AEP Retirees & Alumni

The new plant is expected to employ 1,000 workers with a possible second phase adding 900 more.

PSO played a major role in the biggest economic development project in Oklahoma history.

Enel North America (3Sun USA, LLC) recently announced plans to build a $1 billion facility to manufacture solar panels at Tulsa Port of Inola. The plant is expected to be constructed by the third quarter of 2024 and in full Phase 1 production by the third quarter of 2025.

Once the first phase is operational, the plant is expected to have 1,000 permanent employees and will be one of PSO’s largest customers.

The second phase adds another 900 jobs and could double its electrical load.

“The positive impact of this project will build prosperity in the community and across the state for years,” said Leigh Anne Strahler, president and chief operating officer of PSO. “This success results from months of hard work and cooperation by state leaders and economic development professionals, and PSO was happy to be an integral part of that team.”

Rumors of the project were circulating in the spring of 2022, but the real engagement started that fall, said Garrett Wright, economic and business development manager for PSO.

The deal-making took months of work under tight conditions of confidentiality. Those on the inside referred to it by a special codename, Project Sirius.

Wright said he only felt secure about the deal’s success about a week before it was publicly announced.

“In economic development, we work a lot of projects each year and only win a handful each year, if we are successful,” Wright said.

Why did this project fit at this site?

For one thing, the Inola location checked all the boxes for Enel and its site consultants, Wright said. The site was large, properly zoned and had its infrastructure issues settled. PSO and Tulsa Ports ensured all the due diligence was completed. The site was removed from residential areas and was controlled by a quasi-public partner.

Essentially, the site was “project-ready” for a large industrial user due to the years of investments made by AEP, PSO, and other economic development partners.

But a good site doesn’t seal the deal. That takes work – lots of it, by many people.

The PSO and AEP teams involved in the Enel effort, included Transmission Planning, Project Management, Customer Services, External Affairs, Regulatory and Finance, Energy Delivery, and many others, Wright said. Strahler also got involved at key moments to help the project to completion.

“Winning this project truly was a team effort of AEP, PSO – everyone – from our central group to our local group,” Wright said.

PSO’s established record of reliability and its strong renewable energy position also were important in the effort, he said.

“With PSO involved, Enel knew it would have the electricity it needed for the project and that they can be 100% renewable from day one,” Wright said.

The Enel announcement “sets the stage” for great things in Oklahoma, Wright said.

“We’ve proven Oklahoma can compete on major economic development projects,” he said. “This will open the eyes of site-location consultants and companies: They need to be looking at Oklahoma for their next economic development project.”

We made progress on our strategy in the first quarter, despite experiencing the second warmest temperatures in 30 years. AEP’s operating earnings for the first quarter were approximately $572 million. That’s roughly $45 million less than the first quarter of last year. While this isn’t an ideal situation, we’ve successfully navigated conditions like this before.

External factors can give AEP’s financial performance a boost or create drag. This quarter, two big external factors presented challenges:

• Unseasonable weather: Temperatures across our service territory were consistently warmer than average, so customers didn’t need to run their heat as much as usual.
• The timing of interest rate impacts: Part of AEP’s operations are funded by borrowing money for capital projects. It’s more expensive for us to do business when interest rates go up.
  • When you think about 2022, interest rates didn’t kick up until the second half of the year. Those interest rates have started to stabilize.
  • Comparing things year-over-year, AEP expects the negative impact of interest rates to be more prevalent in the first half of 2023. We already factored this into our operating earnings guidance for the year.

What Julie is saying: “AEP has a strong track record of delivering on our stakeholder commitments and demonstrating disciplined capital and operations and maintenance (O&M) cost management as we invest in a clean and reliable energy system to benefit our customers,” said Julie Sloat, president, chief executive officer.

Putting the quarter in perspective: It’s early in the year and we remain in a position to meet our operational and financial goals.

• Overall, our load growth was strong. Industrial and commercial load continued to grow. These increases more than made up for the decreases we experienced in residential load.
• Our economic development efforts continue to produce results. The increases in residential and commercial load are directly related to economic development projects we’ve been working on for years. For example, multiple data centers have been added in the territory and a new steel plant is coming online in Texas.
  • This activity also puts us in a better position to navigate the slowdown that’s happening in the U.S. economy.

Looking at the rest of the year: Our core business is in a strong position, and we’ve reaffirmed our operating earnings guidance range for this year. To keep things on track and ease the impacts of weather, we’re going to have to continue actively managing the business. This looks like:

• Continuing to de-risk the business and focusing on our regulated operations.
• Executing our regulated renewables plan.
• Limiting our discretionary O&M spend

William Woods, left, shows off the PSO/EPRI container garden to PSO President and Chief Operating Officer Leigh Anne Strahler, Food On The Move President and CEO Kevin Harper and Food On The Move founder Taylor Hanson.

A container garden cosponsored by PSO is the latest weapon in the battle against Tulsa’s food deserts.

And, thanks to the involvement of pop star Taylor Hanson, the effort is catching the public’s attention.

“PSO is excited to be part of this important project that will help build a more resilient community, increase access to healthy food and encourage STEM education,” said Leigh Anne Strahler, president and chief pperating officer of PSO. “Container gardens represent the crossroads of agriculture and technology. They produce abundant crops in a clean, energy-efficient manner.”

In October, the container garden was moved to the Tulsa campus of Food On The Move, a Tulsa nonprofit working to end local food deserts with an emphasis on using innovative solutions against legacy issues that have perpetuated hunger.

The unit uses LED lighting, recirculating water pumps, and advanced electronics and sensors to cleanly produce healthy food.

The container garden has been a model of productivity, said William Woods, who manages the unit for Food On The Move. By being careful about HVAC operations, Woods says the unit uses about 50% less power than comparable indoor agriculture units, but produces almost four times more food. The garden produces up to 78 pounds of kale a week — enough to serve 600 families — but only needs five gallons of water a week.

Taylor Hanson, founder of Food On The Move, came to fame as a member of the pop group Hanson, the three-brother group propelled to public attention by the 1997 Grammy-nominated hit “MMMBop.” The Tulsa-based band made a memorable appearance on “Saturday Night Live” and has continued to record and tour.

Hanson joined Strahler and other stakeholders Wednesday in a celebration of the unit’s success and potential, attracting the attention of community leaders and the media.

Hanson saluted the partnership with PSO and EPRI as a valuable way forward in his nonprofit’s goal to help feed the people of Tulsa.

“We believe in the power of innovation and partnership to help combat food insecurity and transform communities,” Hanson said. “The partnership utilizing the PSO/EPRI container garden has already embodied innovation, not only between Food On The Move and PSO, but directly with the communities we serve every day.

“We cannot wait to continue to serve our neighbors through the power of growing produce and bringing healthy food to all of Oklahoma.”

Food On The Move distributes the kale and a wide variety of produce at three community and food resource festivals each month. Each participant receives 30 pounds of fresh produce, a hot meal, and other assistance, such as health checks and resume assistance. Food On The Move also distributes food through existing food nonprofits, such as Catholic Charities. The group plans to add a much larger aquaponic facility and a low-cost grocery store on its site, located in the heart of Tulsa’s food desert.

The need is real in the area immediately around the container garden, said Kevin Harper, president and CEO of Food On The Move. A whole series of social problems grow from food insecurity, he said, “In north Tulsa, we’ve had a food crisis for decades.”

Hunger Oklahoma reports that lack of food increases illness and reduces academic performance, costing Oklahoma $1.4 billion a year. Some 19% of Oklahoma households experience food insecurity.

Strahler said the container garden is also an important tool for STEM education. Food On The Move has established an elective class at Tulsa’s Madison Middle School where hydroponics, aquaponics and food preparation using container garden produce are taught. PSO has used its long-standing connections with Oklahoma FFA to promote the use of container garden data in student indoor agriculture studies.

Frank Sharp, technical executive for EPRI, said the Tulsa container garden is one of 20 that EPRI has sponsored with U.S. utilities, including units cosponsored by SWEPCO and AEP Ohio.

After a year of producing kale to gather data comparable to other EPRI container gardens, Food On The Move plans to grow a variety of vegetables there.

To learn more about Food On The Move, including volunteer opportunities, click here.

American Electric Power today reaffirmed its commitment to Kentucky customers and outlined its strategic plans for Kentucky Power and AEP Kentucky Transco. AEP and Liberty, a subsidiary of Algonquin Power & Utilities Corp., have agreed to terminate the previously announced transaction under which AEP would sell its Kentucky operations to Liberty.

“We’ve served Eastern Kentucky for more than 100 years, and we are working diligently to reimagine our strategy with the goal of not just supporting Kentucky but being an essential part of its economic and energy future,” said Julie Sloat, AEP president and chief executive officer. “We believe there are opportunities ahead for our Kentucky operations, and we will focus our efforts on economic development and providing reliable service for customers.

“To the employees in Kentucky, thank you. Thank you for continuing to work safely and providing great service for our customers. We know that this has been a long process and that the uncertainty has been difficult and stressful. I am confident that we have the right team in place to lead this effort and power the future in Eastern Kentucky,” Sloat said.

AEP and Kentucky Power leadership are sharing information with Kentucky employees in a series of meetings.

“I am happy to announce that Cindy Wiseman has been named president and chief operating officer for Kentucky Power. She is a proven leader in Kentucky and will continue to be a familiar face to our employees, customers and stakeholders,” said Peggy Simmons, executive vice president – Utilities. “I also want to express my appreciation to the employees of Kentucky. Please continue to work safely. Stay focused on the task at hand and continue to serve our Kentucky customers in the way you have throughout this process. The entire AEP team sincerely thanks you for your unwavering commitment to safety, our Kentucky customers and each other.”

Mitchell Plant is still owned by Kentucky Power and Wheeling Power, and the operating agreement remains in place. Employees working at Mitchell will remain Wheeling Power employees.

AEP ended 2022 on a high note and management reaffirmed the 2023 guidance and long-term earnings growth rate of 6-7%. However, stock price in YTD 2023 so far has been a bit rocky. This Street Wise edition will provide insights into recent stock price behavior specific to the utility sector.

AEP’s 2022 Strong Performance

AEP finished 2022 with a solid performance delivering YTD 2022 operating earnings of $5.09, beating analysts’ estimates. Strong load growth, favorable weather and continued investment in AEP’s regulated utilities and transmission drove the positive results. In addition, management reaffirmed 2023 operating guidance of $5.19-5.39 and the long-term earnings growth rate of 6-7% underpinned by a robust 5-year capital plan. Lastly, management reiterated the commitment to simplify and de-risk the business by highlighting updates to the signed agreement for the sale of contracted renewable assets and the Kentucky operations sale expected to close following FERC approval. Analysts and investors were upbeat on another strong earnings beat and our 2023 outlook. They were also pleased by management’s ability to successfully execute the contracted renewables transaction.

Andrew Weisel of Scotia summarized, “We’re impressed with another strong earnings beat, elongating AEP’s track record as one of the best at beating guidance and consensus forecasts. We remain confident in our estimates for 2023+, which are at or near Street-highs for all years. We’re also impressed with the announced sale of contracted renewables for $1.5B, supporting the balance sheet without a notable impact to EPS.”

AEP’s stock price finished 2022 up 6.8%. Comparatively, the UTY Index (Philly) was down 2.4% YTD, the S&P Electric Utility Index was down 0.8% YTD and the S&P 500 was down 19.4% YTD.

With such a strong performance in 2022, one may wonder what caused the recent slump in the stock price YTD 2023. To answer this question, we need to look at the macroeconomic impact of a rising interest rate environment and its effect on the utility sector as a whole.

Interest Rates are Everything – Again

In general, interest rate volatility directly influences utilities because utility stock performance has an inverse relationship with interest rate activity. As interest rates fall, utility stock prices typically increase. As interest rates rise, utility stock prices usually decline. This is due to the corresponding yields available on government bonds. With rising interest rates, government bonds can be more attractive to some traditional investors. Additionally, the capital-intensive nature of the utility industry means utilities rely on debt for funding. When interest rates rise, the cost of doing business is higher for utilities since borrowing costs increase.

This inverse relationship broke starting in 2020. Despite the collapse in interest rates, utilities underperformed in 2020-2021 due to the impacts of working from home and investors’ attraction to technology stocks. In 2022, due to economic uncertainties, investors strengthened their positions in utilities despite rising interest rates. This could be attributed to investors’ flight to safety with rotations out of the risker technology stocks and into defensive stocks such as utilities, which typically deliver stable earnings and consistent dividends. The strong performance in 2022 drove utilities’ prices up and investors viewed utilities as expensive relative to bonds, resulting in the reversion witnessed at the beginning of 2023.

We are now back where we started, utilities trading with a high correlation to the inverse of interest rates. Steve Fleishman of Wolfe Research summed it up as follows, “Utilities underperformance continues. Earnings season wasn’t as bad as feared and relative earnings estimates vs. the market are actually improving. This is clearly a macro shift away from defensive, as utilities are at the bottom of the heap. The high-interest rate environment remains a clear headwind for the sector.”

Although 2023 has been a rocky start, management is optimistic about AEP’s 2023 outlook, including another year of projected retail load growth and confidence in our teams’ strong ability to execute on investments in regulated utilities and transmission.

On March 3, 2023, AEP’s stock closed at $89.09, down 6.2% YTD. Comparatively, the UTY Index (Philly) was down 7.5% YTD, the S&P Electric Utility Index was down 7.3% YTD and the S&P 500 was up 5.4%. In addition, the 10-year yield moved above 4% in March 2023 for the first time since November 2022.

Upcoming Events

Over the following weeks, Investor Relations will accompany AEP Management Team in conducting one-on-one meetings with investors at the JP Morgan conference in Chicago on April 5 and the Credit Suisse conference in New York City on May 17.

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Watch for future Street Wise editions discussing earnings, regulatory updates and market trends related to AEP and the electric utility industry.

AEP closed at $89.09 March 3, posting a total return of -3.59% since Feb. 17. During the same period, the S&P Electric Utilities Index total return was -2.94%, and the S&P 500 Index total return was -.75%.

We often hear technology is rapidly evolving. Douglas Horstmann, Technology manager based in South Bend, Ind. knows that all too well. This month Horstmann celebrates his 44^th anniversary with I&M. Over the years he had a front row seat to numerous technological advancements.

Horstmann started his career with I&M in 1979. That’s the year email capabilities and technical support was offered to those with computers and the world’s first cellular network launched in Japan.

Douglas Horstmann celebrates 44 years at I&M.

“The introduction of the personal computer and the internet completely changed not only how we did business, but the entire world. It was amazing to see how the technology changed and so rapidly,” Horstmann said. “Also, the moderation of the power grid and fiber optic connections tremendously changed the future of energy delivery. The grid is still evolving, so it’s been cool to see it all grow and develop to better serve our customers.”

Horstmann has worked as a transmission engineer, telecom engineer and a telecom manager.

“My favorite part about working here is the people. I get to interact with several departments and get to know folks,” Horstmann said. “The best day is each day we all go home in the same condition or better than we arrived at work.”

Horstmann goes on to say he has seen a big cultural shift in his more than 16,000 days with I&M. He boasts AEP and I&M are great companies to work for and offers this advice to those just starting their careers.

“Make sure you take your time to learn your new career. You can’t learn everything overnight,” Horstmann said. “No matter what department you’re in, remember to keep safety and watching out for one another is our top priority.”

If you see Horstmann around in the halls or in meetings, congratulate him!

“I can’t believe the time went by so fast. I have enjoyed every job, every one I’ve worked with and every year I’ve worked here,” said Horstmann.

Retirees and active employees worked to complete this house in Columbus for the Ba family.

AEP active and retired employees recently completed their 25th home build in central Ohio.

Since 1996, AEP has partnered with Habitat for Humanity (HFH) MidOhio to provide homes to families in need.  AEP is Habitat’s largest and longest serving regional partner.

Volunteers have served in roles ranging from roof installation to interior painting. And the AEP Foundation has provided financial support to many of these projects.

During this partnership, AEP and the AEP Foundation have contributed over $3 million, 12,000 volunteers and more than 78,000 hours to HFH MidOhio.

“Habitat for Humanity MidOhio has done so much for families in the region and the AEP Foundation is proud to support their work,” said Janelle Coleman, president, AEP Foundation. “Affordable housing is an ongoing issue for our communities, so we’re looking forward to continuing this partnership and supporting Habitat for Humanity MidOhio in the years to come.”

Keys to the milestone 25th home, located in the East Linden neighborhood, were turned over to the Ba family in January.

Eight AEP retirees supported this effort. Those volunteers include Jim Rosing, who led AEP’s partnership with HFH MidOhio for many years.

Kirk Nofzinger, audit engagement manager, has also been key to the partnership. Nofzinger helped organize the 25th build and has served as the partnership’s community champion since Rosing’s retirement.

“Every home we build is special because of what it means to the families,” said Nofzinger. “This project has added importance because it’s a milestone in our partnership with Habitat for Humanity. We’ve got great relationships and a lifetime of memories with their team.”

The Ba family home was built to meet green and energy efficiency standards. This provides a comfortable environment for the family and affordable monthly expenses.

Work on the 26th home is expected to begin in the summer.

“I would encourage all employees to consider volunteering for a local HFH project,” said Nofzinger. “You don’t need to have any construction experience to be helpful and the work is both fun and fulfilling. You’ll also build great relationships and make a lasting impact on a family in need.”

AEP refined our financial and operations focus in 2022. Our message of active management and investing in renewables and infrastructure went over well with Wall Street. We grew our earnings in the fourth quarter of 2022 and for the year overall.

What Julie is saying: “Our focus on building a safe, reliable and cleaner energy system for the future while keeping rates affordable and attracting new business is delivering benefits for our customers, communities and investors.”

2022 highlights: The theme for last year was that we delivered on our commitments to stakeholders. Here’s how we did that:

• Strong earnings: We generated strong earnings, with operating earnings coming in at $5.09 per share.
  • In 2022, we raised and narrowed our operating earnings guidance range to $4.97 to $5.07 per share. We also increased our long-term growth rate to 6% to 7%.
• Regulated renewables: In March, the North Central Energy Facilities wind project was completed. North Central is an important step in our commitment to transform our generation fleet. Successfully bringing one of the largest wind projects online shows investors we’re making progress on our strategy.
• Load growth: We saw load growth in all the states where we operate. Increased growth in commercial and industrial sales helped increase our overall growth, even though residential growth was flat.
• Wins from economic development: We experienced strong growth in 2021 and 2022. Much of this success can be traced back to our long-term economic development efforts. Work done several years ago to help attract new businesses to our service territory is now generating benefits for us and communities as these companies begin operations. Growth and new jobs helps keep rates affordable for customers.

The plan for 2023: There’s a lot going on in the U.S. economy – inflation, high interest rates and higher energy costs. This is top of mind for investors and for our customers. Even though we’ll likely face continued economic challenges this year, we have a plan to keep ourselves on track:

• Keep projects in our capital plan moving: Our 2023-2027 capital investment plan is $40 billion with an emphasis on wires and renewables.
  • Any issue getting critical supplies has the potential to impact our strategy. In 2022, we were able to navigate the supply chain crisis better than most companies, which allowed us to keep our plans on track.
  • Our Procurement and Supply Chain teams have been working with other business units, the federal government and other utilities to address this continuing challenge. They also expanded our supplier network for critical items like distribution transformers and voltage regulators.
• Focus on regulatory activity and legislative initiatives: Getting favorable regulatory outcomes is critical to the financial health of our company. We’re working across our service territory on base rate cases and approvals for our regulated renewables.
• Continue to be mindful of costs. Affordability is a key issue as customers are managing higher fuel and other costs. We all need to be mindful of costs and challenge ourselves to operate as efficiently and effectively as possible.
• Make progress on our efforts to de-risk the business: Investors are looking for us to close on the sale of Kentucky Power to Liberty and on the sale of our unregulated contracted renewables. We also expect to complete our strategic review of the AEP Retail business in the first half of this year.