You might recall him. He signed Senate Bill 7 into law in 1999. We sold our customers down in Texas at the time, disposed of most of our generation assets, but that would require approximately $2.7 billion of annual capital investment just to replace those assets that will be beyond their useful lives over the next decade.
Now, of course, we don't just replace assets because they're beyond their useful lives. We carefully plan the system on three key planning criteria when it comes to asset replacement. We look at the system condition, so we look at the condition of the assets. We look at the performance of the assets, and we look at the risk of leaving assets beyond their useful lives on our system, and we make good planning judgment and investment decisions based on those criteria in the asset replacement space. But I tell you this because what this does do is it gives you a very good idea of the level of system investments that are merely required to keep our systems just running and reliable.
Our five-year capital investment plan does not include speculative investment, so we do not have RTO-driven investment opportunities that haven't already been awarded to us. We don't include customer interconnections in that five-year plan that aren't known and measurable. We don't include inter-regional projects that aren't already in the fold. We don't include competitive transmission opportunities that we're pursuing in that bucket of investment. Those types of opportunities do regularly come our way, but we treat them as upside to our pipeline of opportunities, and we fit those in as they come along. For example, over the last 10 years, on average, we've been awarded around $400 million each year in RTO-mandated projects.
That's something, you know, again, it's an example of something that comes our way regularly that we work to fit into our existing plan and move things around to accommodate those. The bottom line here is that we have a very large and diverse pipeline of opportunities. Our energy delivery team is working 1,000+ projects at any given time, so we have a lot of singles and doubles in the portfolio. We don't rely on large single projects or large block portfolio approvals from the RTOs to fuel our growth. We have the organic investment opportunity to grow long into the future, and that provides a great deal of certainty and controllability within our portfolio there today.
Given all of the investment that we under our 2019 settlements that you see here on the screen, we are well within the range of reasonableness for our base rates there today. Over 90% of our transmission capital is tracked at the state level. This is really important, and it's key to efficient cost recovery and supportive credit metrics, and it's really what ultimately allows us to keep relationship between, you know, our federal rates and our state rates, and those two things need to work together to make it all efficient and work accordingly. In summary here, as we leave the transmission section, we are the premier transmission company in the U.S. We own and operate the largest transmission system in the country, and we're a low-cost provider.
Our system is geographically diverse, and it's critical to the reliable electric service and functioning markets across the eastern half of the United States. We have double-digit CapEx growth, like Julie highlighted earlier in the presentation, and we have a demonstrated ability to execute at a very large scale in our portfolio year in and year out. We also have a sustainable and highly diverse pipeline, like I talked about, and we have a commission that recognizes and supports the value of transmission investments through constructive regulatory frameworks. All of that emphasizes and supports the case for a premium valuation in our transmission businesses relative to where we are today. Turning our focus to distribution, and you'll see some analogs here with our transmission system.
Like our transmission system here in distribution, we have a very expansive and geographically diverse distribution system that's gonna require significant investments over the next 10 years and beyond. We develop, own, operate, and maintain one of the largest distribution systems in the country. That system serves about 5.5 million customers and consists of approximately 214,000 line miles and 2,300 stations. In 2021, we delivered over 77 million MWh to our customers via the system. To put the size of this system into perspective for you could take our distribution system, and you can wind it around the circumference of the Earth over 8.5 times. That's how large that system is.
When you put it into that context, it's actually pretty impressive. As you can see here from the graphic on the bottom left, our two largest state jurisdictions, Texas and Ohio, those account for nearly half of the line miles in our system today. When it comes to our distribution investment, we see opportunity not only in the baseline investments that are gonna be required to keep our systems running and reliable, but we also see upside driven by electrification and changing customer preferences as well. Next slide, please. Thank you. Our five-year distribution investment plan currently sits at $10.8 billion. Reliability and system expansion, those are the primary drivers for our needs.
Over one-quarter of our system in distribution, similar to transmission, over one-quarter of our system here in distribution, or over 60,000 of our line miles, over 2,000 of our station transformers, and over 600,000 of our line transformers, those are already past or will be past their useful lives over the next 10 years. Again, boiling that down into dollars and cents for you there, it would require about $2.1 billion of annual investment just to replace that infrastructure that's beyond its useful life. Of course, we plan the system in distribution similar to transmission, evaluating condition, performance, and risk of those assets. When we think about the long term, when we think beyond asset replacement, we see potential upside as we work to modernize the system.
Today, we're working to build out a long-term distribution investment pipeline, and this is gonna be important as we modernize the system and onboard things like electric vehicles and distributed generation resources, and energy storage, as well. If you think about the system, the distribution system and how it was originally designed, it was originally designed to flow power one way, so from a source to a sink. In the future, we're gonna potentially ask that system to behave a bit differently. We're gonna need that system to be smart. We're gonna need it to have a high degree of situational awareness, and visibility into the things on that system.
We're gonna need the ability to reach into the system and have a broader degree of control, over items on that system. We're gonna need ultimately a system that's gonna be able to handle two-way power flows, and be highly efficient, and optimize customer usage here in the future. We're really excited about both the near term and the long-term investments, in the distribution segment that we have, before us today. Finally, we'll talk a bit about our renewable acquisition strategy. We're moving forward at a very fast pace on that front. Despite some of the challenges that do exist in the market today, we're on track to advance our plans to invest more than $8 billion in this segment over the next five years.
Nick mentioned at the beginning of the presentation, over the past nine months, we filed six integrated resource plans in our vertically integrated states. These integrated resource plans are important because they serve as the blueprint for which we'll develop and acquire new generation resources in the future. They really help serve to pave the way for our required regulatory approvals for these assets as well. We have a very large opportunity on this front in front of us. As you can see, we've got 17 GW of potential across different resource types, across our vertically integrated utilities here over the next 10 years. Remember that this is need-based. We do have a capacity need that's driving this.
We have 8 GW of planned plant retirements and expiring PPAs, and of course, a renewable portfolio standard in Virginia. Those are the things that are driving the needs for us in this segment. We continue to make excellent progress here to achieve our goals of investing $8.6 billion in capital here in this space over the next five years. We recently received approval for $850 million of owned wind and solar investment at APCO. We received that approval back in July. We're in process of moving those projects forward. We filed for $2.2 billion of investment for owned wind and solar at Southwestern Electric Power Company.
We made that filing a couple of months back, and we expect to file for approvals for additional resources at PSO, I&M, and APCO Round Two here over the coming months. We expect to have a substantial portion of that $8.6 billion that's in our plan today, either approved or in front of our regulators for approval over this quarter and the next quarter as well. We're on track. We're moving at a scale that's gonna position AEP as a leader here in the regulated renewable space. Of course, all of this works to support our goal, our enhanced climate goals that Nick talked about earlier, the 80% reduction by 2030 and net zero by 2045. Finally, I'll conclude with a little bit more on the Inflation Reduction Act.
This bill is foundational to our clean energy investment strategy, and the tax credits contained in this bill, those provide clear benefits for both our customers and our investors as well. We believe customers are gonna benefit because the credits have substantial value, and they're gonna serve to drive down the cost of energy for these tax-qualified projects. To put that in perspective for you, our North Central wind investments that we just put into service, those cost customers $2 billion. At the same time, they generate or are expected to generate over $1.5 billion of production tax credits over that 10-year PTC period. When you take that into account, that represents a significant discount for these resources for our customers, and we're gonna continue to aggressively pursue those opportunities.
We expect the nuclear production tax credit to have a meaningful and positive outcome associated with our Cook Nuclear facility. Those tax credits will benefit our customers in both Indiana and Michigan. We expect the new energy storage tax credit to accelerate the runway for adoption for those resources going forward. We're very excited about that. We don't have a whole lot of energy storage in our current integrated resource plans today. We think that this legislation has the ability to change that and really, truly benefit our customers by accelerating the runway for adoption here in that space. Finally, on the customer side of the ledger, we think customers are gonna benefit from the tech neutral aspect of these tax credits. That's gonna really open the door to evaluate new technologies and really spur innovation in that space going forward to benefit our customers.
We also think investors are going to benefit as well in a few key ways. One is it's gonna extend the runway for us to make investments in this space. We're gonna have a far longer period to invest in these tax-qualified resources. It also, you know, the legislation also advantages utility ownership because the bill now allows us to bypass onerous tax normalization rules that in the past have put the industry at a bit of a disadvantage. We're very excited about that. The bill also allows us to transfer tax credits. If we were ever in a situation that we couldn't utilize all these tax credits, we can now transfer them, which serves to limit any potential tax inefficiencies that we may or may not have.
Also there are bonus credits associated with locating facilities in energy communities and at brownfield sites. Given our service territory characteristics, we feel like we have some solid options there. Again, strong benefits on the customer side, strong benefits on the investor and utility-owned side of things as well. You know, of course, the payoff here, as Julie mentioned, is the book minimum tax. Of course, that's gonna naturally offset some of the benefits that our customers will receive on the credit side. Just goes to show that there's never really a free lun ch anywhere.
Bottom line here is that our this legislation fits very well with our clean energy strategy going forward and provides us a pretty big tailwind on both the investment side and insofar as achieving our climate goals as well. We're very excited about where we're situated and the path that we're headed down on the capital investment front. With that, I will turn things over to Matt Satterwhite to talk about some of our key regulatory initiatives. Thank you.
Thank you, Antonio. I'm Matt Satterwhite, the Head of Regulatory. Yes, we finally get to the part you all come for to talk about regulatory strategy. I know everyone's really excited about that. It is funny, though.
You know, it never ceases to amaze me how exciting it is when you hear like Antonio talk about all the opportunity that we have. There's so much opportunity in this company, but we gotta go execute on it. We gotta make sure we can recover that and go in front of our regulators and get that done. That's really the key to how we put things into action and execute for all of you and for our customers. I wanna take a second to sort of talk about our regulatory strategy overall. We're a firm believer in moving more things to the regulated side, and that's because we rely on the regulatory compact. The regulatory compact is we provide safe, reliable service. In exchange for that, we get the opportunity to earn a fair return. That's vital to everything we do.
There's two sides to that. Obviously, we have our responsibility to go out and provide safe, reliable service, but there's the expectation that when we do that, we make good decisions like what we've shown today, we're gonna have the opportunity to earn that return. A lot of what we do in our regulatory strategy is talking to our commissions, talking to our legislators, talking to everyone in our states to make sure that compact is upheld and both sides are upheld. We're gonna uphold our part. We need the other side to uphold their part as well. That's what we're really focused on. Julie, you know, Nick has really pressed this. Julie came from regulatory, so she's got the regulatory flowing through her blood as well. She wants us to really push this as well.
It's that premise that all public utilities are based upon that you have to keep in focus, and AEP really does. With that, let me talk about the strong foundation that we have. Obviously, we've done a lot of work already to be able to meet the challenge that we have now with the transition in the industry. We've moved significantly to tracking. Julie covered this earlier, you know, from 68%- 85% tracking mechanisms. We're not done yet. There's more to come. When we talk about closing the gap of ROE and authorized versus earned. This is what I get for moving away from the podium here. It's tough for me to be constrained back here. I'll do better. Sorry. We're not done.
We're gonna move towards more tracking mechanisms as we move forward in the cases that we have coming up. It's really important, again, to uphold that regulatory compact to make sure we have that mechanism, we know we can do that investment, and we can bring those benefits to customers. We're gonna be doing that. We've been doing the work all along. We've been able to lower the basis points that we have associated with moving towards the tracking that we've done from 2018 to 2022 going forward. We really believe in kind of reducing that regulatory lag, having those mechanisms that really decrease that and allow us to focus on the execution to bring those benefits for both customers and investors. Let's go to the next slide.
This is really to show, and you've heard it from most of our speakers today, we're focused on our customers. We understand that you can't just go out with all these great ideas and do whatever you wanna do. Part of that compact is making sure you have the customer in mind with what you're doing, 'cause that's who we're here to serve, and that's who we're delivering. I just wanted to make sure we kept, you know, showed everyone the focus that we have, and we're in line in our states with where the other companies are. We watch this as we make decisions. We try to make sure we're in line with where the other utilities are. Now, this is a 2021 view. It fluctuates throughout the year. Sometimes you have people in rate cases and different riders that come at different times.
It's something that we put in the back of what we're looking at constantly to make sure we're focused on customers and make sure we're in line with all of the peers that we have in our states. I couldn't come here, obviously, and not talk to you about the increasing fuel costs that we have, and that's a big issue that we've talked a lot about when we come and talk in investor conferences and one-on-one with everyone. I won't go into all the details here, but I want to include some facts on that and show you how we are being proactive, working with our regulators, as I've told you in the past, trying to put mechanisms in place so we can help our customers and decrease the impact that we're having right now.
Real quick up here, there's a couple of examples. Virginia and PSO, they have an annual fuel clause they recover. We're actually able to spread those out a little bit longer, working with our customers and our commissions to make sure we recover that over a longer period of time to help customers. In West Virginia, they're actually in hearing right now as we speak on their fuel clause. There's been some creative mechanisms brought up there and talked about. We even talked about moving to a quarterly update of the fuel, 'cause a lot of the problem is you wait so long, hit customers all at once, it just kind of builds up. Does that make sense? We've also talked about securitization as a possibility. There's been discussions in West Virginia. We've done that in the past. The balance has grown.
We'll see if that makes sense or not for customers, the company as we move forward to decrease the impact of that. An interesting one I want to talk about is Arkansas. This is where we got proactive and really tried to time things up properly. We had an under recovery in Arkansas that we had to put forward. Arkansas has seasonal rates. They are summer peaking, so rates are higher in the summertime and lower in the wintertime. What we were able to do is work with the staff and file something that allowed us to implement the under recovery of the fuel at a time period when the rates were going down for the winter period. Customers won't see as much of a shock when they see a difference between the two rates.
It'll be more in line with what they were paying before. Now they would have been, you know, winter rates were dropping at that time, so we can kind of fit them in at that same period, and it won't be such a difference between what they saw in the summer months before. Those are the kind of things we sit and we talk to staff. In the past, I've talked to you about how we work with commissions and work with staff all the time. We don't want anyone surprised by this stuff. We don't want any customers surprised by this.
You know, Raja and I, we talk a lot about with our big customers, how we warn them ahead of time, what's coming, what to expect, 'cause, you know, the larger companies, you know, they have people that have the spreadsheets, have their budgets, they're putting those out there. We want to make sure that we're communicating with all of our customers and make sure they know that. We do a lot of work in this area to make sure customers know, and are aware. Let's go on the next slide. I finally get to talk about stuff we're doing in the future. Usually, when I'm talking to you, I'm kind of constrained and can never share some of our plans, and new things that we're doing.
There's a huge focus on closing the gap between our earned and authorized ROE. You saw earlier, we talked about the different mechanisms that we have, but we're really focused in a couple of the key states we put on this slide because all of you ask about these all the time. It's not just limited to these states. It's something we look at in all of our states all the time. Just to talk about a couple of these, you know, APCO is a place where you look at the regulatory compact and you want to be proactive and push things forward. Part of it is also defending yourself at certain times when the regulatory compact isn't upheld on the other side. A lot of you know about the triennial case a couple of years ago.
The commission came out with a decision in that case. We did not agree with that decision, and we thought it really did not follow the statute. We actually appealed that case the day after we got the order because we were so confident that this didn't apply the statute properly. It's a hard decision to go appeal. Obviously, you want to be a partner with your commission, but we also need them to be a partner with us, and we're not supposed to make each other happy all the time. There is some tension from time to time. We had to do this because we knew they weren't applying the regulatory compact properly. Happy to say recently, the Supreme Court ruled in our favor and said the commission did not apply the statute properly.
The Virginia Commission, to its credit, acted quickly, authorized us to put in interim rates. Interim rates were actually implemented on October first, and they're kind of looking at the final rates right now to see what the outcome of that is going to be. They also allowed us because when we appealed it, we also asked if we could have sort of a surcharge in the middle pending the resolution of the case. We were told no, but we preserved our rights, and the commission's also allowed us to go back to February of 2021 to collect the rates that we should have had in place if the commission had applied the statute, as the Supreme Court said. That's just an example of you got to constantly be vigilant.
You have to have those tough conversations sometimes and take those actions with your regulator to make sure you're defending yourself. APCO is seeing that benefit come in to work on that closing the gap. They also have their new triennial coming up that will be filing next year. At this point, they're trending to being eligible for a rate change as well in that case. We'll see what happens when we file that next year and where things turn out. For PSO, Peggy's here. She's not. She could probably talk about PSO if she's like, "No, Matt, you talk about it." PSO, you know, the focus there really is on what I talked about earlier, those tracking mechanisms.
They have a lot of transmission and a lot of distribution that we need to make sure we're tracking to really kind of solve that, lag problem. We've really looked at all the operating companies to see what are the big things causing that lag, and that's what's really happening in the PSO territory. That's a conversation we'll have with the commissions. We'll put that in the case. There's a couple different theories they could put in the case. Ultimately, we have to, you know, tell the commissions we have to solve this problem for regulatory lag, or we have to come back in and file a rate case every year. We don't want to do that. If we have to make sure we're upholding the regulatory compact and having the commission uphold their end, we're prepared to do that.
That's part of the policy conversations we have just to kind of show the facts the way that they are and really make sure we're increasing those abilities for those mechanisms where they make sense. There is sort of an overall drive with an AEP right now to make sure we're focused on that distribution investment. We talk a lot about transmission. Did you hear? Transmission is a great thing at AEP. That might have come up today. We're not leaving behind the distribution. It's vital. It's what touches our customers directly, comes up to their doorstep, right to their house, and we want to make sure that we're investing in that. It's interesting, you know, some of Julie's appointments for her new leadership with Peggy and Chris, they're operating company presidents, and they've been right close to the customer.
It'll be interesting how the conversations change. We have a good mixture, I think, of former ex-presidents and people that weren't in those roles, so we can have that healthy tension among ourselves and make sure we're helping our customers and are very focused on it. I look forward to those conversations that we're going to have, and Julie really facilitates that. Let's make sure we're putting everything out and debating these things out. We're really trying to move forward and make sure that we're investing as much in distribution and helping the customers, but getting the proper recovery for that. I'll skip SWEPCO for a minute because I finally have a victory lap from the things I've told you about in so many other meetings, and I want to finish with that one.
On AEP Texas, you know, we're really working, and they'll be developing a rate case here soon. One of the drags we have on ROE there is when you file a rate case, you can't file your T&D costs and your DCRF in that same period. We're talking, you know, to the commission, potentially legislature, about how we can fix that. Looking at rate design, some creative rate design with Judith and the team there about what we can do to kind of help customers in those areas. We're really focused on Texas. Then the other things, you know, we've looked at how they do incentive compensation, and the other things that sort of drag in cases that are disallowed.
We're gonna go to the commission and sort of talk with a new focus on these things to make sure that it's understood, you need the utility to be competitive and strong so it can deliver all these benefits, and we're gonna do that with them. Finally, SWEPCO, we get a lot of questions on SWEPCO. Obviously, we've moved forward with some formula rates in Arkansas that are approved. We're almost finished up with the Louisiana-based case as a formula rate as well. I'm happy to report that last week we made the initial filing on the putting Turk into rates in Arkansas. As many of you know or those that don't, previously, the Arkansas Commission had approved the Turk plan to be in rates, but it went up to the Supreme Court, was appealed on a technicality, stricken.
That was about which statute they relied upon, and so we weren't able to put that in rates. That's been a bit of a drag on the ROE for a while. In fact, Nick told me, "Look, I'm tired of talking about the bubble chart and saying, 'Everyone knows about the FERC part of that, so solve this problem.'" We got really proactive and decided, let's go out and put this, at this time, in front of the Arkansas Commission, and it makes a lot of sense. It's a nice hedge for the commission. During Uri, it was very productive and operated there. It gives the Arkansas Commission a chance to really have that benefit for customers for something that they had already approved.
We filed a motion for confidential treatment, and we'll be filing the final documents probably here in about 30 days to really put that in rates and move forward. There is a capacity need in Arkansas, and part of it can be filled with this. That's one of those you've all asked in the past, "When are you gonna do that?" It's done. It's filed right now. We'll get the other filing in, and I'm sure we'll talk about that a lot as we talk about things in the future. You can go to the next slide. Another exciting thing that we're doing right now is really focused on our generation. We have states that have multi-state generation as part of their portfolio as they move forward. Generation at commissions and states has changed over time.
States, it's much more of a personal thing now as each state looks at what their generation load is. SWEPCO and APCO, you know, the two of the ones we're really focused on, there's just different policies that are focused on between the states. Everyone's well aware of the differences between Virginia and West Virginia and where they're focused, and we can't have customers or shareholders or the company caught in the middle of that. We're really taking a much deeper dive to make sure we understand how we can react and then be proactive in bringing solutions when you have states that are going in different ways.
We're really stripping that down, making sure we can move forward and go to our commissions and really, you know, work with them, find out where they want to be, because we want to work with our states and make sure we're implementing their energy policy. We also want to fit the values of AEP and make sure we're going to a better place for our customers. In SWEPCO, you know, that's three states, and they share generation. We have to look at what we've done in the past and the legacy assets that we have, and if there's different retirement dates or, you know, commissions want to treat things differently, what we do with that. There's also a much larger renewable input out there in our western jurisdiction.
With those three states, we want to make sure we're learning from the past and making sure that that's much more modular and much more flexible as we maybe need to break things up potentially so that each state can kind of stand on its own. We're working with Antonio's group and everyone all the time to say, "What are we doing as we move forward with these things so that we can really understand what options that we have?" We don't want to sit back and just wait for states to say, "Here's where we are." AEP doesn't do that. We want to be leaders and really show here's where we're going and bring solutions to, once they tell us the policy that they have, how we can solve the problem so it's mutually beneficial for everyone. We'll be talking about this over time.
We're really taking a real deep dive into that so we can understand that. Meet the regulator in the state where they are, and then also meet our investors and our customers where they are as well to make sure we have that true benefit for our customers. Overall, we're staged, and we're ready for the transition that's coming. The industry is changing. There's new commissioners coming in all the time, and they really need leadership from companies like AEP on the regulatory side to come in and explain things and then say, "Here's how we can get this done," and make sure that regulatory compact is upheld and that we have the opportunity for that fair return. Otherwise, the whole system breaks down. We're dedicated to do that. We have the success in place already.
We continue to make new filings, but we're not going to rest on our laurels. We're going to keep pushing. Julie's constantly saying, "What's next?" Really, it's about calling the question. We're not going to sit back and wait to see what happens. We're going to call the question because either it's going to be answer A or answer B, and we're going to be ready for what we're going to do with the next step based on whatever the answer is going to be because you can't sit back. You've got to actively manage this to make sure we can succeed all the things that Antonio and everyone has talked about. Sorry, that's all I can talk about right now on the regulatory stuff. I know everyone's pretty bummed. You want to probably talk regulatory for a while, but yeah.
We can get a beer afterwards on the street, talk all the regulatory you want. I keep inviting Matt, and no one shows up, so I don't know. Raja's gonna come up next and talk about what we're doing, on the affordability side and what we can really do to try to help our customers, which is why we do what we do. Raja.
You know you can always count on Matt to make regulatory fun, so that's guaranteed. I'm looking at my watch, it's 3:15 P.M., and Julie talks about active management, so it behooves me to actively manage the time now going forward. What I will do is kind of talk about a couple things. One is, can you go to next slide? Oh, yeah. I'm gonna talk about affordability. I know we talked about in order to make $40 billion of investment that Julie talked about, affordability becomes the key paradigm to make sure that our customers not only derive the benefits, but also pay for the cost, you know, pay for the cost that they incur. The first piece of affordability is a relentless focus on O&M.
I know Julie talked about it in another slide you know, how we intend to focus on O&M. The second piece is the investment in regulated renewables. With the plan that we have for investment in regulated renewables has already provided benefits. In fact, the North Central Energy Facilities that we put in place already provided lasting for PSO and SWEPCO, provided fuel savings of $150 million last year. Our deferred fuel problem that we had, that Matt talked about would have been $150 million higher for PSO and similar for SWEPCO, if not for the North Central Energy Facilities investment.
The future investment that Antonio talked about with respect to regulated renewables will provide the fuel hedge and stability of rates going forward. The third piece, which I think Antonio and Nick and Julie talked about, was the economic development piece. This one, we do have a fantastic story, and we'll talk about that a little bit more in detail in terms of how the economic development team has made significant progress in terms of getting projects and even the forward-looking projects that we have in the pipeline. I'll talk about that a little bit in the next slides. The last one is we are in this unprecedented stage where there is multiple legislation that have passed at the federal level.
You have the BIL, the Bipartisan Infrastructure Law, you have the IRA and the IIJA. Those have significant components of federal grant activity that as utilities we intend to tap into. For example, just the broadband element of it, which is the $1 billion of middle mile broadband, we submitted proposals last week for around $300 million of middle mile projects to NTIA. Okay. Similarly, all of these are comparative proposals. That means part of this is funded by federal grants. The remaining would be funded by ratepayers. It obviously behooves the state regulators to approve these investments if you're successful in getting the federal grants, because part of it is already funded by the federal government. And those are not included in the CapEx plan, by the way. The second element is the grid resiliency ones.
DOE is putting proposals in late this year and early next year for close to $2.5 billion of grid resiliency projects. We intend to be active in this space to make sure that our customers derive benefits not only from these investment, but also from the federal grants that the federal legislators passed on this front. These are all, again, comparatively big projects, so we intend to be active in this space. In fact, our regulators ask us in terms of what we are doing to make sure that we are getting these federal grants on behalf of our customers. That's a key element of it. Can you go next slide? Let me talk about economic development.
I think it's, you know, the economic development team has been with AEP for last multiples of years. In fact, we actually made that a central organization to make sure that we are indifferent of where the new load growth goes within our footprint. As long as they land in our footprint, that is our main purpose. In terms of the nature of economic development activities, the key reason why we see significant amount of investments in economic development is one, access to transmission, and I will talk about that a little bit more. The second is access to renewables. When we look at the load growth that we have seen over in 2020 and 2024.
2021 and 2022, the data center load growth, which I think Julie talked about, we already have load already in place of 400 MW, committed load of 1.5 GW and potential planned load of 4 GW within our footprint. Okay. The second one is chemical manufacturing. That's 3,200 direct jobs that's already committed in our footprint. Primary metals, which is, Nucor is one example of it. It's 400 MW with 1,400 direct jobs. The last one is machinery and manufacturing, which is 400 MW with 3,200 direct jobs.
In totality, for the last two years of economic development, which has been unprecedented in our AEP's footprint, we basically are seeing 22,000 direct jobs and 2,500 MW of load in our pipeline. As Julie mentioned, we are not just focusing on load, but we are focusing on jobs in our footprint because they provide long, sustainable uplift to our communities and for them to participate. If you go to the next slide. I know, you know, Nick talked about what we call reshoring, onshoring these opportunities, and we see this trend as something that is real.
It started off with not just with the CHIPS Act that was passed by federal government, with IRA, which promotes domestic manufacturing, not only domestic manufacturing, but also promotes domestic manufacturing in our not so well-to-do areas. That provides a meaningful ability for AEP to attract this load. We've seen the initial indications of it. One would be the Intel project in Central Ohio. That is probably the single largest economic development activity that we've seen on our footprint. The first phase is gonna be $20 billion of 3,000 jobs of an average income of $135,000. That's meaningful for AEP's footprint. We know our customers are not coming from the East Coast and West Coast. Our average income typically is around $45,000-$50,000.
Getting jobs of $100,000 is significant for our footprint. The second one, obviously, is the Blue Star NBR, which is actually a PPE manufacturer in Southwest Virginia. Where we'll be able to attract 2,400 new jobs with $800 million of investment. The last one is Nucor, which is in APCO, which is $2.4 billion investment with 800 jobs, with an average payroll of $80,000, and that's in West Virginia. In summary, what I will say is the changes that we are seeing in the activity that we've seen in 2021 and 2022 to continue going forward. That basically builds on the load forecast that we have of 1.7% load growth as opposed to -0.5% load growth that we saw that we see between 2015 to 2020, as opposed to that, we are now projecting a 1.7% load growth between 2015 2020 and 2025 going forward.
All of this is happening because of access to transmission, which is the single largest determination or determining factor, and B, renewable growth that we can provide access to renewables for companies that wanna go greener and faster. With that, hopefully I managed my time, and I'll turn it over to Julie.
All right. Thanks, everyone. We want to get to your questions here. Just before we do, I wanna say thank you. I hope that you're as excited about being a part of this industry as I am at this incredible time of transformation. It's mind-blowing, to be perfectly candid. Anyway, just to really quickly recap our commitments to you. 6%-7% earnings growth. Dividends gonna grow in line with that, with a payout ratio target of 60%-70%. Strong balance sheet, committed to it. It all starts there. You gotta have that. Obviously upping our game as it relates to our ESG goals. That continues on. As I mentioned before, you can expect to see this team engage in active management of our portfolio. We are not finished.
Obviously, we came out with a teaser on the retail business today, so stay tuned. We'll report back to you on that as we continue to get a little more traction. Obviously, we gotta close Kentucky. We gotta close the unregulated contract or renewables. We'll get after retail, and we'll continue that effort. Stay tuned for that. Key takeaway is this, in my opinion, AEP has a proven track record, consistent earnings growth. We continue to deliver within or better than our guidance. We offer predictable, attractive relative earnings growth proposition, especially as it relates to, our transition, as we move to a clean energy economy and continue to enhance the, energy delivery infrastructure. Did I mention transmission? I thought I did. I thought it keeps coming to mind.
Look, on a personal note, I know there are folks here in attendance today that helped me so tremendously with my career, and specifically what I'm talking about is, you know, when I started out as a buy-side analyst. I actually did work at the Public Utilities Commission. For some reason, it seems to have found its way into my life and into my blood. I am forever grateful and thankful, and I can assure you, I promise to work to earn your trust and respect every day. Again, thanks to those folks who helped me so much when I was learning to cover this space and got me access to management teams, taught me how to build earnings models and all that stuff, I think that will pay dividends now because I have not forgotten a single thing.
Thank you for that, and I'm looking at certain faces out there. You know who I'm talking to. Thank you, thank you, thank you. We are in this for the long game, and I know several of you probably know I'm a long-distance runner, so I'm gonna ask you to kindly put your shoes on and join us in this race. We might do some speed work in the middle here, so make sure those are comfortable shoes. I promise it's gonna be exciting, and I want you to be a part of it. Thank you for everything, and let's do some Q&As. How about that? We good? All right. Darcy.
Okay. We'd like to welcome you to the Q&A portion of today's presentation. We're gonna be taking questions from in-person attendees only, but we do welcome all questions via e-mail at any time. We're gonna have Annie from our investor relations team right over here walk around, as well as Sarah from our corporate communications team. They're gonna have mics with them to ask questions. Just raise your hand, and they'll come to you. We look at this. We do have a small change with the microphone usage for our team members here. The ones on your lapels aren't working. Matt, you experienced that. It wouldn't be a day without a little bit of technical difficulty. We've got some friends bringing in some mics for us to use.
Julie, you can use that, or there's also a mobile one here. Just have to turn the light, make sure it's on green. They should all be on green, and we're good to go. With that, let's go straight to.
No, but we can use this.
Good to go.
I'm good here. I'll quarterback here. Andy?
Well, since you were so nice to me, I get the first question. Can you hear me?
I can totally hear you.
Okay.
Yeah.
I said since you were so nice to me, I get t from the first question. This is Andy Levi from HITE Hedge . First, I mean, I think Julie's gonna do an amazing job, and actually was very excited, as I think a lot of us were that you became CEO. I think everybody else wish you the best success there. I do have actually a real question for you. You talked about marathons, running, and I guess in my head, can you run a little faster? I guess what I mean by that over time, if you look at your transmission growth, it's 10% a year, which is amazing, but if you kind of look to the 6%-7%, that means the rest of the business is growing below 6%-7%.
I guess the calculation I have is about 4%. How do you get the other part of the business growing faster so the growth rate over time can grow faster?
Now, I appreciate that. You know, Andy and team, we all know that our stated growth rate is 6%-7%. You may recall we upped that back in February 'cause we were at 5%-7%. We lopped the bottom half off. As you mentioned, and I continue to mention, the investment opportunity that we're pursuing right now, easily 10% growth from a transmission perspective. What we need to also be mindful of is I mentioned customer rates need to be real sensitive to that. That's why the renewables play so nicely into this. Although it is lumpy and you can't do that immediately, there's a little bit of a lead time on that.
That's really gonna be more of a story for us as those come to fruition in like 2024, 2025 timeframe and beyond. Keep that in mind. Andy, yeah, I absolutely wanna pick up the pace. That doesn't mean I'm gonna change my growth rate, but it does mean that I can look at more, portfolio management type activities, making sure that we are absolutely where we need to be from a business composition perspective, getting after efficiencies. 'Cause if getting after efficiencies, that allows me to deploy more capital, that allows me to keep the engine going. That velocity of capital is what we are absolutely after. I don't know, Antonio, do you have anything that you'd like to share on your front since you're kind of at the center of all this?
Yeah, no, I think you covered it off pretty well. You know, in addition to balancing customer rates, I mean, we have a market there that we participate in that you know drives our ability to execute on some fronts too. You know, I think you covered it off with the customer rate limitation there.
There we go.
Oh, thank you. Thanks, Julie.
Yeah.
Just anything, any details you could share around the retail businesses, earnings, EBITDA, sort of how should we think about the implications to your pro forma earnings profile? Then I have a follow-up question.
Yeah, you bet. On the slide that we had today relating specifically to the retail business, if you look in the footnote on the, I think it's on the left-hand side. I must have memorized these slides, right? Sixth Sense is embedded in our 2022 guidance for that particular piece of the business. We'll give you more granularity at EEI as it relates to the waterfall for 2023 when we go to the EEI conference. That's something to think about. As it relates to more balance sheet orientation, this is not a capital-intensive business, as you know. It's really about, you know, management of asset and risk liabilities.
If I take those and I put them together and net them against one another, my equity component associated with this business, in particular, is about $170 million. That's the net. The equity component. A lot of that's working capital related. We've got maybe $30 million of that related to systems activities that support our systems investments that support that piece of the business. Stay tuned. This is a little bit of a teaser today. We'll have more to come on that, okay? Did you have a follow-up question?
Just can you opine on sort of the valuation? I think you had a beautiful chart here highlighting the value of the transmission assets where they were actually transacted versus the trading.
Yeah.
Valuation, right? Not just for AEP, but other-
Yeah.
...businesses. Just in that context, how are you thinking about the non-regulated strategic review? The announcement that came over the weekend was more or less 11x EBITDA, and it was kind of in line, too, where yield cos were. Typically, transactions have happened at a higher value. Any thoughts there?
Yeah.
How are you thinking about the interest in market there for your ongoing strategic review, that is?
For sure. Just a quick touch point on transmission, since I can't seem to keep my mouth shut about it. You look at the valuation over here on the right side of the chart. You know, I mentioned the minority sales. Those are going off just ridiculous multiples. We'd love that, but I get it. It doesn't entirely hang that way, but we need to have a goalpost here. That's the 40x there. And then on the flip side, you got the 22.3x multiple for select high growth transmission peers. If you look down at the footnote, we have a couple of those called out in particular. Ameren, ITC, Fortis. You get a sense there.
Then in the middle, those are some statistics that we got, some from some of our investment banking friends on the T&D transactions. That'll give you some goalposts there. Then, of course, I took that 19.8x, or our team did, directly from you sell side folks, right? We put those reports together and used your numbers. That's where we came up with those particular figures. Again, I'll pound the drum. $6-$58 of upside. Just saying. Okay. Just saying. Then, I don't know, Greg, did you wanna talk at all about valuations or thoughts? I know what we don't wanna do is negotiate against ourselves on the unregulated renewable sale. Any thoughts in terms of how robust that process has been?
Well, we have high expectations, but the market will tell us here very soon, so I don't think I can comment on-
Yeah.
...on the valuation level. We saw a good print out of the weekend. Our portfolio is very well accepted within the market, so I'm expecting good things.
Stay tuned.
Hi. I wanna talk about transmission, a little bit, since this seems to be a big focus for you guys. One could argue that, when the minority sales were done, the parent company did not really receive a full uplift in their valuation. When you look at those versions, is this a theoretical kind of exercise for you? You're kind of planning a sale. Do you think that could be different for you? You will actually receive that premium in your entire sum-of-the-parts valuation, or how should we think about, I guess, your thought process here?
Yeah. I totally understand that. The idea was to go through the exercise to just even extrapolate and say, you know, what could this look like? The reality is this is core to our business. We have no interest in necessarily monetizing any of this piece of business. What we do wanna do is a better job for you all to understand what the earnings stream is in particular and where some of these trades have occurred. I know it doesn't entirely hang like that or look like that because it is bundled and it is not as easily, you know, transferable as it relates to, my goodness, this isn't a direct pure play. I would say that is the case for a Transco business 'cause that is a pure play.
I guess it's a little more of a playful mathematical way to try to get your attention and get a better understanding of where that valuation might fall out. Because I do think it is something that gets a little bit overlooked simply because of the way we're structured. We'll continue to try to do a better job for you all 'cause we know you're covering multiple companies and you have multiple earning streams. We will continue to be mindful of that too, as it relates to where those transactions could ultimately shake out, with the understanding that it is part of the AEP family. I get that.
On the competitive business that's under strategic review, right? $0.06 in the footnote that we see is the retail part of it. What about the rest of it in the, I guess, kinda on a more normalized basis, right? I'm just trying to understand how much of that is, I guess, trading business versus asset platform business and renewables, and how much of that is associated with those assets?
I appreciate the question. Let me try to answer it this way. When you look at the guidance for 2022 that we had out there, the generation and marketing segment was, I think, I'm going from memory here, $0.31. Okay? We know $0.06 of that forecast relates to the retail business we talked about today. About $0.13-$0.17 related to the contracted unregulated renewables. You start to strip those two pieces away, and you can do that math. $0.31 less $0.13-$0.17 less the $0.06, that'll give you a better understanding of where the residual piece of the business ultimately shakes out, if that kinda helps. We'll give you more detail too with the 2023 look when we have that available in the waterfall form at EEI, okay? Appreciate the question. Steve.
Great. Thanks. Steve Fleishman at Wolfe Research. Nick, congrats, and Julie, couldn't be happier for you.
Thank you.
Just a question on the asset sales. First of all, on Kentucky, just the $200 million difference, just how are you making that up? I know it's not huge, but.
Yeah. I guess the way I'd characterize that, and Matt's been a lot closer to the transaction too, so I may ask him to jump in a little bit here. As we continue to work through the process, cover some regulatory hurdles, et cetera, and have our conversations and negotiations with Liberty, it seemed appropriate and acceptable to both parties to be able to get comfortable with the $200 million reduction in the price that we had originally posed back in October of 2021 when we came out. That's ultimately where we are. As you know, Steve, we threw that then into our cash flow forecast because I knew that would be top of mind for folks.
'Cause as you may recall, when we initially announced this transaction, we removed about $1.4 billion of equity in the plan for 2022. We've reflected that now in terms of that movement, not only the reduction in the sales price, but the fact that it will close in January 2023 to demonstrate to you that we're still very comfortable with the plan, the metrics hanging together. There's been no incremental equity return to the financing plan. I don't know, Matt or Nick, if you have any other.
Yeah. I would just add, you know, they're our partner. We're gonna run a plant with them through 2028. They're gonna take care of the customers that we've taken care of for 100 years. There were a lot of issues involved that they raised and we talked about. I think it's just a testament to our partnership as we kinda move forward to listen to each other and get to the point where we are now to give people what they need to take this next step, 'cause that's how we do business with our partners.
Yeah.
Okay. Just on the other asset sales that are pending, how should we think about use of proceeds from both of them for kind of debt reduction purposes versus equity replacement purposes? Also, is there any opportunity to improve, like, the business position with the rating agencies? By kind of getting out of these, or you're kind of gonna be in the same place?
Yeah. Let me answer the last question first. In terms of risk profile and business position, I don't anticipate a material shift as it relates to our rating agency views. I'll leave it to them to make that conclusion, but that necessarily wasn't top of mind for us. As I continue to come back to, I'll use Moody's as kind of my guidepost here, Baa2 stable-type rating. It's very comfortable for us, keeps us right in line with our peers, and allows us to continue to use the balance sheet to continue to grow the business. Then thank you, Annie, for throwing that up there, whoever's doing the slides here.
When we look at our equity needs, Steve, as you know, if a dollar comes in the door, it's kind of fungible once it comes in the door. Say that we get the transactions closed in 2023, the equity units conversion, that has to happen. That's already committed, right? That will be a done deal with the mandatory convertibles we had out there. We could conceivably take out the DRIP. We don't need that. But what you can anticipate is, at least in the front end, what I'd probably do is likely not either issue some debt that we had initially thought that we would issue, or issue less or maybe cover off some maturities, but then recalibrate as I go out through the future years that would allow me to then address things in 2024 and beyond.
For example, I would be able to play with my capital structure such that I don't need to issue the equity because I've not issued as much debt or I covered off maturities. We'll revise our cash flow forecast once we get the transaction done from a like an unregulated renewables perspective. 'Cause what we don't want to do is put a dollar amount out there right now anyway, 'cause I'd be negotiating against myself.
Just kind of like, you know, kind of high leveling it though. The other part of that is you lose cash flow from the businesses you're selling.
Yeah.
When you put it all together, you know, like Duke Energy came out and said they're selling renewables, but they're gonna be using the money to pay down debt.
Yep.
It sounds like you're in a position where you don't just have to pay down debt, even losing the cash flow that some of it's offsetting equity.
That's right.
Okay.
You're thinking about it the right way. Absolutely.
Hey, Nick Campanella, Credit Suisse. Thanks for taking the question.
Yeah.
Just as it relates to the 4%, bill inflation that's baked into the plan, just how do we kind of think about the effect of fuel on that 4%? What's kind of reflected there from a commodity environment with the gas forwards and electricity prices and how that can change?
Yeah, you bet. I'll take a whack at it, then we'll probably toss it over to Matt and Raja a little bit to talk about that. As it relates to the 4%, that is a longer term view, okay? On average, doesn't actually go that smoothly, and it varies from operating company to operating company. As it relates specifically to fuel prices, and I'll let Matt talk about the stuff that he kind of just walked through a little bit here a few moments ago in terms of how we're handling what this deferred fuel balance is sitting on the balance sheet, 'cause that will have to come through too.
What we are anticipating as it relates to fuel costs going forward is that over time, if you look at the forward curve, that it does come down over time and starts to even out a little bit. You see a little bit of a blending of the rates. That does incorporate our longer term view of 4% on average. It does incorporate those forward views of fuel. We also do our internal fundamental analysis too, to kind of either validate that or go in a slightly different direction. Matt, did you want to talk a little bit about how we're dealing-
Yeah.
...with the deferred on front end?
Sure. You know, as we do look at the forwards, you know, we've seen gas do this over time, go up and come back down. We're expecting that to go down in the future. It's something, to Julie's point, we're talking to commissions about how we impact customers. The commissions also don't want this to happen, but they understand that fuel is a flow through. You know, back to that regulatory compact. You can't just, you know, take that away from the utilities who are providing that to customers. It's really sort of a mutual problem that the commissions and the companies are working on together. As we do look forward over the future, we're trying to find those ways of finding those sweet spots to decrease the pressure on customers.
Ultimately, the long-term play is exactly what Antonio and Julie have talked about, and that's why we're trying to make that transition. In the interim, it's kind of an all hands on deck to approach that.
Thanks a lot. As it just relates to the organizational chart, I know CFO to be announced. You've had a deep bench for a long time. When can we expect an update on that front?
Yeah, we're working it right now. I hope to be able to have an announcement in the not too distant future. I don't have a specific date yet, but we are well in the throes of completing our interviews with the leadership team and hope to be coming back to you in the not too distant future, 'cause I am doing a little double duty right now. How about that? Yeah.
One thing's for sure.
Thank you.
We can't have, you know, a CEO, CFO, whatever else in the same position.
Thank you.
We gotta get that.
Talk about endurance sports.
Yeah, right.
Yeah.
Right.
Mailroom. She's doing it all.
Yeah.
Hey, one thing on your previous question, though. There's a lot of discussions going on with commissions, and we really need to focus on the partnership of ameliorating the volatility of what's happening in the market. One of the main issues is not just the matter of dealing with the fuel issues, whether it's regulated renewables or so forth, securitization and all those kinds of techniques that are in place to levelize things for customers. The other is on the capital side, deploying technologies that allow customers to understand and get pricing signals so that they can adjust their monthly bill. 'Cause when they do that also helps us on the unrecovered fuel balances. I think you're gonna see a lot of work going on in the industry associated with that kind of activity.
Hey, guys, it's Char. How you doing? Not to paint Greg into a corner here on the commercial sale 'cause I would hate to do that, but I know Greg and in prepared remarks, you were mentioning that you were hoping for the same results as you saw over the weekend. Maybe just elaborate on that point. Was it the multiple you're referring to? Was it the players involved? Obviously you know the assets well that just transacted. Maybe if you can just contrast the two portfolios, especially as we're thinking about the dev cos, and then maybe we can back into a more accurate multiple.
That's a loaded question. Well, I think overall, the view on renewable assets is high right now, and there's enough differences between our portfolios that it's tough to narrow in how they would be treated. You know, the one that traded over the weekend, mostly solar. You had dev and operating. Ours is mostly wind, just operating. So it's tough to draw a direct line in comparison. I would say overall, you know, it looks like we should be expecting a good print, but it's tough to decipher exactly what the Con Ed sale means to us.
Okay. Got it. Just I know Julie mentioned, you know, further asset sales. What's kinda left after retail? Are you referring to what remains on the non-utility side, or could we see further, you see, I guess maybe capitalize on some of these regulated multiples we're seeing, especially if there's a disconnect between what transaction, you know, transmission assets are transacting for on the private side versus what the public markets are giving you value for? Thanks.
Yeah. No, I appreciate the question very much. As I mentioned, the retail opportunity will be next on deck for us as we go through our strategic review process. We'll continue to report back on that. Let me answer it this way. In terms of active management, and with a lot of rigor, you know, some of the things that Matt mentioned today relate specifically, even to our specific utility companies that have multiple jurisdictions. That's something we need to do a little deeper digging into.
While it may not look exactly like a sale, I think there may be some other opportunities there because what we need to be able to do is to accommodate each of those respective states, and their appetites, as well as the appetites of the regulators and the policymakers for those states. That's something else that is absolutely top of mind for me too. Not to mention then closing the gap on the earned versus authorized ROE. I think it's all of the above. What that also means is, as the dynamic changes and the backdrop changes, we have to be continually looking at the portfolio, with what makes sense. I don't have anything to announce or suggest in the near term here.
We got a little bit on our plate as it relates to let's close Kentucky, let's close unregulated renewables, let's take care of retail and see exactly what that ultimately shakes out. Rest assured that we'll continue to come to you with more opportunities in terms of, valuation-enhancing actions that we can take. That has to happen in conjunction with taking care of the customer. If I'm able to recycle capital, that's one of the best ways I can do that because it just increases the velocity of capital invested, so I can do all of those or hit all those objectives. Stay tuned. Don't have anything to say today, but just understand that, this team is ready to work at a pretty rapid clip. Okay?
Hi, Julie. Michael Lapides of Goldman Sachs. Two questions, totally unrelated to each other, I apologize. The first one is on O&M. Your untracked O&M views for 2023 are actually up a couple hundred million from 2022. Can you talk a little bit about what you're seeing cost pressure-wise? And I may have misinterpreted it, but I don't think so. The untracked number's up a couple hundred million, you know, 2022 to 2023. What are you seeing cost pressure-wise? How much of that continues into 2024 and beyond? And where are the opportunities for you to take out costs?
Yeah. Michael, that's a great question. Let me answer it this way. As it relates to the increase in O&M from 2022 to 2023, and I'm looking down at my chart that you guys are watching behind me here, is largely attributable to increased expense around forestry and reliability. Plus, we have the Rockport Unit 2 plant that we actually purchased. It goes from a leasing situation to that was being captured in depreciation now goes to O&M. You see that uptick here too. I don't wanna say it's artificial, but that's a piece of that as well. I'll take it a step further and talk about 2024. I don't have 2024 guidance out there right now, but if I had to guess, I would hope that we're around flat relative to 2023.
It's honestly across the board in terms of inflationary pressures and costs. You name it, everything's gone up. I wanna say on the order of maybe post-pandemic, 10 to, I don't know, 15 to 30%, depending on the different type of expense that you're looking at. In some cases, even a little bit higher. We're trying to play that against the inflation curve that we have here on the red line and keep below that in particular. Of course, we'll move expenses around if, you know, if we find ourselves in a really fortunate situation to be earning well, and we can pull some expenses forward. We do that from time to time. You've seen that happen here.
Conversely, if we're in a situation where we're getting close on hitting our stakeholder commitments, then we'll squeeze to try to push things down. That's why I called out all that list of opportunities that we are currently looking at to try to manage total O&M for two reasons, so that you understand that we have some flex there, but also in the event that we find ourselves in a recession-type circumstance, I still have levers I can pull on. That's about all the granularity I can share with you right now, but we'll try to have more for you at EEI, if that's helpful.
That'd be great. The follow-on was about just p otential future asset sales, and you talked about the transmission, both the portion that's embedded within the operating companies, but also the portions that are within the HoldCo.
Yeah.
You know, the Transco HoldCo. Just curious, is there an operational reason why you wouldn't consider divestiture or partial divestiture to create a market for one of the, you know, for one of the operating companies within the Transmission HoldCo if you think the valuation is so robust?
Yeah. I have a hard time with that question simply because, you know, transmission is so. It is. That's what we do. You know, the Transmission HoldCo is somewhat inextricably linked with some of the stuff we do at the operating company level side. There are some things that are kind of intertwined, so that's something that we keep close to mind. As a matter of fact, when you look at Kentucky Power, that particular sale, we're selling the Kentucky Transco along with it, so it's a bundled type package. To me, I don't have a cash problem right now. I don't say I have a valuation problem, but I think our valuation needs to be better.
What I'd like to start with is having a better dialogue with you all about understanding what that earnings stream is particularly associated with this piece of the business so that math is a little more pronounced in the valuation. We'll try to hit it off at that particular pass. At this point, you know, my goodness, look how robust that pipeline is, and we need it. We need it. That's where we want to put the capital to work.
I'll just add to that. You know, we've made a lot of progress in terms of identification of what we deploy capital on. The investments that we're making today are completely different than the investments just a few years ago. When you look at the quality of those investments and the returns associated with them, I think we're doing exactly the right thing in terms of making sure we're doing everything we can do from an O&M standpoint, from investment in the right parts of the portfolio. Obviously, transmission is a key component for us, and we're demonstrating that. Actually, that fuels further growth because we do have that transmission.
When going back to the question about, you know, what the earnings would look like for any position we may sell, transmission, that's sort of high grading. We need to make sure that we're doing the right thing relative to those kinds of divestitures. And that's really not in the cards for us. Julie, you want?
No, just right now. Antonio or anybody else on the team have anything else? Okay.
Jeremy Tonet, J.P. Morgan.
Yeah.
Just wanted to go back to the slide that had cash flows by year, the CapEx that was laid out there. It seems like it kind of peaked in the 2024-2025 timeframe and then kind of comes down. Is there any lumpiness we should be thinking about there or less visibility as we get further out? Just trying to get a feel for the timing of CapEx and how you see that coming forward.
Yeah. I'll ask Antonio to jump in here too, because that is entirely related to the renewable plan, and so when those assets come to fruition and find their way into the AEP fold. I don't know, Antonio, you wanna talk a little bit about that?
No, no, that's it. That's exactly the answer. You know, we're running RFPs right now, and we're seeing, you know, in-service dates in that 2024-2025 type timeframe. That's what's driving what you see there on the slide.
Got it. That's helpful. Thanks. Kind of switching gears over towards commercial sales. As you laid it out there, it seems like it's pretty peppy, you know, over the next several years here. Just wondering if you could provide a bit more color on some of the drivers there.
Yeah. Primary driver, and this is both at AEP Ohio and AEP Texas in particular, data centers. Data centers, and of course, that's in my backyard, right? 'Cause I live in Ohio. Data center growth is the primary driver there. You got it.
Angie Storozynski, Seaport. I have a question about Virginia. If you could tell us, you know, recent updates from the governor there, how you see it impacting APCO. And also, when you show us the CapEx projections, is this CapEx approved, or are we waiting for some sort of a regulatory processes to actually approve, especially the distribution CapEx?
Yeah. Matt, you wanna take a swing?
As far as the-
Yeah.
Excuse me, the Governor of Virginia. Obviously, the plan just got released. You know, we're working along the way, but we really have to take a look at what the final plan that came out was. Obviously, it's a long-term plan, and the governor's only gonna be there for a shorter period of time. But we're sort of looking at how that applies to the path we already have. You know, we do have things in play in Virginia. We wanna make sure those are protected, and it makes sense. But we're really partnering and making sure we understand it. We really have to dig deep in now that the final plan came out and then that, so we can understand that. The Virginia VCEA renewable filings have been approved. That's already approved. That cannot be revised as part of the plan if that were approved.
Maybe just one more question. What do you assume that you will earn your allowed ROEs in the plan through 2027 in that 6%-7% EPS CAGR?
We expect to be closing the gap. Absolutely. Stay tuned. That's the entire objective. We don't expect to land on the head of a pin because it's not perfect, but we will definitely be closing the gap for sure.
Hey.
Hi, it's Ross Fowler, UBS. Maybe, Julie Sloat, you could pick at this, or I'm gonna pick at this 4% sort of customer bill increase or rate increase over time. See a lot of front-end pressure with fuel on the front end and deferred balances, and then that comes down over time, right? We're seeing pressure and inflation with O&M right now. Hopefully, knock on wood as they say, that comes down as well. And then your coal retirements, that's like longer dated out in the future. There's a lot of transmission investment on the front end and renewables that reduce that fuel cost, sort of you said 2024, 2025. Are we am I wrong to think that increase is higher in the front years for customers than in the back years? Is a lot of that about maybe top-end growth as well, getting back to that 4% rate increase?
Yeah. You're thinking about it exactly right. We got a little more pressure on the front end, not only because, you know, the benefit of the renewables comes in a little later, but we've got the fuel component on the front end. You're thinking about it absolutely right. If I walk it back even a little bit further, before introducing the renewable investment, we were looking at something, you know, 5%+, right? Again, what we're seeing is that all the work that we're doing is validating that the investment program that we're putting forth is the right thing to do, not only from the customer perspective, but even from an earnings trajectory perspective. It is. It's not entirely linear and perfect that way. I think you are spot on.
I think we're also looking at is everything's an opportunity. That's kind of a theme we have. No matter what's happening, what's the opportunity in it? As we're looking at our multi-jurisdictional trend, you know, generation in our states, we really wanna know that deep dive so that we can pivot. If the federal government wants to help with just transition and pay, and help us transition our fleets in certain areas and take care of those communities, we wanna be ready to do that. We really wanna make sure, you know, we think we are, but we're gonna take that deeper dive so that no matter what comes up, we can put a plan in effect.
Thank you.
Ray.
Hi.
Ray.
Hi. First, Raymond Leung with Scotiabank. First of all, Nick, congratulations to you. Julie, well, looking forward to working with you again.
Thank you.
Question is more about supply chain and equipment procurement. Can you talk about how comfortable you guys all feel about procuring equipment as part of your plan? It seems like everybody's gonna go through a similar plan, and globally, everyone's talking about energy security. How do you guys think about that? I mean, obviously, you guys are one of the biggest players, so I think you have probably a lead in that. But can you talk about, you know, how you think about procuring all this equipment and what that may mean to cost and your CapEx budget down the road and inflation for us?
Yeah. No, excellent question. I can tell you, and I'll have the team jump in here too with any additional color, it's something that we're working every day. You know, while on the surface everything seems to be hanging nicely together, and we've been able to get the equipment and supplies and materials that we need, that's only because there's a ton of work going on behind the scenes. I have some statistics here, even, you know, from our supply chain team, that they shared with us in anticipation of questions that we've been receiving from you all in other investments or other investor activities that we've been doing to give you an order of magnitude. This should sound familiar to you. Like for example, transmission regulators, a previous lead time was about 17 weeks.
Substations, transmission regulators now run in 26 weeks. For distribution, like 96 weeks, so substantially different. Same thing with transformers. AMI meters are off the rails. Used to take us 26 weeks, now taking 54 weeks. Same thing with wood poles, semiconductors, solar modules, you name it, across the board in terms of equipment. However, where I think AEP has benefited is better in terms of forecasting need and getting that accuracy nailed down, using and leaning on our vendor relationships, and quite frankly, incorporating new vendor or supplier relationships. So we are literally using every tool in the tool bag and every lever in the tool bag, as well, that's accessible to us. So far, it's working.
We have embedded in our forecast assumptions around inflationary pressures, so that's you see that from not only an equipment perspective, I guess I probably worry a little bit less about it on the CapEx front because it kinda gets, you know, kinda blended in with the mix. O&M is a little more of a pinch point for us. That's why I went through all those different initiatives that we're trying to engage in to manage below that particular inflation line. We're using all the tools. So far, I'll knock on this. I don't wanna make too much noise. It's hanging together. I hope and expect that over time this will cure itself, but we're not out of the woods yet. I don't know, team, if you have anything else to add.
Yeah, I'll add to that. You know, Craig Rhoades, who runs our supply chain, they've been, as Julie said, extremely active with strategic partnerships, with expanding suppliers, all the things that we need to do. We're standing in pretty good shape. Frankly, the industry, including AEP, has benefited notwithstanding the last with Hurricane Ian. The winter storm activity has been not as great. It's given us an opportunity to catch up even though long lead times have grown. We've benefited from that. Hopefully we can get past this, have the supply chain start to catch up, and be back to full complement. Right now, we're in good shape.
Yeah. I think one other item I would add to that too is on the regulated renewables front. There's, you know, part of the reason why you're seeing a critical mass of our projects coming in that mid-decade timeframe is due in part because of supply chain with respect to the developers that we're working with. You know, we might see those in a normal environment. We might see those types of projects come in earlier, but I think the supply chain has, you know, caused those to be pushed out a little bit.
Now, with the passing of the Inflation Reduction Act, that acts as a very good risk hedge for us here too, whereas prior to that legislation, you had a little bit of a cliff when it came to the tax credits. If you didn't hit the in-service date, there was a cliff with the tax credits. Here, it's a different situation. You've got the IRA at play that extends those tax credits into the early 2030s that, you know, even if we do see some slippage on the regulated renewables front due to supply chain, we'll still be tax credit eligible if that were to occur.
We're also fortunate in that we finished North Central, and then we had a gap before having to actually procure equipment for the next set of renewable resources, so.
Yeah.
We do have a little bit of time.
We do.
Yeah. The only one other thing I would add is one of the key reasons why Amazon and Google come in our footprint is because they know we can get our substation built within two years. That has been a distinguishing factor why we are getting the incremental load because of the ability of our transmission and our engineering team to get those projects online in two years.
Hello. Ryan Levine, Citi. Regarding the retail business, why now? Why begin the strategic review process in the current environment? And then also if you speak to the tax position of that asset.
Yeah, you know, as I mentioned and I'll hand it over to Greg to talk a little bit more about the business here, but our portfolio has changed so dramatically. As I kind of walk through that timeline in terms of reduction and as it relates to the merchant generation portfolio that initially was the reason we got in to effectively hedge that off, it has changed. You know, as we work through the different activities around Kentucky, we're looking at the contracted unregulated renewables. We wanna look through the entire portfolio.
Retail was one that stuck out as we worked through this process of, again, I'll call it active management, that we need to continually engage in as we pick up the pace, pick up the investment dollars, and continue to try to take advantage of the opportunities that we have to serve the customer on the regulated side of the business. Also mindful of the risk profile. I think we're in good shape there 'cause the unregulated piece of the business is very much contained as it relates to the whole of AEP total. I don't know, Greg, did you have anything else that you'd like to share on the retail side?
I mean, when you look at the timeline for when we started retail and the reason why we kept it over the years, you know, we started it in as a defensive play against accelerating customer switching in Ohio in 2010. We had a big generation portfolio in 2013 that we sold off in 2017. The same time we were selling off that generation portfolio, we were building up our renewables portfolio, both on the distributed and utility scale side. There was always reasons to maintain that retail portfolio and that access to all those retail customers throughout PJM. I think, you know, now I think as a matter of business we need to review it. Does it still have that strategic value to us? Did the risks outweigh the rewards? We'll evaluate that over the coming months and determine an answer.
Any color you could share around the tax position of those assets?
Of retail?
Yeah. No basis.
No. Here's what I can offer to you today. I wouldn't worry too much about the tax basis. As I mentioned, the equity position's about $170 million, but we'll get you a little more granular detail as we move through time and are able to tell you even what 2023 looks like in terms of earnings and any other pertinent details that might help you model and understand what the valuation could be. Okay?
Okay.
Stay tuned for that.
One unrelated question. If the permitting bill were to resurface and pass, how would that impact your longer-term transmission build-out?
Yeah. Antonio, you wanna talk about that?
Yeah. You know, it's you know, we're generally supportive of that type of legislation, but we haven't really encountered big issues on that front in the past. You know, it's one of these things where you know, they used to have defined transmission corridors that you know, would have been eligible. You know, you typically see those in higher population density areas on the coast. Here with this revision and this new proposed legislation, you know, it's something that we think is potentially beneficial for certain types of projects if we were to run into issues. We've been very fortunate, we typically haven't run into those types of issues in our service territory.
I think Andy. I know he doesn't have a microphone.
Thanks. Andy Levy from Hedge. I guess first and last as far as question-wise. We talked about this a little bit before the program started. Just on parent debt, you have a lot of debt due 2023 and 2024, ranging at fairly low interest rates. And then obviously you have cash coming in, and then you have your equity needs. What's kind of the thought on that? And I think it's like what? About $1 billion that's coming due, give or take, from 75 basis points to I think as high as 3%. So if you had to refinance that, what are you kinda looking at there? I assume that's incorporated into the entire earnings forecast that you have out there. Do you pay some of that down and just forego some equity, or do you just refinance it all?
Yeah. Yeah. I appreciate the question. A couple of things. Let me give you some parameters as it relates to parent debt. I pay particularly close attention to that because that falls right to the bottom line, right? Any fluctuation in interest rate there is critical to us as we manage our earnings guidance. We do have all this embedded in our forecast, okay? That being said, the other thing I think a lot about is when I look at the total portfolio debt, what percentage of that relates specifically to parent? 'Cause I wanna keep that in check too. Assume that relates to or equates to about maybe 20%-21%, okay? It's been a little less than that, but roughly.
I also think about, just as the total portfolio, what percentage of my debt is floating rate. Okay, 'cause that's where I'm gonna have exposure to, given the rise in the interest rates, especially on the front end, the shorter end of the curve, it's been much more pronounced, you know. I think about those things. As of the end of the second quarter, I'm going from memory here, I wanna say of our total debt outstanding, maybe 14% was floating rate. We generally target somewhere between 15% and 20%, so we were kind of falling out the bottom there. Not too worried about that. That was a good place to be. If I'm gonna fall out one side or the other, that's where I'd wanna be.
Let me give you another order of magnitude here. When we put our 2022 guidance range together, we originally assumed that debt rates, depending what the tenor was gonna be, they would be around 1.95%-4.25%. What we were actually seeing with the rise, we were talking maybe 3.75%-4.70% in terms of interest rates. Yeah, it has been a material shift. That'll be embedded in the 2023 guidance, the guidance that we gave you today. Not real worried about maturities at parent. We can play with the tenor there. As a matter of fact, we're gonna go out and do an issuance here later this year, so probably like maybe November timeframe.
When you look at required capital, those dollars have been juiced up a little bit for 2022 to accommodate the fact that I don't have proceeds coming in from the Kentucky sale, 'cause we thought that was originally gonna occur in 2022. Expect to see us out doing a debt issuance there. What that will allow me to do then is pull forward from 2023 into 2022 debt I was gonna do, and so I won't have as much activity in 2023, but it will be at a higher cost. We've got it all factored in, so not real worried about it other than the fact that, you know, we can do hedging. Glad we didn't do it in this case because I'm pulling it forward, but we'll watch it. Okay?
No, it's a great question. Thank you. Excellent. Well, thank you.
Great.
Yeah. You have something to say, Darcy?
Yeah, I was just gonna.
Okay.
Tell everyone it concludes our day, so thank you for joining us. We also wanna thank Nasdaq for hosting us today. We actually had the opportunity to ring the bell this morning, so we've had a full day here, so it's been really, really nice for the team. Just wanna say to anyone that's listening to the webcast, definitely call or email or anyone in the room, the IR team, and we're here to talk to you and to address any questions you may have after today. Then we'll definitely see you guys at the end of this month. Our third quarter earnings call is gonna be October 27th, and then a couple weeks later, we'll definitely see you at EEI. Thank you so much. We're gonna let the team go here due to schedules, and you can proceed out the back towards the exit. Thank you.
Thanks, everybody.
Thank you, everybody.
Thanks, everyone.