Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power Second Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded. I would now like to turn the conference to our host, Vice President of Investor Relations, Ms.
Darcy Reese. Please go ahead.
Thank you, Tani. Good morning, everyone, and welcome to the Q2 2021 earnings call for American Electric Power. We appreciate you taking the time to join us today. Our earnings release, presentation slides and related financial information are available on our website at aep.com. Today, we will be making forward looking statements during the call.
There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning for opening remarks are Nick Akins, our Chairman, President and Chief Executive Officer and Julie Sloat, our Chief Financial Officer. We will take your questions following their remarks. I will now turn the call over to Nick.
Okay. Thanks, Darcy, and welcome again, everyone, to American Electric Power's Q2 2021 earnings call. Today, we reported strong 2nd quarter operating earnings of $1.18 per share versus $1.08 for the same period of 2020. Our 2nd quarter results reflect significant progress in terms of economic recovery throughout AP's service territory, with a continued focus on O and M as we navigate Through what is hopefully an emergence from the COVID-nineteen pandemic, gross regional product has already exceeded its pre pandemic levels And employment across AEP service territory is now within 2% of its pre pandemic levels after adding over 163 jobs in the 1st 6 months this year. Increased vaccinations combined with the additional fiscal stimulus from the American Rescue Plan are contributing to the strong demand for goods and services throughout the economy.
AEP's normalized retail sales in the Q2 of 21 were the highest we've seen since the Q2 of 2018. Clearly, we are pleased with the improvements we've seen thus far and we'll continue to monitor the recovery's progress over the second half of the year. Accordingly, we are reaffirming our 2021 guidance a range of $4.55 to $4.75 per share and a 5% to 7% long term growth rate and would be again disappointed not be in the upper half of our stated guidance range as we have previously stated. Julie will be discussing these issues in more detail in her report. Rate case activity across our jurisdictions continues to be active and substantial.
In Ohio, we are awaiting an order by the commission on the settlement REITs filed with the commission earlier this year. As a reminder, the settlement has broad support from the settling parties, including the commission staff, The Ohio Consumers Council, industrial companies, commercial companies, and other entities like the Ohio Hospital Association. We expect a decision in the Q3 of this year. Public Service Company of Oklahoma filed a rate case at the end of April. PSO is seeking $115,400,000 net revenue increase and a ten The following transitions North Central costs from the rider established in the approval into base rates.
The case also seeks to continue a distribution rider, recover RTO expenses and update depreciation rates. Testimony of the parties is due in August with a hearing scheduled for September and an order expected in the Q4 of 2021. In Indiana, I and M filed a base rate case on July 1. The following is based on the future test year model and seeks a $97,000,000 net revenue increase With a 10% ROE, the major items in the case include the recognition of over $500,000,000 in capital investments per year in Indiana, Continuation of the transmission tracker, a federal tax rider should those changes occur, and deployment of AMI meters to provide customers more for tomorrow, July 23rd. In Texas, a hearing was held in May and Swepco filed its reply brief And proposed findings of facts and law on July 1, Swepco is seeking a net revenue increase of $73,000,000 and an ROE of 10.35%.
The filing includes investment made from February 2018, accelerated depreciation for 3 coal plants, an increase in storm reserve and vegetation management. We expect an order in the 4th quarter with rates relating back to the effective date of March 2021. In Louisiana, a procedural schedule was set with Testimony due in the Q3 of 2021 and a hearing in January of 2022. The case seeks a 93,000,000 net revenue increase and a 10 point 5% ROE, an order is expected between the 2nd Q3 of 2022. In Arkansas, The case will contain a formula rate plan for subsequent years and consider the retirement of previously announced coal lignite assets.
This filing is timed to align with North Central in service dates and to provide a mechanism both for recovery of costs associated with the investment and flow through of the PTC to Swepco customers. We have certificate filings in Virginia, West Virginia and Kentucky Related to investments needed to comply with the CCR and ELG rules on coal plants in the region, we have received an order in Kentucky and an ALJ decision And Virginia denying ELG Investments. Final decisions from the Virginia Commission and the West Virginia Commission will be received in the Q3 of 2021. We understand that these are difficult decisions for states to make regarding the future of their generation resources. We'll be working with our commissions to navigate the implications of Each state's decision will affect the ongoing operations of these plants.
SWPCO and PSO continue to make good Progress with their commissions to recognize the Storm Yuri expenditures. Julie will cover this in more detail in her comments, but as a reminder, We filed for recovery of a WACC return over 5 years in Louisiana, Arkansas and Oklahoma and will do so in the near future in Texas. PSO has filed for financing authority to explore the securitization option that was established by the legislature. The company's plan to transition its generation fleet and reduce carbon emissions by 80% by 2,030 and net 0 by 2,050 is well underway. In April, we announced new resource plans that include the addition of up to 16,600 Megawatts of Regulated renewable resources over the next decade.
This plan provides a meaningful opportunity to invest in clean energy resources while benefiting our customers And strengthening our communities. Our $2,000,000,000 investment in the North Central wind facilities is a first and a very significant Step forward in this transition and it provides a solid foundation for our clean energy transformation. The Sundance facility was placed in service in the 2nd quarter And the Maverick and Traverse facilities remain on time and on budget for completion during the Q4 'twenty one and Q1 'twenty two, respectively. Solicitations also are underway for additional large scale renewable acquisitions at APCO and Swepco, And we expect to issue the RFP to begin to fill the resource needs for PSO in October 2021. Our transmission investments continue to be strong, helping our communities prepare for a clean, more efficient and resilient energy future.
Our transmission holdco contributed $0.34 per share in the 2nd quarter, up $0.15 from the same period last year. We remain engaged in the various processes at RTOs and FERC as we advocate the need for transmission And more robust comprehensive planning methodologies to ensure that our path to a clean energy economy is as smooth as possible. We also continue to be a strong advocate like many supportive of achieving net zero targets for the continuation of the 50 basis point RTO incentive. This important incentive codified in the Federal Power Act is critical to ensuring that needed transmission investment is made as we transition to a clean energy economy. If this nation is to move quickly to a clean energy environment, there must be a resolution and clarity around the important issues of investment return expectations As well as long standing issues of transmission siting processes and cost allocation mechanisms.
FERC certainly seems to be on the right Incentives are important in that equation as well. Okay. Now regarding the strategic process that is ongoing Regarding our Kentucky assets, we're on track with the timeline we shared previously to have an announcement of a complete process one way or another by year end. As we have stated previously, keep in mind that we must obtain FERC and Kentucky Public Service Commission approvals before a deal could close, So that could push into 2022. As we focus on reaching a suitable transaction deal, we would announce in 2021 And move forward expeditiously on these two filings in parallel and reach closing as soon as possible.
These regulatory approval processes 180 days for the FERC Section 203 filing and 120 days for the Kentucky Public Service Commission transfer of control review. While this is an ongoing confidential process, progress is being made. It reminds me of the Carly Simon song, anticipation, If I paraphrase some of the lyrics, we can never know about the days to come, but we think about them anyway and hopefully you're chasing after some finer day. More to come during the rest of 2021 on what that finer day looks like for AEP. Last but not least, our Achieving Excellence program is a year over year effort to maintain our cost discipline.
Our efforts year to date have largely centered on the returning to the workplace. The vast majority of those that will be in the office are returning in August. Like many employers, we will accommodate remote, hybrid and on-site work going forward. What was once 100% on-site for our office staff prior to the pandemic will become approximately 24% remote, 43% hybrid And 33% on-site when we finally when we fully return and that excludes field level employees of course. We plan to reap the benefits of reduced travel, less occupied office space, savings on real estate, a broader talent pool And improved worker efficiency through digitization and automation initiatives that accelerated during the COVID-nineteen pandemic.
As you know, one of the highest priorities involves ensuring AP is active in supporting our communities and serving as a positive voice and force for social justice And Advancing Racial Equality. We have engaged both in community dialogues as well as conversations within the company to promote a deeper understanding and commitment to meaningful change. Our efforts include a renewed focus in our charitable giving to support our organizations that are focused on these efforts. Our AEP Foundation has announced significant Focus on social injustice related initiatives. These activities not only support the culture we expect within AEP, It also sets an example for our communities and the nation on what could be in this country.
So now I'll move to the equalizer chart, and I think you have that with With the bubbles of each company. For that, I will remind everybody we generally target the ROE for the regulated segments to be in the 9.5% to 10 The ROEs, we have to keep in mind though that we are and have been in the process of thickening the equity layers over the last Several years, so we have to take that into account. For AP Ohio, the ROE for AP Ohio comes in at 9.7%. It's ROE is near authorized primarily due to timely recovery of capital investments. We expect the ROE to continue to trend Around those authorized levels and of course I mentioned earlier we're waiting on the commission order as well.
At APCO, The ROE is coming in at 8.1%. Its ROE was below authorized due to higher amortization primarily related to the retired coal fired generating assets And higher depreciation from increased Virginia depreciation rates and capital investments. And of course I've already talked about previously about the Virginia case and where it stands with the Virginia Supreme Court. In Kentucky, the ROE is 5.9%. Kentucky's ROE is below authorized due to loss of load from weak economic conditions and loss of major customers along with higher expenses.
In June 2020, Kentucky Power filed a base rate case seeking $65,000,000 revenue increase in ROE of 10%. Kentucky Power received a file order in space case and rates that went into effect in January of 2021, Authorizing ROE of 9.3 percent and a revenue increase of $52,000,000 I and M came in at 9.8%. Their ROE is consistent with authorized ROEs, which are 9.8.6% in Michigan and 9.7% in Indiana. Earlier in July 2021, as I mentioned earlier, they filed a new rate case in Indiana, and we'll continue on with that. PSO came in at 7.9% and is below its authorized level primarily due to increased capital investment currently made in base rates Higher than anticipated equity due to the extreme February winter weather event which Julie will be talking about a little bit later.
And then of course in April 2021 as I mentioned earlier we filed a new base rate case there as well. Currently not in base rates and the continued impact of the Arkansas share of the Turk plant that is not in retail rates. And of course I mentioned earlier it affects it by about 110 basis points. So we have the 3 cases in October 2020, Swepco filed the Texas case, which we're still awaiting an outcome. SWPCO also is following the Arkansas case and then I mentioned earlier the Louisiana case as well.
AEP Texas is at 7.9%. Their ROE is below authorized Primarily again to a significant level of investment in Texas and the timing of the annual cost recovery filings associated with that investment. As you recall, we have DCRF and TCOS Following to recover on a pretty regular basis. So the expectation is for the ROE to continue to hover around that 8% because of all the investment Going in that state, but should trend toward 9.4% in the long term longer term. AEP Transmission HoldCo, the ROE for the HoldCo is at 11%.
The ROE is above authorized primarily Driven by higher revenues due to differences between actual and forecasted revenues. The Transco's benefit from a forward looking formula rate mechanism Which helps minimize regulatory lag. So transmission is forecasting to continue to be around that 11% in 2021. So the overall is about 9%, but again remind you of the equity layers have increased actually Pretty substantially over the last few years, so that's one of the trade offs that are being made there. Okay, so In closing, we had a strong quarter in the first half of the year.
I'm proud of the accomplishments our employees have made in 2021 And the commitment that our team makes day in and day out to the communities we serve, especially during the pandemic and as we come out of this trying time. Our employees continue to focus on maintaining a high level of discipline in controlling cost and with a board economy on the men Certainly gives us confidence in the rest of the year and delivering on the mission of consistent earnings and dividend growth expectations that we have produced year after year. If I look at the key areas for AUP to address for the remainder of 2021 and into 2022, they are to conclude the strategic review of Kentucky, Conclude North Central with the appropriate financing ownership and recovery, advance our clean energy transition with a 16,600 megawatts of renewable resources, And continue the improvement of our credit metrics in line with our 2022 expectations, which Julie will talk about again. Of course, all of this is grounded fundamentally by safety, cultural and operational excellence expectations with a focus on execution. If we have any Foo Fighters fans on the call, Rock Hall is inducting them in this year's class of inductees.
They did a song called This Will Be Our Year, was originally recorded by the zombies, but it says, now we're there and we've only just begun. This would be our year. Took a long time to come. This is true for AEP regarding our clean energy transition and our execution towards portfolio optimization. With that, I'll turn it over to Julie.
All right. Thanks, Nick. Thanks, Darcy. It's good to be with everyone this morning. I'm going to walk us Through the Q2 year to date financial results, share some thoughts on our service territory load and finish with a review of our credit metrics and liquidity.
So let's go to Slide number 6, which shows the comparison of GAAP to operating earnings for the quarter year to date periods. GAAP earnings for the 2nd quarter were $1.16 per share compared to $1.05 per share in 2020. GAAP earnings through June were $2.31 per share compared to $2.05 per share in 2020. There's a reconciliation of GAAP to operating earnings on Pages 14 15 of the presentation today. So let's walk through our quarterly operating earnings performance by segment.
That's laid out on Slide 7. Operating earnings for the Q2 totaled $1.18 per share or $590,000,000 compared to $1.08 per share or $534,000,000 in 2020. Operating earnings for the vertically integrated utilities were $0.45 per share, down $0.10 driven by a year over year increase in O and M due to lower prior year O and M, which included actions we took to adjust to the pandemic. Other pressures included lower wholesale load and higher depreciation and other taxes. These items were partially offset by the impact of rate changes across jurisdictions, higher normalized retail load, transmission revenue and off system sales.
The Transmission and Distribution Utilities segment earned $0.31 per share, up $0.02 from last year. Favorable drivers in this segment included higher normalized retail load, Transmission revenue and rate changes partially offsetting these favorable items were higher tax, depreciation and O and M expenses as well as Unfavorable weather and lower AFUDC. The AP Transmission HoldCo segment continued to grow contributing $0.34 per share, an improvement of $0.15 which got a boost because of the unfavorable annual true up last year consistent with the 2021 earnings guidance assumptions we had provided to you. Our fundamental return on investment growth continued as Net Plant increased by $1,400,000,000 or 13% since June of last year. Generation and Marketing produced $0.09 per share, down $0.02 from last year, influenced by the prior year land sales And one time items relating to an Oakwood Union ARO adjustment and the sale of Conesville.
These were mostly offset in the generation business by Higher energy margins and lower expenses from the retirement of Oakland Union. Finally, Corporate and Other was up $0.05 per share, driven by investment gains, lower tax and lower taxes, which was partially offset by higher O and M and net interest expense. So bear with me a moment. I'm going to talk a little bit more about that investment gain as we walk through the year to date view. So if you flip to Slide 8, we can look at year to date results.
Operating earnings through June totaled $2.33 per share or $1,200,000,000 compared to $2.10 per share or $1,000,000,000 in 2020. Looking at the drivers by segment, operating earnings for vertically integrated utilities were $1 per share, down $0.05 Due to higher O and M and depreciation expenses, other smaller increases included lower normalized retail and wholesale load, higher other taxes and a prior period fuel adjustment. The impact of weather was favorable due to the warmer than normal temps in the winter of 2020. Other favorable items in this segment included the impact of rate changes across multiple jurisdictions, higher off system sales In Transmission revenue, the Transmission and Distribution Utilities segment earned $0.54 per share, up a penny from last year. Earnings in this segment were up due to higher transmission revenue, rate changes, weather and normalized retail load.
Partially offsetting these favorable items were higher tax, depreciation, O and M and interest expenses as well as lower AFUDC. The AP Transmission Holdco segment contributed $0.68 per share, up $0.21 from last year for the same reasons identified in the quarterly comparison. Generation and Marketing produced $0.16 per share, down $0.02 from last year due to favorable onetime items in the prior year Relating to an Oakland Union ARO adjustment in the sale of Conesville, higher energy margins and lower expenses in the generation business offset the unfavorable ERCOT Market prices on the wholesale business during storm Yuri in February. The decrease in Renewables business was driven by lower energy margins and higher expenses. Finally, Corporate and Other was up $0.08 per share, driven by investment gains and lower taxes and partially offset by higher O and M.
So let me take a quick moment to comment about the investment gain, which is predominantly a function of our direct and indirect investment in ChargePoint. As you'll see on the waterfall, this produced a $0.09 benefit year to date in 2021 as compared to the corresponding 2020 period. You may recall that in the Q4 and full year 2020, this investment produced a $0.05 contribution, and we would Expect the year over year variance to be more pronounced at this point in 2021 as we had no benefit during the same period in 2020. So turning to Page 9, I'll update you on our normalized load performance for the quarter. Before I talk about class level trends, I'd like to Start with a couple of observations at a macro level.
So first of all, since all of these charts are showing a year over year growth, It is important to recall that the Q2 of 2020 was at the trough of the recession when restrictions on businesses to manage the public health crisis were at their greatest. So the magnitude of growth percentages is being influenced by the comparison basis. And the second observation is that there has been a steady path to recovery Since bottoming out in the Q2 of last year, the momentum we're seeing is a positive sign for the economic recovery throughout the service territory. So if you start in the upper left corner, you'll see that normalized residential sales were down 3.1% compared to last year, bringing the year to date decline down to 0.5 Percent. As mentioned earlier, the comparison basis is the key here.
You'll notice that residential sales were up 6.2% when the COVID restrictions were at their greatest. In fact, 1 year later, they're only down 3.1%, which suggests some of the increase in residential is having some staying power As more businesses have embraced a remote workforce for jobs that can be easily performed at home, in fact, the 2nd quarter normalized sales in 2021 were the 2nd highest second quarter on record, exceeding every second quarter before the pandemic began. So moving to the right, weather normalized commercial sales increased by 10%, bringing the year to date growth up to 3.9%. If you compare this with the residential class, you'll notice the commercial sales growth in the 2nd quarter is more symmetrical with last year when sales were down just over 10%. The growth in commercial sales for the quarter is spread across all operating companies and most sectors.
The only sector that was down slightly compared to last year was grocery stores, which were very busy at the onset of the pandemic trying to keep shelves stocked when panic purchasing was at its highest. So moving to the lower left corner, you'll see that The Industrial sales also bounced back in the 2nd quarter. Industrial sales for the quarter increased by 12.8%, brings the year to date growth up to 2 up 2.8%. Similar to the commercial class, you'll see a symmetrical recovery Compared to the Q2 of 2021, sales were down 12.4%. Also, Industrial sales were up Every operating company in nearly every sector, the only industrial sector in our top 10 that reported less sales this year compared to the Q2 of 2020 is the paper manufacturing sector, which ironically was also higher last year, partially due to panic purchasing of toilet paper.
This is a phenomenon that none of us is likely to forget, especially if you were one of the folks who didn't get a jump on it. Finally, in the lower right corner, You can see that in total, normalized retail sales increased by 6.3% for the quarter and were up 1.9% through the first half of the year. By all indications, recovery from the pandemic and recession are on a firm footing. So let's go to Slide 10. There are 2 more charts here that help put the 2nd quarter normalized sales performance into perspective.
The bar chart shows the last 5 years of weather normalized retail sales In the 2nd quarters for the AEP system, our retail load performance in the Q2 of 2021 has not only recovered from the recession, but it is also the highest second quarter since 2018. The line chart on the bottom of this page shows the seasonally adjusted retail sales by quarter, which provides an illustration of the trend of the recovery And again confirms that our current level of sales is the highest since the Q2 of 2018. So before we leave the load story, let me remind you of an important Those are priced at much lower realizations than the decline we're seeing in residential sales. To further illustrate this point, the impact The pandemic was most pronounced in our biggest metropolitan area, that's Columbus, Ohio. Since Columbus since AEP Ohio is in the T and D Utility segment, Where we only collect an unbundled rate, the strong recovery that we're seeing this year is coming in at much lower realizations than the system average.
Finally, let me remind you that there are rate design mechanisms in place to limit the exposure when entering a downturn That can also limit the impact when you're coming out of recession. So while the Industrial sales are up significantly this year versus last year, It does not mean the revenues will increase by the same percentage. So what does all this mean when we think about the remainder of 2020? Well, it means that our confidence in our earnings guidance range is fortified by what we're seeing. It suggests that the load trends we anticipated are coming to fruition as The chart on Page 9 illustrates our continued investment at Transco is fueling strong performance in this segment beyond the favorable true up impact that we had anticipated.
While O and M is up, it's enabling us to take care of our business and customer needs given the low growth we're seeing. Obviously, we have the second half We are pleased with the direction and are keeping a watchful eye on economic activity in our service territory, while scanning for any impact associated with the rise in COVID variance. So let's check-in on the company's capitalization and liquidity position on Page 11. On a GAAP basis, our debt to capital ratio increased 0.1% from the prior year quarter to 62.6%. When adjusted for the storm Yuri event, The ratio remains consistent with year end 2020 at 61.8%.
Let's talk about our FFO to debt metric. As it did in the Q1, the effect of storm Yuri continues to have a temporary and noticeable impact in 2021 on this metric. Taking a look at the upper right quadrant on this page, you'll see that our FFO to debt metric based on the traditional Moody's and GAAP calculated basis, as well as on an adjusted Moody's and GAAP calculated basis. On a traditional unadjusted basis, our FFO to debt ratio increased by 0.2% during the quarter to 9.3% on a Moody's basis. On an adjusted basis, the Moody's FFO to debt metric 12.8 percent.
To be very clear, this 12.8% figure removes or adjusts the calculation To eliminate the impact of approximately $1,200,000,000 of cash outflows associated with covering the unplanned Yuri driven fuel and purchased power costs in the SPP region directly impacting PSO and Swepco in particular. This metric is also adjusted To remove the effect of the associated debt we used to fund the unplanned payments, this should give you a sense of where we would be from a business as usual perspective. As you know, we are in frequent contact with the rating agencies to keep them apprised of all aspects of our business. The rating agencies continue to take the anticipated Regulatory recovery into consideration as it relates to our credit rating. And importantly, there continues to be no change in our equity financing plan and our multiyear cash flow The forecast is laid out on Page 39 does not assume any asset rotation proceeds.
Given the regulatory recovery So here's a quick refresh on where all this regulatory activity stands today for PSO and Swepco. In Oklahoma, we're working through the regulatory process and Issuing securitization bonds in the first half of twenty twenty two. In both Arkansas and Louisiana, recovery is underway, while final details get worked out in the regulatory process. And we'll be filing for recovery in Texas in the Q3 of 2021. So let's take a quick moment to visit our liquidity summary on Slide 11.
You'll see here that our liquidity position remains strong at $3,300,000,000 supported by our 5 year $4,000,000,000 bank revolver and 2 year 1,000,000,000 revolving credit facility that we entered into on March 31st this year. If you look at the lower left side of the page, you'll see that our qualified pension continues to be well funded And our OPEB is funded at 174.2%. So let's go to Slide 12. We'll do a quick wrap up and we can get to your questions. Our performance in the first half of the year gives us confidence to reaffirm our operating earnings guidance range of $4.55 per share to $4.75 per share Because of our ability to continue to invest in our own system organically, including both our energy delivery system and the transformation of our generation fleet, We're confident in our ability to grow the company at our stated long term growth rate of 5% to 7%.
So we surely do appreciate your time and attention today. So with that, I'm going to turn the call over to the operator for your
You may remove yourself from any time by repeating the 10 command. And that will come from the line of Julien Dumoulin Smith with Bank of America. Please go ahead.
Thank you for all the remarks. I'd say at the pace that you guys were just talking, I would have mistaken you guys sitting in New York or something like this. Yes, I know. I'm going to try to catch up on everything that was just said. But maybe in summary on the logos, I hear you.
I think the critical comment you made was mix. Where are you trending against your guidance range here as you think about it? Obviously, Q3 matters critically, obviously kept intact the total load growth here. Any comments to just resolve that against the full year numbers? I mean, I know we're still early ish in the year.
Yes. I think you just sort of answered the question. We're still early as in the year because Q3 is particularly meaningful. And we typically Look, after Q3, we'll see where we actually stand, but again, As Julie mentioned, O and M goes up commensurate with all the customer expansion as well and we have pretty sizable customer expansion. You look at the industrial and commercial numbers, They're up considerably.
So and I think it obviously is outstripping our estimate Going into the year of what overall load growth would be, but it remains to be seen because I think we're sort of in a very Cyclical period of trying to figure out what the future holds in terms of whether This other variant of COVID is going to have an impact or what happens actually is there just pent up frustration then it starts to moderate. What's promising is though that we're seeing we're still seeing residential load, although it's negative to 2020, It's still positive overall. So our original thesis of more residential load going forward And if we can tie that together with improved industrial and commercial load as well, it could be very positive. But we certainly have to Feel our way through that and really understand that. So it will be past Q3 before we really have a good feel of that.
Julie?
Yes. Just to maybe add a little finer point too, if you're thinking Sequentially for the remainder of the year, our load growth rates are expected to moderate in the second half of the year based on prior year comps. So when you think about it, restrictions were most severe in the We're most severe in the Q2 and by the Q3 of last year. So by the Q3 of last year, the service territory had begun Essentially a phased reopening. And so as a result, the 6.3% growth for the 2nd quarter is Probably not only the highest growth in the quarter in actually, it is the highest growth in AEP's history, but it will also be the highest low growth Stat during the recovery.
So if you think about the second half of the year, I would expect that year over year to moderate a little bit. And so we're just keeping a watchful eye On how the trend continues to click along, I know I saw on the Wall Street Journal this morning, CFOs commenting on Where they think the economy is going to go, doesn't look like anybody is changing their estimates based on COVID trends, but we're keeping an eye on that.
Got it.
Excellent. Thank you. And then if I can pivot to tech, obviously, you all have a pretty meaningful footprint there. We've seen various legislative efforts underway. I'm curious, as best you can tell thus far, I know it's early, Any kind of context you can put especially on the transmission side of potential projects here?
We're hearing from some of your peers about Potentially meaningful shifts.
Well, certainly, obviously, it Remains to be seen. As far as transmission investment and really we think of T and D and what part of the business is associated with T and D, we have made Inroads in terms of backup generation, those kinds of things in terms of transmission, I really think there's probably continued opportunity for development of storage capability of other transmission related investments On the grid to ensure that we're able to adjust now for us, we're doing a lot in terms of line and sight into the Transmission grid itself, continuing to expand our SCADA abilities, continuing to focus on Our ability to have even more transmission in place because if you're looking for additional generation to be placed in various areas, well, Transmission is a big part of that solution as well. So is that and I think Texas is sort of a microcosm of the country when you start Reevaluating the system based upon the needs from not only a natural gas perspective, but also from a renewable perspective, That brings in the whole planning effort and communication in real time associated with the operations of the transmission and For that matter, the distribution system as well.
So I think they're making the right steps And I think there's more steps to be made, so and it's going to be a sort of a multi year top of effort. And of course, we're a big part of the transmission in Texas, so we'll be certainly very focused On how the T and D business can be expanded to improve the resiliency of the T and D efforts, but that means Texas is really going to have to start thinking about resources and a broader view of resources like we're having to do for the rest of the system And transmission technologies and for that matter, distribution technologies are going to have to be recognized And its ability to provide a more resilient grid. You can't have these strict lines drawn Generation and Transmission and Distribution because that's not the world we're in anymore. So we'll continue that focus Every legislative session, every regulatory session will be centered on that effort.
Excellent. Just last, Kentucky, I imagine you can't say much, but what's the level of interest, if you can give any kind of parameters?
Yes. So, obviously, I don't want to get into Too much detail there. I think again you answered it sort of right at the beginning. It is a confidential process, but I can say that we do have credible interest And it is a competitive
process. Excellent. Thank you all. Take care.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead. Good morning, Steve.
Hey, good morning. Can you hear me now? Good morning.
Oh, yes, I can hear you fine.
Okay, great. Thanks. I might have missed this, but just where are you on the $600,000,000 of equity planned for this year? How much have you issued so far?
Yes. Thanks for the question, Steve. We've actually used the ATM to issue just under $200,000,000 I think it was around 195,000,000 That was associated with the financing of the Sundance North Central Wind Facility and we'll be continuing on with the rest of that program. As you know, about $100,000,000 of that $600,000,000 is also associated with the DRIP, so that continues to play in the background, if that helps.
Okay. And then just this might be a little bit hard to answer, but just in terms of thinking about the $1,400,000,000 for next year That's in the plan. Obviously, if you were to sell Kentucky, some of that could maybe offset some of that. So just Could you just give us latest thoughts on how to think about the Kentucky outcome relative to that $1,400,000,000 for next year?
Yes. And then I'll Nick can add a finer point from a strategic perspective, but purely from a financing perspective, you're right on the money, Steve, so we got $1,400,000,000 embedded in our plan. And for those of you who are following along at home, we're on Page 39 of the cash flow. If you want to take a look at 2022, About $100,000,000 of that again is associated with the DRIP, about $800,000,000 is associated with North Central Wind Financing, and then we have another $500,000,000 just associated with general funding of growth CapEx. And so to your point, Steve, to the extent that we would find ourselves in a situation Well, we were able to transact and bring dollars in the door.
We'd absolutely be able to work off some of that otherwise equity issuance and sidestep that. So I don't I can't give you a number. We don't have a transaction, but that is absolutely the thinking and how we're modeling different scenarios inside the house. And I don't know Nick if you have I
think you covered it well. As far as it's great to have a financing plan assuming Kentucky a sale of Kentucky doesn't happen, but also it's great to have options available To further optimize what that financing plan looks like, so and I'll say again the timing Particularly with Traverse being the last one, it's the largest one in Q1 'twenty two, that times out pretty well with this process. So we'll get this resolved and it'll be financed one way or another, but at the end of the day the timing of it And the process is continuing on plan.
And just if I could to follow-up, Steve, again just to reiterate, The plan as it stands today, as you know, assumes no asset rotation. And again, I want to reinforce that the 5% to 7% is well intact even if we don't have a transaction.
Okay. And are you do you have a bias within that range at all or just kind of that's the range?
That's the part probably we can't answer at this point.
Okay. So you're being very unbiased. That'd
be very
smart move. Okay. Thanks so much.
Yes, sure thing.
Thank you. Our next question comes from the line of Shar Pourreza with Guggenheim Partners. Please go ahead. Good morning, Shar. Hey.
Good morning, guys. Wanted to start with a recent event and get your sense on the Mitchell order in Kentucky, sort of rejecting the rate increase you saw it. Obviously, It's not a surprise following AG's strong comments prior to the decision. Nick, is this sort of a signal that the state and the PSG in general, they're starting commit to maybe a little bit more of a rational thinking around an economic approach to coal, like the least cost approach is just starting to bend Further towards renewables. So how do we think about the viability of the plant in the state?
And can we see some acceleration of that 1.4 gigs of solar and wind you brought it Plan for the state on the prior calls is a direct read and then how do we sort of think about West Virginia's rate request coming off the Kentucky order?
Yeah, sure. It's sort of interesting. I mean it's multi jurisdictional as you know and Mitchell Is Wheeling and Kentucky Power and I think we have to get resolved Kentucky, Virginia and West Virginia. West Virginia is yet to speak on this issue, but and it's only the ALJ in Virginia, so we'll hear more from Virginia on that. But I think it's really important for us to really hold on to our cards for now because We got to get through a state process.
It's good to have clarity and I think Kentucky obviously is the 1st shoe to drop In this regard, but we've also made it clear that these are multi jurisdictional Units, so we have to make sure that there's some compatibility of the jurisdictions that are involved. We'll go through the process. We'll get the initial views of the commissions and then if they are on different Tracks, we'll have to further analyze and resolve that with the commissions. And there's a lot of resolution That could occur. Some are shorter, some are longer, but we have to understand where all three commissions are Before really doing anything here.
I think it's good to get clarity though, and I think it's pretty important That whether it's the ELG or the CCR, if they approve CCR investments but don't Approve ELG Investments, then that effectively brings the generation retirement dates back from 2040 to 2028. So that's something we have to consider along with those commissions, but we'll know more about this in the August timeframe. I'd be hesitant to say what Kentucky it's pretty interesting that They would be looking at the ELG part of it, and I think there is becoming more of an awareness of that there has to be a plan. Now what that plan is, We've got it fully resolved with all those commissions. So more to come on that.
Got it. And thanks for the visibility around Sort of the Kentucky process. I know Nick you obviously mentioned that further optimization is always a possibility. Remind us if like the trigger point is the shaping of that, for instance, that 16.6 gigawatts of renewables You discussed in the prior call, obviously Kentucky will more than likely backfill some of your North Central equity needs. So As we're thinking about further optimization, should we be watching like the outcomes of the IRPs, the PSC approval of how much you plan to own versus PPAs, which I guess would stipulate your incremental equity needs and the resulting size of potentially further optimization measures?
Yeah, yeah. So and just like we've gone through probably a couple of years now of discussions about how North Central is going to get financed And we're finally getting to a point where ultimately we'll know how it's being financed. The 16.6 gigawatts It's certainly we made a pretty credible case that we ought to own a significant part of that. I'd like to own all of it, but certainly if but operationally and from a Contracting standpoint and certainly the ability for us to respond to system related activities, it's important for us to own and control those assets. And I think that as we go forward, you're right, it will be the integrated resource planning filings that are made They'll start that dialogue.
Now we're in the process of doing RFPs to get more information obviously from the market in terms of what's out there from a developmental perspective and that process is ongoing, so that'll certainly fortify any CCN filings we have to make or anything like that after the resource planning filings. But the resource planning filings will be your The first real dialogue around how quickly this transformation will occur in each one of the jurisdictions And so we're feeling pretty good about it because it's getting to a point where we have to decide from a capacity standpoint How we support these utilities and it's pretty clear to me that the movement is to that clean energy economy, the movement is Toward as long as you have some element of baseload 20 fourseven capacity, that renewables will be the big part of that. So a lot of that's just becoming I think it's becoming much more transparent. And in our jurisdictions, I think their conditions, both federally and from a state perspective, they're just a better realization of what the options are And the timing of those options, and that's what we'll drive forward through that resource planning process.
Got it. And then lastly for me, and I apologize if I'm The news just broke out this morning. But is there any kind of read through to the FirstEnergy deferred prosecution agreement That was announced this morning to the SEC investigation at AUP.
No, like I I said before, we're on the outside looking in. We have no knowledge of any of that activity, and so If the report is true, I'm glad to see that there's some element of putting all this in the rearview mirror because Naturally, and I've said before, AEP has been hung up in the wake of that, And I'm certainly hopeful that there's some closure brought about from that. So But yeah, I have it was a surprise to me and we knew nothing about it and certainly There's really nothing else that we've that AEP can say other than what we've put on our website And naturally, there's just nothing to report from our perspective.
Terrific. Thank you, Nick and Julie. Congrats on today's results.
Yes. Okay.
Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please go ahead.
Good morning, Steve.
Hey, good morning.
How are you?
Congrats on a constructive update and on weaving in. I mentioned Both Carly Simon and the 2 fighters, I may be a first.
Yes, right.
So lots of things, Stuart. I just wanted to discuss on Kentucky, if there are Approaches that can help minimize tax leakage, how are you all thinking about sort of ability to bring proceeds back and sort of the impact of taxes?
Yes. Thanks for the question, Stephen. As you know, we're a little tax inefficient right now. So given the tax basis In Kentucky and the different hurdles that we're considering, I wouldn't see that one being a showstopper. And quite frankly, That might give us an opportunity to enhance or improve our tax efficiency without getting into a bunch of numbers.
I wouldn't let that Trivia in terms of what things could stop us moving forward.
That's helpful. And then maybe just thinking through the upcoming RFPs, you mentioned the APCO and SWAPCO R and Ds, could you just talk in a little more detail in terms of color around the timetable there? And I'm sorry if I missed that, if you all did go through it. I don't didn't quite follow there. I'm just thinking about sort of what that might mean for timing of incremental Spending and sort of how we should think about those processes?
Yes. So we've Certainly going through the basic requirements for the RFPs for all of these areas, but As we go through that process, there is at APCO, We issued an RFP there for 300 megawatts of solar and wind resources Really for a completion date of 2023 or 2024. And then in May of 2021, APCO issued an RFP to obtain, I guess it was 100 megawatts of solar and wind energy via PPA and RFP For the Renewable Energy Certificates only, which is consistent with Virginia and what their requirements are. And then, Swepco issued an RFP for own resources up to 3,000 megawatts of wind And up to 300 megawatts of solar resources with optional battery storage by the way that can achieve completion by 2024 the 2,005, and they're also seeking 200 megawatts capacity in the 23 to 24 range and another 250 in the 25 to 27 range, so those bids are due in mid August. And then at PSO, We in June, we notified the regulators that it intends to we intend to issue an RFP seeking up to 2,600 Megawatts of wind and up to 13 50 Megawatts of solar, again with options for battery storage consideration And that's meeting capacity needs by 2025.
So and then PSO plans to issue the RFP in October of this year. So those are the ones that are on the board right now and have really some near term related requirements And most are capacity related requirements. So And again, they're being done pretty much the same way as the others With North Central that we'll certainly do more of a turnkey type of thing where We take ownership at the time that it's approved in rates, so and then of course we'll go through the process Approvals by the various commissions along the way, so but that's the plan right now, and then we'll continue to Matter of fact, we're spending a lot of time with our Board focused on the strategies related to these types of filings And the plan long term and it's important for everyone to understand this is going to be a continual process And you're just seeing the first part of these really driven by capacity requirements And not just sort of an energy convenience. So I think they're really good to go out with right now And that's what we have at this point.
That's really helpful. That's all I had. Thank you.
Thank you. Our next question comes from the line of Jeremy Tonet with JPMorgan. Please go ahead.
Hi, good morning. Good morning. How are you doing? Good, good. Just wanted to pick up on Kentucky a little bit more if that's possible.
And just want to know if you might be able to comment in any degree to whether the Strategic review process has received more interest from strategic or financial players. And then as well, kind of Given strong prices achieved in recent industry transactions and the strong interest you know here in Kentucky, has this process made you thought about more asset rotation Beyond Kentucky to increase balance sheet headroom overall?
Yes. So for the first question, we started out this process Saying that we expected to get strategics and financials and we have strategics and financials. So both are involved. And then as far as your second question is concerned, As I said earlier with the Foo Fighters dialogue, this is going to be a continual process for us and if We're practically fully regulated, so we have the opportunities to look at, if we're building 16.6 gigawatts Of Renewables Resources during a transition, then we got to think we have to have everything on the table in terms of sources and uses. So We're going to go through that process and of course Kentucky is sort of a first stop And but we'll continue to evaluate our assets as sources and If it makes sense based upon what the other opportunities are, then that's the kind of framework that we want to move this company toward.
Got it. That's helpful. Thanks for that. And then there's news coming out of FERC with regards to kind of the transmission planning And just wondering if you might be able to provide some thoughts on what's been said recently and what you see as kind of best practices here?
Yes. So obviously, we'd like to see much better transmission related planning across regions. And AEP does a pretty good job itself in terms of transmission planning because we do have a large system to consider. But at the same time RTO to RTO type of planning process to try to make them more consistent so you can have This large transmission being built across regions and across states, If you're going to get that going, particularly as you're trying to get renewable resources to load centers, We're going to have to resolve these issues around multi jurisdictional, multi RTO type of analyses and making sure that we're consistent. The other part too is we've got to have consistency in terms of rate making.
And this notion of reevaluating incentives, structures And those types of things is not good for making decisions relative to transmission or and it's not good relative to the RTO model itself. So I think FERC really needs to sort of step back and take a look at I think it's a real positive approach to be focusing on the Planning aspects and addressing RTO to RTO boundaries, addressing areas where what's competitive, what's not competitive, all those types of things, That's fine, but we have to have a clear planning process and first of all, you can't have coming back later after a project Multi millions have been spent on a project to say, we're going to stop the project. That has to change. And the other part of it is, we've got to be able to make these investments with some sense of certainty and be able to move quickly to make that happen. So I just I think there's only so much value there's a lot of value in being in an RTO for customers, But there also has to be value for the companies involved to make the investments that benefit customers In orders of magnitude greater than what the costs are related to any incentives related to transmission.
If you want to send a bad message for anybody to join an RTO or anybody to stay in an RTO, It's just not good to start messing around with what the assumptions are relative to the future recovery of transmission investment. And now when you start questioning incentives, you're really questioning anybody that's trying to put a multi year model together to Joe, the benefits of transmission has to take that into account that something may change. It's sort of like trying to make an investment In a coal unit with clean energy activities going on in Washington. So you really do have to really think this process through and think about what you're trying to achieve. Sorry, I went on about that one, Ben.
No, that's helpful. Thank you for that. I'll stop there. Thank you. Thank you.
Thank you. Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please go ahead.
Hey, Durgesh. How are you?
Hey, good morning, Nick. Thanks for taking my question. Hey, you addressed sort of a lot of transmission questions in the Q and A. Maybe just like the MISO transmission Opportunity that the MISO has flagged perhaps to sort of unveil towards the end of the year. I know a small sort of A set of assets for you in that location, but could you compete for some of those projects?
Could that be an upside for you there?
Yes, we could. We could compete with our TransSource Entity, which we have been, but yes, we could and it's actually a small impact for us as it stands, but Certainly, we could certainly participate in any of that.
Understood. And then just Anything you're hearing at your level and your peers and through the sort of the EI organization, I mean, the infrastructure bill has Pretty sizable CapEx on the transmission side or investment on the transmission side. Just Anything you're hearing from that on the federal front?
Yes. So obviously We have the I guess this $1,200,000,000,000 the infrastructure bill that It's interesting we talk in 1,000,000,000,000 as opposed to 1,000,000,000 now, but in terms of the hard infrastructure side of things, It appears there's some kind of convergence in Washington on that Particular issue, although more has to be done on the actual language and things like that. But as far as pursuing the advancement Of certainly transmission investment, but direct pay and those kinds of issues are clearly important along the way. We also have to as far as renewables and clean energy, PTCs, ITCs, extensions of those, I think that Makes sense, particularly the IRS already did delays because of COVID and that kind of thing. So I think there's opportunities for that.
And then as far as electric vehicles, certainly we'd like to see electric vehicle infrastructure continue to be developed. So I think all of those areas are positive. The issue is how you leverage into the Private companies like ours that instead of the government funding And for transmission, for example, we think that mechanisms already exist for the development of transmission as long as you Keep all the incentives and all that kind of stuff, but so federal government funding of that now I think you have to sort of think about what level of encouragement in what area. So if they can make siding much better, if they can make Certainly the focus on planning those issues that enable transmission to get investments, we have no problem Financing transmission investments. So I think the government probably ought to pick and choose between What they truly want to focus on that's not already leveraged into the utilities, for example.
They could certainly encourage The development of electric vehicles with the focus on charging station infrastructure and those types of things That would be a benefit. And then as far as the renewables transformation or the clean energy transformation, Any kind of hard infrastructure around being able to move more quickly from a renewable standpoint, whether tax incentives and also other technologies like storage. And then also we'd like to see Benefits related to either tax incentives for coal fired generation to reduce the Undepreciated plant balances for example. If you want to have a national plan around moving to a clean energy economy Then the more quickly we can reduce undepreciated plant balances, The better we're able to make decisions and commissions and states can make decisions about what future resource replacements would be. I think there's several ways to really focus on this, but we're all moving toward a clean energy economy.
We just need to make sure That the government doesn't try to do too much across the board as opposed to Very selected areas that enable investment to continue in the private sector. That'd be my view.
I appreciate that color, Nick. Real quick, just good to see FirstEnergy resolve the DOJ investigation or at least have an agreement this morning they highlighted. Just any update on the SEC subpoena you got? Any more color that you can share with us?
No, nothing new there. We're We've been communicating with the SEC and we're responsive to any requests they have from a documentation standpoint And we're going to continue to work with them and be supportive and constructive in the process, But nothing new to report there.
Understood. Thank you for taking my questions. Yes.
Thank you. And our final question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead.
Nice try on that one.
Michael who?
Yes, exactly. Michael, the guy who's excited about the changes in the Southeastern Conference ahead. Hey guys, real quick question or 2. First of all, one on O and M this year. Obviously, O and M at the VIU segment is up a lot.
How do you think about what the second half of the year O and M trajectory looks like versus the first half? And how should we think about Both for VIU and T and D kind of segments, the long term kind of the 'twenty two and beyond trajectory for O and M?
Yes, I'll just generally say and Julie can certainly follow-up on this, but as you have expansions in customer load, You're going to have higher O and M associated with that, but that's a good expansion. The issue for us and what we typically do is, we're evaluating the true impacts of our Achieving Excellence program Against what our forecast needs to be in terms of bending the O and M curve. So we continue to take account of the good O and M that supports expansion from a customer load perspective, But also continue to not only optimize that, but also continue the overall Optimization of the O and M budget itself. So yes, you may see it and that's why obviously we're watching what 3rd quarter looks can't Q4 what the load does, but we want to make absolutely sure that we're continuing to make progress consistent with that plan Consistent earnings and dividend improvements in that 5% to 7% growth trajectory. So That's what we're doing.
We're not just saying, oh, yes, load's going up, let's spend more O and M. It really is a measured approach From our perspective, Julie?
Yes. No, that's spot on, Nick. And thanks for the question, Michael. As I'm sitting here thinking about this and as we were preparing for the earnings call, One of the things I'm looking at is to Nick's point, you look at where load is coming in. And as mentioned in a previous answer to a question, We do expect that load on a relative basis when you compare it to last year for the second half would not be as pronounced, Although we do expect it to continue to improve, so that's a good thing.
And that allows us to be a little more comfortable with O and M costs where they are because That does help the customer in the long run. So we keep that top of mind and continue to be very diligent about managing costs. But if you're trying to model for the rest of the year, let me start by saying this, we are not changing our guidance. But as you know, once we start the year And we give you that plan, so you see that waterfall that we give to you, how we get to the end of the year obviously changes, right, because it's a dynamic business. So I wouldn't be surprised if relative to that plan, if you saw O and M be running a little richer, But I would hope that load would be hanging in there too.
And then as you know, we're doing well on the transmission holdco segment, already kind of clicking along where we thought we would be for the full year. So There may be some benefit there too. So do keep that in mind when you go back and compare and contrast to that guidance walk that we gave to you. I think it was on February 25 during our earnings call. And then we're happy to help you with any modeling that you have offline.
Sounds great. Thanks guys. Much appreciated. Sure thing.
Thank you for joining us on today's call. As always, the IR team will be available to answer any additional questions you may have. Tani, would you please give the replay information?
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