AEP Sustainability - Strategy

AEP'S STRATEGY FOR THE FUTURE

The strength, resilience and agility of our employees and company met and exceeded the unprecedented challenges of 2020. The critical nature of our jobs and the service we provide became a lifeline for many during the COVID-19 pandemic and extreme weather events. Our workforce remained committed to keeping our economies and communities connected as efficiently and safely as possible, all while remaining dedicated to continued operational excellence and financial discipline. This was demonstrated in our ability to deliver consistent, quality earnings and dividend growth in 2020.

Our Achieving Excellence program, a disciplined cost optimization process, is successfully driving down costs by eliminating inefficiencies, improving business practices and advancing technology. This effort, coupled with business decisions prompted by COVID-19, resulted in significant O&M savings in 2020. We also found new opportunities to explore how and where we perform our work. Learn more in the Future of Work section.

Additionally, our strong 2020 earnings performance was driven by our long-term strategy to invest in infrastructure and energy solutions which enhances services and reliability for our customers while supporting the transition to a clean energy future. Our operating earnings guidance range for 2021 is $4.55 to $4.75 per share. Our 5% to 7% long-term operating earnings growth rate is based on the 2021 guidance range.

In 2021, we announced a strategic review, to be completed during the year, for the potential sale of Kentucky Power. This reflects our ongoing evaluation of our portfolio of businesses. In the meantime, Kentucky Power will continue to produce and deliver safe, reliable electricity to our customers throughout this process.

We remain committed to our credit quality to support our ability to continue to efficiently invest in capital, reaffirming our $37 billion five-year capital investment plan. This will enable us to cost-effectively replace aging infrastructure while integrating smart technology and expanding electrification, such as electric vehicles, indoor agriculture and other future needs.

Grid investments are essential to serving evolving societal needs while building a resilient and secure system. This includes investing in infrastructure to support our growing telecommunication needs. Over the past five years, we’ve expanded and modernized our telecommunications system to support our growth. We now have one of the largest private telecommunication networks in the United States. We are exploring opportunities to leverage our system to support broadband expansion in rural and underserved areas. Investments in these rural areas proved critical in supporting our customers and local communities during the COVID-19 pandemic when a large portion of our nation switched to remote work and education. Learn more about our broadband initiatives in the Regulatory section.

As our business needs continue to evolve, so do the security risks. This requires constant monitoring and protection from potential cyber and physical threats. Our cyber and physical security strategy includes proactive threat intelligence, monitoring, alerting and emergency response; employee education; forensic analysis; disaster recovery; and criminal activity reporting. Learn more about how we are protecting the electric power system in the Cyber & Physical Security section.

Balancing culture, employee and customer experience, and flexibility with cost savings is imperative to successfully executing our strategy. The safety, health and well-being of our workforce remains a top priority as we define our path forward. We will continue to play an active role in addressing significant issues from racial, social and environmental justice to COVID-related safety as we help build strong communities.

The security and reliability of the electric power system protects our nation’s interests, and, increasingly, so does a cleaner energy future. Achieving America’s clean energy objectives requires a transformation of the electric sector. Our smart investments in clean energy today — including renewables and advanced technologies — aim to stabilize energy costs and stimulate economic growth in the future.

Our Future Forward strategy for clean energy growth will transform our generating capacity portfolio from a majority coal-fueled resource base to a majority renewable portfolio by 2030. We continuously review our resource needs for each of our regulated operating companies. We are proposing to add nearly 16,600 megawatts of new, clean wind and solar generation to our fleet by 2030. This will grow our renewable generating portfolio to 51% of our total capacity.

Regulatory support for AEP’s largest renewable project to date — North Central Wind Energy Facilities (NCWEF) — adds momentum to our clean energy transformation. In April 2021, the first of three NCWEF wind farms began commercial operation, which in total will deliver 1,485 MW of clean energy to customers of Southwestern Electric Power Company and Public Service Company of Oklahoma in Arkansas, Louisiana and Oklahoma.

We are positioned to be an industry leader in the regulated clean energy space. This is reflected in our capital investment plans with the bulk earmarked for regulated businesses and renewables. This includes $26.7 billion for transmission and distribution modernization projects and technologies to better serve customers through improved reliability and resilience. During this same period, we plan to invest $2.8 billion in regulated renewable generation and $2.1 billion in competitive, contracted renewable projects.

This strategy is led by our new Grid Solutions team, which is focused on accelerating our energy transformation and advancing the grid of the future. The team identifies and implements the best infrastructure solutions that seamlessly integrate the regulated generation, transmission and distribution businesses. This includes acquisition and development of new grid resources, competitive transmission ventures, energy storage and other emerging on-grid technologies.

At the core of our transformation must be reliability, resilience and affordability of the electric power system. Unprecedented cold weather, snow and ice in early 2021 stretching from Texas to West Virginia demonstrated the critical nature of our nation’s energy supply. Extreme weather impacts every source of energy, from natural gas units to wind turbines. These events, along with others across the country, demonstrate the need for policy changes that focus on refining the reliability and resiliency of the grid to promote adequate energy capacity levels and regional support. We will continue to engage in the policymaking process at the federal, state and local levels to ensure the best interests and needs of our customers and communities are met, as we grow and transition to a clean energy future.

We have made significant progress reducing our carbon footprint, year after year. Through 2020, we reduced our carbon emissions by 74% (from a 2000 baseline). This achievement puts us a decade ahead of our original goal to reduce carbon emissions by 70% by 2030. In February 2021, we announced a new goal to reduce our carbon footprint by 80% by 2030 (from a 2000 baseline) and achieve net-zero by 2050. These new goals include a commitment to review them annually.

Since 2010, we have retired, sold or converted to natural gas nearly 13,500 MW of coal-fueled generation. We have plans to reduce our coal capacity by an additional 5,574 MW from 2021 through 2030. By the close of this decade, we will reduce our coal generating capacity by approximately 74% — a major achievement by any measure.

The transformation of our generation portfolio includes ongoing evaluation of our power plants. In 2021, Indiana Michigan Power and AEP Generating Company reached an agreement to acquire the 1,310-megawatt Rockport Plant Unit 2 from the current owners when the lease expires at the end of 2022. This acquisition will provide a short-term capacity bridge for customers as we transition to more renewable generation and will ensure both Rockport Plant units are retired by the end of 2028. These investments in our generation portfolio support our goals of making our generation fleet cleaner, more economical and achieving net zero carbon dioxide emissions by 2050.

Our transformation also includes investments in the development of integrated grid solutions such as advanced energy storage with solar, electrification and research into modular nuclear and the future use of hydrogen. Learn more about the role of technology in our journey to a clean energy future in the Technology section of AEP’s Climate Impact Analysis Report.