American Electric Power Company Inc (AEP) — Q3 2025 Transcript

Good morning, and welcome to American Electric Power's Third Quarter 2025 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under Events and Presentations. Joining me today are Bill Fehrman, Chair, President and Chief Executive Officer; and Trevor Mihalik, Executive Vice President and Chief Financial Officer. In addition, we have other members of our management team in the room to answer questions if needed, including Kate Sturgess, Senior Vice President, Controller and Chief Accounting Officer. We will be making forward-looking statements during the call. Actual results may differ materially from those projected in any forward-looking statement we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We will take your questions following opening remarks. Please turn to Slide 6, and let me hand the call over to Bill.

Thank you, Darcy, and welcome to American Electric Power's Third Quarter 2025 Earnings Call. I'm happy to be with everyone this morning. This is a transformative moment for our industry, and I'm proud that AEP is standing out among our peers as one of the fastest-growing, high-quality pure-play electric utilities. Over the last year, to ensure AEP is extremely well-situated for unprecedented growth and value creation, we have welcomed several new proven leaders. We have made significant changes to the organization to grow financial strength and deliver constructive regulatory and legislative outcomes while at the same time driving accountability and operational excellence. I believe this is a different AEP from the past. Our winning team is executing at an accelerated pace to grow this incredible company and deliver results for our customers and shareholders as we invest significantly in infrastructure across high-growth regions in our impressive 11-state service territory. We align our business with state and federal goals and achieve positive legislative and regulatory outcomes while leveraging our size and scale to manage cost and supply chain pressures. For example, AEP is one of the best-positioned utilities in the industry with 8.7 gigawatts of gas turbine capacity currently secured from major manufacturers and a high-voltage equipment agreement in place with a key industry player. As a result of our tremendous progress and rapidly growing opportunity in front of us, we are extremely excited to announce our new increased long-term operating earnings growth rate of 7% to 9% for 2026 to 2030, with an expected 9% compounded annual growth rate over the 5-year period. This impressive growth rate is driven by one of the largest capital plans in the industry, $72 billion, which is underpinned by massive system demand and supported by a balance sheet demonstrating strong credit quality. There is a lot to be excited about at AEP. And in my remarks today, I will provide an overview of our strong financial results and outlook before speaking to the drivers behind our growth trajectory, our recent regulatory and legislative progress, and our focus on affordability for customers. We are pleased to share that AEP reported third quarter 2025 operating earnings of $1.80 per share or $963 million. These results, in combination with our strong financial performance in the first half of the year and ability to execute, give us confidence in reaffirming our 2025 full-year operating earnings range of $5.75 to $5.95 per share, while guiding to the upper half of this range. We are also unveiling our 2026 operating earnings guidance range of $6.15 to $6.45 per share, which is an approximate 8% increase based off the 2025 guidance range midpoint. Electricity demand growth is happening, and we are seeing it play out across the country in real-time. Regions with concentrated data center and industrial development, including AEP's footprint, are emerging as clear winners. Large annual capital budgets from hyperscalers totaling hundreds of billions of dollars reinforce the conviction, strength, and staying power of this demand growth. At a high level, AEP's revised long-term earnings trajectory has been updated to reflect the strong load growth we are experiencing across the communities we serve. We project a system peak demand of 65 gigawatts by 2030 within our diversified service territory, especially in Indiana, Ohio, Oklahoma, and Texas. This growth is fueled by data centers, reshoring of manufacturing and further economic development, which we expect to create jobs in local communities and maintain affordability as our load grows by almost 76% in the next 5 years. The 65 gigawatt AEP system-wide projection now includes 28 gigawatts of contracted load additions on top of our existing 37 gigawatt system. These incremental 28 gigawatts, up from our formerly reported 24 gigawatts, are backed by electric service agreements or letters of agreement, protecting us and our customers from changes in planned usage. I also want to emphasize that it is critically important that costs associated with these large loads are allocated fairly and the right investments are made for the long-term success of our grid. For that reason, we have secured commission approvals for data center tariffs in Ohio and large load tariff modifications in Indiana, Kentucky, and West Virginia, with pending tariff filings in Michigan, Texas, and Virginia. These baselines are designed to protect other customers from bearing the cost of grid improvements required to meet the energy demands of large load customers. As you can see on Slide 8, we have unmatched transmission scale and expertise, and large load customers are drawn to our footprint because of AEP's advanced transmission system. Through innovation, we pioneered the modern 765 kV transmission system in North America. These are the highest voltage lines that form the backbone of the transmission network. We have over 60 years of expertise in design, construction, and operation of assets like these, and many current industry standards and practices for 765 kV transmission were developed by AEP. Today, AEP owns and operates in excess of 2,100 miles of these ultra-high-voltage 765 kV transmission lines across 6 states, representing 90% of the 765 kV infrastructure in the U.S. This is more 765 kV lines than all other utilities combined, uniquely positioning us with the biggest electric transmission system in the country to attract customers who need large volumes of consistent and reliable power. Building on this, AEP was recently awarded 765 kV projects in the ERCOT Permian Basin and through the PJM regional transmission expansion plan, setting us up well for future growth opportunities. These transmission awards were included in our new $72 billion capital plan spanning over the next 5 years. By combining AEP's vision for a modern, reliable grid and our partnership with a major energy infrastructure equipment provider, we can accelerate the development of 765 kV projects that are essential to meeting future reliability, resiliency, and energy delivery needs. Turning to Slide 9, we are focused on operational excellence to advance service and reliability interests in each of the states we operate in while achieving constructive outcomes that are good for our customers and our shareholders. AEP's operating company leadership is changing how we run our businesses, and we are working diligently with legislators and policymakers for constructive outcomes. I personally have been actively engaged and met with regulators and leaders across all 11 states that we have the privilege of serving to better understand each of their needs and priorities. In addition to better serving our customers, all of these efforts will help us to reduce regulatory lag and improve forecasted regulated ROEs to 9.5% by 2030. This will support operating cash flows as we drive forward with $72 billion in infrastructure investment while maintaining affordability. In 2025, we have been involved in the passage of constructive state legislation. Some of these positive legislative outcomes include Ohio House Bill 15, which establishes a new regulatory framework with a multiyear forward-looking test period with true-up provisions for AEP Ohio rate cases. Oklahoma Senate Bill 998, which authorizes the deferral of plant costs placed in service between rate cases at PSO, and Texas House Bill 5247 that allows for a single annual unified tracker mechanism to recover depreciation and carrying costs associated with capital investments at AEP Texas. The improvement in the customer experience and stakeholder relationships also results in positive regulatory outcomes as we put power in the hands of our local leaders to build financially strong utilities in the communities we serve. Our operating companies continue to advance ongoing base rate cases including AEP Ohio, Kentucky Power, and SWEPCO in Arkansas and Texas. We look forward to working with stakeholders to achieve positive and balanced outcomes that benefit both our customers and investors. As an update on the case that APCo filed late last year in West Virginia, we are pleased that the commission issued an interim order with full approval of the $2.4 billion securitization proposal, which will enable the redeployment of capital throughout our business while at the same time driving affordability to our West Virginia customers. However, we are not finished with the recent base case order in West Virginia. There is more work to be done, as evidenced by APCo's reconsideration filing made last month centered around adjustments to the authorized ROE, capital structure, and rate base. We continue to have conversations with state leaders regarding fair financial returns that they desire to attract more capital and make West Virginia an energy hub. Moving on to resource adequacy, electricity demand growth is putting pressure on reliability, and this new demand is driving the need for generation diversity, including significant generation additions or retirement delays. I will highlight several recent key developments that help support AEP's generation resource adequacy needs and reinforce grid stability for our communities. In August, parties reached a unanimous settlement on I&M's acquisition of the 870-megawatt combined cycle natural gas generation facility in Oregon, Ohio. This follows commission approval of Green Country, which is PSO's 795-megawatt natural gas-fired facility in James, Oklahoma. In September, generation resource filings were submitted by I&M for up to 4.1 gigawatts and by PSO for approximately 1.3 gigawatts. And earlier this month, APCo filed an integrated resource plan in West Virginia for roughly 5.9 gigawatts of resource needs over the next 10 years, outlining our strategic approach to meeting future energy and capacity requirements through a balanced approach. In summary, additional capacity is needed to ensure the availability of continued reliable power for both current and future customer needs while providing more efficient and timely regulatory approval processes. AEP is well positioned to be a significant player in meeting these generation needs. Beyond these filings and in line with our history of innovation, we continue to explore generation solutions for the benefit of our customers during this period of massive demand. We previously announced our participation in the early site permit process for 2 potential small modular reactor or SMR locations, one in Indiana and another one in Virginia. As we evaluate these exciting opportunities, our moving forward with SMR considerations will require strong capital investment protections, safeguards for our balance sheet and credit metric strength, and clear regulatory and governmental support. And finally, as seen on Slide 10, I would like to reiterate that our team is keenly focused on customer affordability as we advance our $72 billion capital plan over the next 5 years. We are mitigating residential rate impacts through affordability levers, including incremental load growth, rate design, continuous focus on O&M efficiency, and financing mechanisms like securitization. Earlier this month, AEP also closed on a loan guarantee from the U.S. Department of Energy related to upgrading 5,000 miles of transmission lines. The loan backs projects that enhance reliability while also supporting economic growth in our states and reducing bill impacts for customers. As we ramp up our investments in this electric infrastructure super cycle, more of the incremental costs are assigned to commercial and industrial customers who are driving the increased investment. We forecast residential customer rates to increase on the system average by approximately 3.5% annually over the 5-year period. This is relatively mild and below the 5-year historical average inflation rate of over 4%. Wrapping up, we have had an extremely busy and productive year so far with the entire team working at an unmatched pace to deliver results for all stakeholders. We are investing substantially to meet an extraordinary moment in our industry, engaging with our regulators and state leaders to deliver on their key policy objectives and taking concrete steps to keep customer bills affordable. I have great confidence in our strategy and team, and I am excited about the opportunities ahead as we drive growth and create value for our investors. With that, I will now turn the call over to Trevor, who will walk us through the third quarter performance drivers and provide details surrounding our incredible financial growth outlook.

Thank you, Bill, and good morning, everyone. I'm excited to share several key updates with you today. I will begin with a review of our third quarter and year-to-date financial results, followed by an in-depth look at our newly established long-term operating earnings growth rate of 7% to 9%. Building on Bill's comments, I will also highlight the exceptional load growth we are seeing, supported by the updated $72 billion 5-year capital plan. And finally, I will wrap up with remarks on our financing strategy. Let's now walk through our financial results starting on Slide 12. Operating earnings for the third quarter totaled $1.80 per share compared to $1.85 per share in the same period last year. This change primarily reflects the impact of the prior year sale of the on-site partners distributed resources business within Generation & Marketing. Turning to Slide 13, year-to-date operating earnings totaled $4.78 per share, up from $4.38 per share in 2024. You will see that this represents an increase of $0.40 per share or approximately 9% year-over-year. This strong year-to-date performance was mainly driven by favorable rate changes across multiple jurisdictions, strong transmission investment execution, and continued benefit from load growth. Notably, we saw significant commercial and industrial load growth of nearly 8% on a rolling 12-month basis as of September 30, 2025, compared to the same period last year. Recall, a majority of our large load customers are under take-or-pay contracts, which I'll address in more detail shortly. Additional information on our sales performance can be found in the appendix. These positive drivers were partially offset by increased spending on system improvements, depreciation tied to higher capital investments, and interest expense. Similar to the quarterly results, our year-to-date performance in the Generation & Marketing segment reflects the prior year sale of the distributed resources business. While this transition led to a lower contribution from the segment, it was meaningfully offset by favorable energy margins, which helped support overall results. Our strong year-to-date results provide us with the confidence to guide to the upper half of our 2025 operating earnings range of $5.75 to $5.95. Please turn to the next slide. We've established our 2026 operating earnings guidance range at $6.15 to $6.45 per share with a midpoint of $6.30. This reflects nearly an 8% increase over our 2025 guidance midpoint and is fully aligned with our newly introduced long-term operating earnings growth rate. As Bill mentioned earlier, we are excited to announce our increased long-term operating earnings growth rate of 7% to 9% annually from 2026 through 2030 with an expected CAGR of 9% over the 5-year period. We anticipate growth to be in the lower half of the range for the first 2 years and at or above the high end of the range in 2028, 2029, and 2030. This outlook is supported by our exceptional load growth fundamentals, highlighted by 28 gigawatts of incremental contracted load backed by electric service agreements or letters of agreement. This unprecedented demand serves as the foundation of our expanded $72 billion capital investment plan, positioning us to deploy the critical infrastructure needed today while actively shaping the energy infrastructure landscape of tomorrow, building a more reliable, resilient grid of the future. Turning to Slide 15, we're illustrating AEP's strong load forecast for the period from 2026 through 2030. There are three defining characteristics I'd like to emphasize. Our load growth forecast is big, conservative, and drives our capital strategy. First, it is big. In this quarter alone, approximately 2 gigawatts of data center load came online, roughly equivalent to 2 large-scale nuclear power plants. And for the 28 gigawatts of forecasted additions, this is equivalent to almost doubling our current system. Customers behind this growth are substantial with approximately 80% coming from data processors, including large hyperscalers such as Google, AWS, and Meta. These are well-capitalized global firms with sustained demand profiles. The remaining 20% is driven by new industrial customers. These include major projects such as Nucor Steel Mill in West Virginia and Cheniere's LNG facilities in Texas. Together, these diverse customer groups form a strong foundation of long-term partnerships in infrastructure development, driving substantial energy demand and economic growth to the communities that we serve. Second, it's conservative. Our forecast is not a theoretical model. It's built on signed contracts. From roughly 190 gigawatts of customer interest, we have distilled this down to 28 gigawatts of executed financial commitments. We have evolved our contracting strategy to sign full take-or-pay agreements earlier in the development cycle, helping us to filter out speculative load. Commission approved tariff reforms have strengthened these contracts, especially in our vertically integrated businesses, but generation investments must be tightly aligned with the real demand to protect customer rates. Finally, this load forecast is the foundation of our capital plan. To serve this growth, AEP must deliver more than 100 million-megawatt hours of incremental power annually by 2030. Meeting this demand will require a scale of capital investment that sets a new benchmark for AEP. I will walk through the details of our large capital plan on Slide 16. Our $72 billion 5-year capital plan represents a more than 30% increase over our previous plan. Over two-thirds of this investment is directed towards transmission and generation, supporting the extraordinary load growth I mentioned earlier. In addition, nearly one order of the plan is focused on strengthening our distribution network, including system enhancement programs and other grid modernization efforts that are critical to improving reliability and performance for our customers. This capital plan drives a 5-year rate base CAGR of 10%, with nearly 90% of the investment recovered through reduced lag mechanisms, including formula rates, forward-looking test years, capital riders, and trackers. Importantly, we are applying a ruthless capital allocation lens to every dollar we deploy, ensuring that each investment is aligned with customer needs, regulatory efforts, and long-term shareholder value. This disciplined strategy allows us to prioritize high-impact projects and maintain financial strength as we execute at scale. Let's turn to Slide 17 to discuss our high-growth transmission business. As Bill mentioned earlier, large load customers are drawn to our footprint because of AEP's world-class transmission system, particularly our ultra-high voltage 765 kV backbone. Our unmatched expertise in the design and construction of ultra-high voltage transmission continues to secure major projects, positioning AEP as one of the industry leaders best equipped to meet and capitalize on the accelerating AI-driven demand. Transmission is a core engine of value creation for AEP. In fact, more than 50% of our projected 2026 operating earnings will come from this high-growth business. Looking ahead, our transmission rate base is expected to exceed $50 billion by 2030 and generate substantial shareholder value through a highly constructive regulatory framework. Next, I will cover our 5-year financing plan on Slide 18. This plan is built on strong cash flow from operations driven by disciplined investment execution, favorable legislative and regulatory developments, and a continued focus on cost management. It supports robust liquidity, and with only about 25% of our outstanding debt maturing through 2030. In addition, we remain committed to returning capital to our shareholders through consistent dividend growth. A key component of the plan includes a modest amount of growth equity totaling $5.9 billion. In fact, we have limited near-term equity needs, with over 80% of the growth equity projected to be issued during the back half of the 5-year plan. This financing plan is designed with flexibility in mind, enabling us to evaluate and deploy the most efficient financing tools to support our capital expansion. Over the planned horizon, we are targeting an FFO to debt ratio of 14% to 15% for both S&P and Moody's. We currently exceed our FFO to debt target with S&P at 15.7% this quarter and comparatively we are above our 13% downgrade threshold at Moody's. We expect to be near our 14% target with Moody's by the end of 2026 and in the targeted range for the remainder of the plan. Additional details on our third quarter FFO to debt metrics can be found in the appendix. Before we open the line for your questions, let's turn to Slide 19 and recap the key takeaways from today's discussion, each one reinforcing why we are so energized about AEP's future as a high-growth, high-quality pure-play electric utility. First, we have delivered exceptional financial performance year-to-date, which gives us the confidence to guide to the upper half of our 2025 operating earnings range of $5.75 to $5.95. This reflects not only disciplined execution as we leverage our size and scale but also the strength of our streamlined organization, which is driving accountability, operational excellence, and results. Second, we formalized our large $72 billion capital plan driving a 10% 5-year rate base CAGR with nearly 90% of investment recovered through reduced lag mechanisms. We're applying ruthless capital discipline to ensure every dollar deployed delivers on customer priorities, regulatory alignment, and long-term shareholder value. Third, today, we introduced an increased long-term growth rate of 7% to 9%, with growth expected to be at or above the high end of the range in the final 3 years of the plan. This marks a strategic step forward in our outlook grounded in real accelerating demand. Fourth, our earnings growth is underpinned by strong load growth, driven by our ultra-high voltage transmission backbone that continues to attract new customers into our footprint. This growth outlook is not only substantial, but it's also conservative and it forms the foundation of our $72 billion capital plan. Fifth, affordability and balance sheet strength remain central to our strategy as we execute our multibillion-dollar capital plan with discipline. We are forecasting average system residential customer rates to increase at approximately 3.5% annually through 2030, well below the 5-year average rate of inflation of 4%. This reflects our commitment to ensuring cost stability for our customers as we invest in the system. At the same time, our financing strategy is grounded in strong cash flow from operations, with over 80% of growth equity projected to be issued during the back half of the plan. This approach is intentionally designed to support disciplined capital expansion through efficient financing while maintaining financial strength and flexibility. And finally, our momentum is further supported by constructive legislative and regulatory progress as we continue to empower local leadership and build financially strong utilities in the communities we serve. These efforts are expected to reduce regulatory lag, trim the gap between earned and authorized ROEs, and support strong operating cash flows. I am truly excited to be part of this journey. I firmly believe AEP is one of the most compelling companies in our industry, uniquely positioned to lead, grow, and deliver in today's transformative environment. With a clear strategy, the strength of our size and scale, disciplined execution, and unmatched infrastructure capabilities, we are well equipped to seize the opportunities ahead with confidence and create significant value for our stakeholders. We appreciate everyone's time today and your interest in AEP. We look forward to seeing many of you at the EEI conference in the next couple of weeks. And with that, I will now ask the operator to open the line so we can take your questions.

Just a couple of questions. If I'm looking at Slide 14, that looks like a pretty big earnings step-up as I look at the CAGR going out on the bars in 2028. Can you just kind of maybe Trevor, walk through the drivers of that? And is part of that maybe the schedule and timing of the Ohio rate case filing or under the new construct? Or how should I be thinking about it?

Yes. Thanks, Ross, and I appreciate you joining today. We do see a lot of the earnings being driven by the capital plan. And certainly, in the middle part of the plan in '27 and '28 is when the most CapEx gets deployed. And so we're seeing the capital plan peaking at about $17 billion in the middle part of the plan. And that's really what's driving a lot of the increase in the earnings for that step-up in that period. The other thing is, as you say, we've also gotten some positive legislative and regulatory outcomes that will manifest itself in that part of the planning cycle. And that includes the forward-looking test year in Ohio. Certainly, HB 5247 in Texas is a huge benefit to attracting capital to the state and having us deploy capital, which also is helping to narrow the gap around ROEs. And then also SB 998 in Oklahoma is another piece of legislation that also is helping narrow the gap.

That's very fair, Trevor. And I guess as I look at Slide 18, talking about $5.9 billion of equity in the plan. How are you thinking about the composition of the business? Do you think there's more potential for minority stake sell-downs? Or how should I think about addressing that equity need over time?

Yes. I'll take the equity, and then I'll let Bill address where he thinks we are with regards to potential any other sell-downs. But what we've tried to do is recall that we've said that we anticipate between 30% and 40% equity with regards to increasing the capital plan. And so when we laid out the $18 billion increase in the capital plan, this is roughly, call it, 33% of growth equity. The good news is because we've been very proactive under the $54 billion existing capital plan with both the asset sale in the Transcos this year as well as issuing the equity for the full 5-year plan, we really have a situation where a lot of that growth equity is now in the back end of the plan. And so what we will do is we're showing an ATM in 2026 of, call it, roughly $1 billion. And then we don't need equity for a period of time in the middle part of the plan. And then as we get to the back end of the plan, we'll either do an ATM or potentially a block equity deal in the back end of the plan. But again, I think this is very indicative of us saying we will issue equity to fund growth and great growth at that across the system. And then, Bill, do you want to take the question on any further sell-downs?

Yes. Thanks, Trevor. As Trevor noted, we're very encouraged by very favorable legislative and regulatory developments across our states. And our continued focus on disciplined cost management is going to continue to be a major effort of ours to support FFO. And so at this time, we're not planning any asset sales to fund the plan going forward. But obviously, we'll continue to assess things as they come up.

Congrats. I guess, Trevor, regarding the '28 to '30 period, where you're expecting around 9% or better, is there a specific trend anticipated during those years? Will it accelerate higher, or is it expected to remain consistently at 9% or better?

Yes. Steve, I think where we are is it kind of gets back a little bit to Ross's question as we see the earnings step up in the mid part of the plan. And I would say what we're feeling pretty confident about is that giving the guidance where we said of '28, '29, and '30, we will be at or above the high end of the plan, I think you can assume that, that is pretty flat as of this point. Now I will say the good news is we continue to see a lot of growth, and we're excited to roll out this new plan. '28, '29, and '30 are out quite a ways with regard to the plan. And so it still gives us a potential to see incremental deployments. We continue to sign LOAs and ESAs.

Can you clarify what the difference is between an LOA and an ESA?

Yes. So really, an LOA for the letter of agreement is generally a first step before you get to an ESA. Both have financial obligations, but an ESA, an energy service agreement tends to be more binding. Now that being said, I will say down in Texas in ERCOT, we only sign LOAs and not ESAs. And so from that perspective, we want to make sure that when we talk about that 28 gigs, we're very confident in that because they're all under LOAs or ESAs. And in Texas, where there is no ESA, we feel very good about those LOAs that are getting signed down there. I will say, as we distill down from that 190 gigs and we continue to scrub that, that ultimately generates the 28 gigs of incremental load growth. I will say there are some LOAs that are executed that are not included in that 28 gigawatts as we continue to negotiate and work through to ultimately get to an ESA. So again, it gets back to my point in the prepared remarks where I said that it's real and it's conservative on the 28 gigawatts.

Okay. And then for Bill, you mentioned a partnership with an infrastructure provider. Could you provide more details on that? Also, regarding the turbine orders, when can we expect those to come in? Additionally, could you share any updates on Bloom and your various partnerships and supply chain?

Sure. Thanks, Steve. So we're in the process of putting in place long-term supply framework agreements for the major equipment components that we'll need to deliver on the plan. And the good news for us is that we have in place significant agreements for turbines and for the high-voltage transmission transformer equipment that we need. And so I'm very comfortable with where we sit. The team has done a nice job of positioning us well to deliver on this. As I noted in my comments, I've added a lot of strength into this management team, particularly from Berkshire, who are very skilled at delivering multibillion-dollar capital programs and bringing them in to deliver. And so again, I'm quite comfortable with where we sit both on the management talent and on the major equipment that we have. On Bloom, we're still working with potential customers to deploy the additional megawatts that we have with them and look forward to hopefully having more to report on that perhaps by EEI.

Just want to look through the planned roll forward a little bit more as it relates to dividends. I was just wondering if you could talk a bit more specifically on what you see the DPS CAGR over that time period being, particularly in the back part of the plan.

Yes. So Jeremy, I appreciate that question. What we've really done here is we just got out of our Board meeting, and our Board did recently raise the dividend by 2% going into this next year. And we're also signaling that we are going to be at a 50% to 60% payout ratio. And the reason for this is because we have this robust capital plan, and deploying capital is critical right now during this period of growth. And so what we've done is in the plan, we've assumed that the dividends are really increasing by the number of shares outstanding, and then we would make recommendations to the Board. As you know, this is a Board discretionary item, and the Board would ultimately make the decision as to where we're going with the dividends. That said, certainly, the discussion that we had with the Board was they are supportive of us growing the dividend over a period of time. And I will say this marks 115 consecutive years of AEP paying a dividend, and we have had continued dividend growth over the last, call it, a decade or so. And so this is something that we really look at as part of the overall total shareholder return and getting value back to our shareholders is both the dividends as well as the growing earnings over that period of time. So again, I would say, in conclusion, the Board is very committed to our dividend and getting a dividend that has a yield as well as a payout ratio that is well within the industry norms, but we did moderate it a little bit and made that recommendation to the Board given the 30-plus percent increase in the capital plan.

Got it. That's very helpful. And then I just want to come back to the EPS CAGR, if I could, one more time to put maybe a finer point. When you're referring to the high end of 28% to 30%, is that year-over-year or CAGR? So basically, is this a CAGR of '26? Or is this year-over-year from '27 into '28?

It's a year-over-year.

I was wondering if you could maybe just give a bit more of a sense of how the conversations are going with data centers and constraints on the system that you're seeing. So I guess I'm curious, are you able to keep up with the transmission capacity needs for data centers to handle all of this load growth? What's the wait time to connect that you're having to discuss with these customers? And is it fair to characterize a lot of this transmission CapEx that you're adding to the plan here? Is that opening up additional capacity to bring in these new customers? Wondering how that all kind of balances right now.

Yes. Thanks for that question. I'm really excited about where we sit in this regard. As we've noted in here, the increased incremental load growth projected through 2030 is the 28 gigawatts, up from the 24 gigawatts that we talked about before. And that demand growth is roughly 80% tied to data centers in the commercial class and about 20% tied to the industrials. Breaking that up a little more, about 75% is related to transmission and distribution, while 25% is tied to the vertically integrated utilities. And so as I look out across the RTOs, roughly half ends up in ERCOT, 40% in PJM, and about 10% in the SPP. And so as we look at where we sit to connect these customers, clearly, we're working with them to site where we have available transmission today to help them with their ramp-ups in the manner in which they want to run their side of the business. And then in other cases, we're working with them to put in place behind-the-meter solutions. Obviously, Bloom is a part of that in certain cases. But we also have other strategies that we're deploying to support the data centers. And so for me, this company is all about serving our customers and trying to figure out a way to get them connected as quickly as they can. As we build out the transmission system, of course, that's going to open up additional opportunities to perhaps bring on more of that 190 gigawatts, but in the meantime, as Trevor noted, we're very focused on reporting what we have signed. We're going to underpromise and overdeliver in this area, but I couldn't be more excited with where we sit across our service territory. We are in, I would say, the catbird seat with regards to connecting data center load. The 765 kV transmission network that we have provides us with an extreme competitive advantage for where these folks are trying to site. And so I just see an amazing future ahead of us in this area.

Could you share your thoughts on your strategy for generation in vertically integrated utilities? How do you balance your approach between renewable energy and gas in light of the growing energy demands and peak load considerations? What is your perspective on the balance between renewables and gas in generation?

Well, we're focused on doing what our states want as their energy policy. And so as we go across our major states and work with the customers in those locales, we'll move forward with the types of generation planning that they want. That, of course, gets sorted out generally through the integrated resource plans that we submit. And if you look at our major states, obviously, they're very much driven by gas at this point in time. That said, a number of our customers are still heavily interested in renewables. We have about a little over $7 billion in our capital plan for the deployment of renewables to support those customers. And so we're going to continue to go down that path and make sure that we're balanced between what the states want and what our customers want. And I feel very confident in our team that we have the capability to be able to deliver whatever approach those customers want to have in the states that they're located.

Nicely done. What a difference a year makes Absolutely. Wow, dream team here. Look, let me frame 2 questions. One, going back to the direction Steve was pressing you guys with respect to cadence. I mean, if you're accelerating towards the end of the plan, naturally, you'd ask, how does that trend beyond the current plan? And if I can cite evidence here, your peers in Indiana put out a growth rate that extends beyond 2030 at this point. How do you think about what you're seeing shape up, whether it's commitments for further ramp beyond 2030 and/or just being able to process some of that load in the longer term, right? I know that folks are trying to get in the queue quickly. But certainly, some of that's just going to take longer to process and drive growth beyond that period of time. How do you think about that 31%, 32%, if there was anything to say preliminarily?

Yes. So Julien, I appreciate the question. And I tell you, this kind of gets back again to what I have said earlier that what we want to do is be very confident in the numbers that we put out and deliver on those numbers. And that's why I think this 9% CAGR and saying that in '28, '29, and '30, we'll be at or above the high end of the range, we have a great deal of confidence in that. What I want to do is ensure that we are going to deliver on what our commitments are over the next 5 years. And then as we continue to see opportunities roll in, we will revise that on an annual basis.

And again, if I can go back to it and ask it in a slightly different manner. With respect to the current 5-year outlook, obviously, you have a lot of folks knocking on your door, right? You've got this 28 gigawatts, as you described, that you've got under contract. To what extent could you actually see positive revisions further as you convert some of the interest into more of those LOA, ESA term sheets? Is that conceivable? Or do you think given what you understand about your system that, look, this is pretty locked in and we frankly have a pretty rigid ability to accommodate more in this 5-year period?

Yes. Look, Julien, I think we're excited about just like you said at the very opening comment here, what a difference a year makes and what we've been able to do within this 1 year as we continue to see this mass amount of growth on the system. And I know that some people say that we should be somewhat cautious in talking about the 190 gigawatts that are backing the 28 gigawatts, and those are in various stages of discussion. But again, we feel very good about that 28 gigawatts because of the 190 gigs behind it. And so I think that really could color your view as to where we are on the growth for the system, is it conservative given that you've got 190 gigs in various stages of discussion. And even if only a fraction of that were to come online, it's still a pretty compelling story from where we are today.

Just a follow-up on some of the comments that you've been making on the LOAs versus ESAs. Are there LOAs outside of Texas that are in the plan? And then is there a defined term or gating factor for the LOAs that are included in the 28 gigawatts versus those that are not?

Yes. So there are some LOAs outside of Texas. So again, in PJM, what we have is 100% of the increase is under LOA, and then almost 80% is under ESA. Likewise, in SPP, 100% is under LOA, and then there's a piece of it that's under the ESAs. And then in ERCOT, of course, everything is under LOA. So again, what I want to emphasize, though, is these LOAs do have financial commitments associated with them, and that's why we have so much confidence in the 28 gigawatts.

Got it. Great. And then just on the new transmission budget, curious what that assumes on the PJM open window opportunities. Is the most recent window sort of baked in there? Or is that a source as you think about potential upside opportunities on the transmission piece of the business?

Yes, Carly, I would say we've taken into consideration into the 5-year capital plan, everything that we know with regards to existing transmission that we feel pretty confident about. But again, we continue to see opportunities around incremental investments in the transmission system, maybe not under new transmission lines, but certainly the continuation of rebuilding some of the infrastructure.

A lot of good questions have been asked, but just maybe just on the earned ROE improvement, '26 through 2030, just what are you kind of holding your team to in terms of improvement year-by-year? Is that supposed to happen linearly through the plan? I know you have some big rate cases like Ohio that will be filed, which can kind of help catalyze that. But just maybe you can kind of comment on the cadence of ROE improvement between now and 2030 and what you expect year-by-year?

Yes. Thanks for that question. And first and foremost, I want to make sure that everyone knows ROE is front and center with us, and we've been spending an incredible amount of time with the states and our regulators to look for improvements in this arena. And as I look back at where we were a year ago, our ROEs have shown steady improvement. And the drivers of that were constructive regulatory outcomes and pretty favorable legislative developments. And so I know that as we look forward, we're going to continue to drive better outcomes. I really like where we're at. Just in the recent past, we've had a lot of success. If you look at AEP Transmission, AEP Ohio, I&M, all of those have posted ROEs near or above their authorized. AEP Texas is going to continue to improve their ROE, rising to 9% in quarter 3 from 8.6% last quarter. And again, that's due to a great legislative outcome in HB 5247. And then at PSO, SWEPCO, and Kentucky Power, while those are impacted by regulatory lag, we expect to see good improvements and really better outcomes due to the new base cases and the generation filings we're making there. I want to address West Virginia right away. Their return on equity was impacted by the recent regulatory order we received, but we are fully engaged in West Virginia. We have requested reconsideration and are collaborating with all stakeholders there, which continues to be a major focus for me. I am dedicating a significant amount of time to West Virginia to help achieve a better outcome. Overall, when I reflect on our current position compared to a year ago, particularly regarding our focus on return on equity, I feel very optimistic about what we have included in the plan.

Okay. Okay. And I'm sorry if I'm not understanding it fully, but just on the 7% to 9% because there's just this dual communication here. Just in '28, should we be growing that 9% plus off of '27? Or should we look at that as a CAGR from '26 and what 9% would imply for '28?

Yes. So I think what you want to do is we've kind of bifurcated it into the two pieces here. And we've said for the first two years of the plan, we will be growing at below the midpoint of the 7% to 9%. And really on the back three years, we will be growing at or above the 9%. And so from a standpoint, that's why I gave the 9% CAGR over that 5-year period starting from the midpoint of 2025. And so I think what that does, Nick, is it really allows you to kind of walk out the EPS numbers almost on an annual basis here because I'm giving you the midpoint of the 2026 and then you can assume that the 2027 is kind of consistent with that growth.

Well, it sounds like the call is coming to a close. Really appreciate all of you joining us on today's call. I'd like to close with just a few summary remarks. So I'm very excited about when I think the opportunities ahead at AEP as we advance on our long-term strategy to drive growth and create value while enhancing the customer experience. I'm also extremely proud of the entire AEP team and particularly all of the strong support received from our Board of Directors. We're putting our robust $72 billion capital plan to work as we continue to grow the business across our large footprint and deliver on our commitments for the benefit of our customers, our communities, and all of our other stakeholders and investors. And finally, if there are any follow-up items, please reach out to our IR team with your questions, and we look forward to meeting with many of you at EEI in a couple of weeks. This concludes our call. Thank you.