AEP outlines $72B capital plan and raises 2026–2030 earnings growth projection to 7–9% CAGR amid accelerating load demand

Earnings Call Insights: American Electric Power Company, Inc. (AEP) Q3 2025

MANAGEMENT VIEW

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CEO William Fehrman stated that "AEP is standing out among our peers as one of the fastest-growing, high-quality pure-play electric utilities," highlighting significant organizational changes, new leadership, and an accelerated focus on financial strength, regulatory outcomes, and operational excellence. Fehrman announced, "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." He emphasized a $72 billion capital plan, driven by massive system demand and a strong balance sheet, and revealed, "AEP reported third quarter 2025 operating earnings of $1.80 per share or $963 million." He also reaffirmed 2025 full year operating earnings guidance of $5.75 to $5.95 per share, guiding to the upper half, and introduced 2026 operating earnings guidance of $6.15 to $6.45 per share.

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Fehrman detailed transmission scale advantages and regulatory wins, including approvals for data center tariffs and large load tariffs across multiple states. The company projects system peak demand to reach 65 gigawatts by 2030, with 28 gigawatts of contracted load additions, up from 24 gigawatts previously. He added, "these incremental 28 gigawatts, up from our formerly reported 24 gigawatts are backed by electric service agreements or letters of agreement."

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CFO Trevor Mihalik reported, "operating earnings for the third quarter totaled $1.80 per share compared to $1.85 per share in the same period last year." Year-to-date operating earnings reached $4.78 per share, up $0.40 per share year-over-year, driven by favorable rate changes, transmission investment, and commercial/industrial load growth. Mihalik emphasized, "our $72 billion 5-year capital plan represents a more than 30% increase over our previous plan," with over two-thirds focused on transmission and generation.

OUTLOOK

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Management reaffirmed 2025 operating earnings guidance of $5.75 to $5.95 per share and guided toward the upper half. For 2026, the company is introducing an operating earnings range of $6.15 to $6.45 per share, reflecting an 8% increase based on the 2025 midpoint. Fehrman described the new long-term operating earnings growth rate as "7% to 9% annually from 2026 through 2030 with an expected CAGR of 9% over the 5-year period."

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The capital plan expansion is underpinned by 28 gigawatts of incremental, contracted load, with management stating the forecast is "not a theoretical model. It's built on signed contracts."

FINANCIAL RESULTS

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Third quarter operating earnings were $1.80 per share, down from $1.85 per share year-over-year, attributed to the prior year sale of the on-site partners distributed resources business. Year-to-date operating earnings reached $4.78 per share, up from $4.38 per share last year, mainly due to rate changes, transmission investment, and load growth. Commercial and industrial load grew nearly 8% on a rolling 12-month basis.

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The $72 billion capital plan is a 30% increase from the previous plan, with 90% of investment recovered via reduced lag mechanisms. AEP forecasts residential customer rates to rise about 3.5% annually over five years, below the five-year historical average inflation rate.

Q&A

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Ross Fowler, BofA Securities, Research Division: Asked about the drivers behind the earnings step up in 2028 and equity needs. Mihalik explained the capital plan peaks at $17 billion in the middle of the plan, driving earnings, and positive regulatory outcomes contribute. Mihalik added, "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..."

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Steven Fleishman, Wolfe Research, LLC: Inquired about the consistency of 9% growth from 2028 to 2030 and the difference between LOA and ESA contracts. Mihalik said, "by saying that we're at or above the 9%, you can assume that, that's pretty flat in those 3 years."

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Jeremy Tonet, JPMorgan Chase & Co: Questioned dividend growth expectations. Mihalik stated, "the 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."

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David Arcaro, Morgan Stanley: Asked about transmission capacity for data centers and connection timelines. Fehrman responded, "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... we're very focused on reporting what we have signed."

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Julien Dumoulin-Smith, Jefferies LLC: Posed questions on growth beyond 2030 and potential for further positive revisions. Mihalik noted, "we feel very good about that 28 gigawatts because of the 190 gigs behind it."

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Carly Davenport, Goldman Sachs Group, Inc.: Sought clarification on LOAs outside Texas and inclusion in the plan. Mihalik confirmed, "there are some LOAs outside of Texas...these LOAs do have financial commitments associated with them."

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Nicholas Campanella, Barclays Bank PLC: Asked about earned ROE improvement cadence. Fehrman said, "ROE is front and center with us, and we've been spending an incredible time with the states and our regulators to look for improvements in this arena."

SENTIMENT ANALYSIS

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Analysts' tone was inquisitive, focused on growth sustainability, contract structures, capital allocation, and regulatory outcomes, with several questions seeking clarification on the cadence and certainty of future earnings and capital needs.

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Management maintained a confident, measured tone in both prepared remarks and Q&A, emphasizing certainty in signed contracts, conservative forecasts, and disciplined capital deployment. Phrases such as "we are confident" and "we feel very good about..." were used, with Mihalik stressing "underpromise and overdeliver."

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Compared to the previous quarter, management appears more assertive in communicating growth certainty, while analysts continue to probe for clarity on capital plan execution and earnings trajectory.

QUARTER-OVER-QUARTER COMPARISON

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Management raised the long-term operating earnings growth rate from 6–8% in Q2 to 7–9% in Q3, and the capital plan increased from a previously discussed $70 billion to $72 billion. The contracted load forecast grew from 24 gigawatts to 28 gigawatts. Q2 guidance was reaffirmed, but Q3 guidance targets upper-end results and provides 2026 guidance.

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Analysts' focus shifted from capital plan size and regulatory lag to specific growth drivers, contract structures, and timing of equity needs. Management's confidence is more pronounced, with concrete numbers and a strategy to maintain discipline in capital allocation and regulatory engagement.

RISKS AND CONCERNS

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Management cited cost allocation for large loads as a critical issue, emphasizing tariff structures to protect other customers from grid improvement costs. Fehrman noted pending regulatory filings in several states.

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Transmission and generation resource adequacy are ongoing concerns, with Fehrman acknowledging the need for additional capacity and regulatory efficiency.

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Affordability remains a focus, with strategies including rate design, O&M efficiency, and financing mechanisms like securitization.

FINAL TAKEAWAY

AEP's management outlined a transformative growth strategy anchored by a $72 billion capital investment plan and raised its long-term operating earnings growth rate to 7–9% for 2026–2030. With 28 gigawatts of incremental, contracted load and favorable regulatory developments, the company is positioning itself to deliver consistent earnings growth, manage rising demand from data centers and industry, and maintain customer affordability. Disciplined capital allocation, operational excellence, and a focus on constructive regulatory outcomes underpin management's confidence in achieving these ambitious targets.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/aep/earnings/transcripts]

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