EEI INVESTOR ESG REPORT
2024
CONTENTS
SECTION 1: | SECTION 2: | |||
QUALITATIVE REPORT | QUANTITATIVE REPORT | |||
04 | About AEP | 17 | American Electric Power | |
05 | Responsible Business Practices | 27 | Appalachian Power | |
06 | Energy Transition | 34 | Kentucky Power | |
06 | AEP's Shifting Generation Portfolio | 41 | Kingsport Power | |
08 | Opportunities & Headwinds | 48 | Indiana Michigan Power | |
09 | Sustainability Governance & Oversight | 55 | Wheeling Power | |
10 | Climate Governance | 62 | Public Service Company of Oklahoma | |
10 | Just Transition | 69 | Southwestern Electric Power Company | |
11 | Grid Security | 76 | Ohio Power Company | |
12 | Wildfire Risk | 83 | Energy Supply | |
12 | Human Capital Management | 90 | Appendix |
13 Culture & Inclusion 15 Index of Links
Section 1
QUALITATIVE REPORT
About AEP
At American Electric Power, based in Columbus, Ohio, we understand that our customers and communities depend on safe, reliable and affordable power. Our nearly 17,000 employees operate and maintain more than 40,000 miles of transmission lines, the nation's largest electric transmission system, and more than 225,000 miles of distribution lines to deliver power to 5.6 million customers in 11 states. AEP also is one of the nation's largest electricity producers with approximately 29,000 megawatts of diverse generating capacity, including nearly 6,000 megawatts of renewable energy. AEP is investing $43 billion over the next five years to make the electric grid cleaner and more reliable. We are on track to reach an 80% reduction in carbon dioxide emissions from 2005 levels by 2030 and have a goal to achieve net zero by 2045. AEP is recognized consistently for its focus on sustainability, community engagement and inclusion. AEP's family of companies includes utilities AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana, east Texas and the Texas Panhandle). AEP also owns AEP Energy, which provides innovative competitive energy solutions nationwide.
For more information, visit aep.com.
4 AEP's 2024 EEI Investor ESG Report
Responsible Business Practices
AEP is in the business of delivering safe, reliable and affordable electricity to our customers; that is our purpose. Our ability to do this is dependent upon our financial success, as well as non-financial, or sustainability, factors that can impact our operations, finances and reputation. Sustainability-related factors such as safety, workforce development, economic growth, affordability of our product, and customer satisfaction inform our decision-making process. These insights enable AEP to identify and manage potential risks and opportunities in order to act in the best interest of our customers, communities, shareholders and employees. We are committed to integrating responsible business practices into our strategy to better enable long-term stability and business continuity.
Our responsible business practices are guided by these key focus areas:
Affordable, Reliable & Just Energy Transition Keeping our customers, communities and employees top of mind, we are committed to a safe, affordable and just transition as we continue to deliver reliable energy. In partnership with our regulators, we will invest in modernizing our grid while balancing fuel cost volatility and capacity needs with managing customer costs and impacts to our communities as we make the transition to a cleaner energy economy.
Environmental Compliance & Stewardship
We are committed to always complying with applicable environmental requirements and being good stewards of natural resources.
Social Justice & Inclusion
We are committed to considering the social impacts of our operations and decisions and putting mechanisms in place that provide access to cleaner and modern energy options. This includes meaningful engagement with customers and communities to ensure fair treatment and inclusive decision-making.
Governance & Oversight
We are committed to strong governance practices that protect the long-term interests of our stakeholders. Leadership and governance are foundational to building and strengthening sustained business value and ensuring transparency, fairness and accountability while providing structure to ethically manage business operations.
5 AEP's 2024 EEI Investor ESG Report
Energy Transition
Achieving a low-carbon economy by mid-century is a daunting challenge by any measure. It requires technological breakthroughs; navigating and working with partners and regulators in long-standing regulatory and market paradigms; and balancing investment across the power sector. AEP defines energy transition as meeting the generation resource requirements of the states in which it operates and the needs of customers who it serves. We anticipate that some of our states and customers will require less carbon intensive generation capacity and energy. AEP has already made considerable progress toward reducing environmental impacts by making significant investments in both fossil fuel generation and renewables to deliver reliable, affordable energy to our customers and to strengthen the resilience of the electric power grid. The increasing frequency and severity of extreme weather events in AEP's service territories have affected the level and duration of customer outages. While much work remains to transform the energy sector, the pace of progress ultimately will be determined by the need for reliability, resilience and affordability. Keeping this focus front and center will enable continued economic growth in our communities while addressing mandated environmental compliance and climate- related risks.
In recent years, record-breaking severe weather events have tested the resilience of the grid and exacted a significant financial and human toll. For example, according to the National Oceanic and Atmospheric Administration, 2023 was the single hottest year on record to date - fueled by a strong El Niño weather pattern that contributed to a massive heat dome over the South, Midwest and Great Plains. Following back- to-back severe storms in 2023, the electric grid experienced significant damage that left nearly a half million customers in four states in AEP's footprint without power. AEP is adapting its business practices and standards to these changing weather patterns to build a stronger, more resilient and reliable grid.
AEP's Shifting Generating Portfolio
AEP has been on a long journey to transition its fleet while keeping in mind local and state energy policy and reliability. Since 2011, AEP retired, converted to natural gas, or sold approximately 14,000 MW of coal-fueled generation with more than 4,100 MW of additional coal plant retirements or fuel conversions expected by the end of 2028. Among the catalysts for this transition are the costs to comply with environmental regulations, aging infrastructure and fuel price volatility. We will continue to make prudent investments in the five remaining plants to ensure compliance with all environmental, safety and health mandates as these coal units are essential to maintaining the reliability of the grid. AEP's generation investments will be dictated by federal and state law and the needs of our customers without compromising reliability, resilience or affordability.
Consequently, we are taking a hard look at what is needed to ensure 24/7 dispatchable generation and delivery of electricity. AEP has identified 20 gigawatts of new generation opportunities over the next decade. This will likely be a combination of renewables, natural gas generation and storage to complement our existing generation portfolio. In addition, the industry is faced with new demands from regional transmission operators (RTOs) to have higher levels of capacity in reserve. Having a diverse resource portfolio is essential to a low-carbon future, enabling the industry to navigate the changing dynamics of supply and demand as well as the broader economy seeks to electrify.
AEP's renewable energy portfolio continues to grow as our investment strategy for cost-effective regulated renewables gains approval from our state regulators. Our current 2024-2028 capital investment plan, derived from AEP's Integrated Resource Planning analyses, includes $9.4 billion of regulated renewable projects. To date, we have received regulatory approvals for approximately $6.6 billion of these projects. In addition, federal tax credits for renewable generation have been extended which significantly reduces the costs of these projects.
6 AEP's 2024 EEI Investor ESG Report
Our primary purpose as a regulated electric utility is to generate and deliver reliable, affordable electricity to our customers. We believe that consistent with and subject to this mission, we can also achieve our greenhouse gas (GHG) reduction targets in parallel. AEP remains committed to working toward achieving an 80% reduction in Scope 1 GHG emissions by 2030 (from a 2005 baseline) and net-zero by 2045 (Scopes 1 and 2). These targets were established through the output of our Integrated Resource Plans (IRPs) and are reviewed annually. AEP's total Scope 1 GHG estimated emissions in 2023 were approximately
44.5 million metric tons, a 67% reduction according to the GHG Protocol, which excludes emission reductions that result from assets that were sold, or a 71% reduction from AEP's 2005 Scope 1 GHG emissions (inclusive of emission reductions that result from plants that have been sold).
While we continue to make progress, our ability to do so is dependent upon a number of factors outside of our control. This includes having regulatory support to execute on renewable resource plans, evolving RTO requirements, the advancement of carbon-free generation technologies, customer demand for carbon-free energy, potential tariffs, carbon policy and regulation, operational performance of renewable generation and supply chain costs and constraints, all while continuing to provide the most cost-efficient and reliable power to customers.
We have formalized the annual review of our GHG reduction targets to assess our progress and adjust, as appropriate. This review will be conducted annually and discussed with AEP's Climate Change Executive Group.
We are working with our regulators and policymakers to choose the energy solutions that meet their individual needs. AEP's future resource portfolio, supported by our IRPs, gives us a defined path toward achieving this.
Our Pathway to Net-Zero
Planned retirement and | Add solar, wind, natural |
disposition of select | gas and energy storage to |
fossil units | our generation portfolio |
Near term
Build a resilient and reliable grid to efficiently deliver clean energy to customers
Closely evaluate new technologies to further reduce or eliminate CO2 emissions
Procure carbon offsets
to neutralize any remaining CO2 emissions from our generation fleet
Long term
7 AEP's 2024 EEI Investor ESG Report
Opportunities & Headwinds
AEP's generation mix is driven by our resource plans, customer demand, environmental compliance and legal requirements. Our IRPs are designed to develop a set of supply- and demand-side resources to guide the generation and supply of electricity in a way that balances affordability, sustainability, reliability and resilience. The availability of cleaner energy is important to current and prospective customers, helping to spur economic development and growth across our service territory that has a positive impact for all customers. By integrating renewables into our generation portfolio, we can remove some of the volatility of fuel costs. In addition to creating jobs and new tax revenue for local communities, new or expanded business growth enables the spread of fixed costs across a broader customer base - benefiting all customers. We remain committed to working with our regulators, policymakers and other stakeholders to choose the most cost-effective and reliable energy solutions to serve our customers.
AEP's energy transition is tied to:
- Continuing to invest in infrastructure to provide safe, reliable, affordable, and environmentally-compliant service.
- Diversifying our electric generation fleet to minimize costs and risks to customers.
- Investing in transmission and distribution to enhance reliability and resilience, and to accommodate changing resources, demand and advanced technologies.
- Working with our regulators, policymakers and key stakeholders to emphasize the importance of reliability, resiliency, security and affordability.
- Conducting scenario planning to understand future risks and opportunities and sharing this information with our regulators, policymakers and key stakeholders.
- Supporting and engaging with our communities.
The diversity of the states AEP serves also means there are a variety of views, preferences, needs and mandates to balance generation resources at a pace that considers customer reliability and costs. All of these views exist within AEP's service territory, and we must continue to work within the boundaries of each of our jurisdictions to satisfy what they deem to be in the best interests of their constituents.
External factors outside of our control have created new challenges. Higher interest rates, inflation and persistent supply chain constraints affect the availability of components and development of renewable projects and increase our cost to finance these and other projects.
In addition, a number of renewable projects have been canceled by developers and other utilities, while tariffs on foreign components needed for solar panels and batteries have stalled delivery at the border. Local opposition to siting and building renewables, like large- scale wind projects, also pose a challenge. This is happening at a time of high demand for electricity by other sectors of the economy and
8 AEP's 2024 EEI Investor ESG Report
growing demand for cleaner energy. The growth of data centers, the chemical and primary metals sectors, and electric vehicle charging infrastructure for major corporate fleets is compounding concerns over the adequacy of capacity resources to meet this demand. We continue to monitor and take an active role in the planning and infrastructure development processes in each of our regions to support resource adequacy and meet customer needs.
While technologies needed to help manage the intermittency of renewables continue to evolve, generating plants continue to be retired for a range of reasons, including age, cost to maintain and operate,
Sustainability Governance & Oversight
market conditions, fuel costs and environmental regulations. This has led to growing concerns about the industry's ability to meet capacity (e.g., peak demand) and reliability needs. Regulators, policymakers, regional grid operators and utilities alike have raised concern. Across the country, some utilities are delaying plant retirements, dropping or adjusting their climate-related goals, converting coal plants to natural gas or building new natural gas plants to meet capacity requirements and protect the reliability of the grid. Natural gas provides a reliable 24/7 dispatchable resource similar to coal. It fills in the gaps when renewable generation is not present or sufficient for meeting real-time demand.
Audit Committee
Oversees AEP's financial
statements, financial reporting and internal controls over financial reporting, compliance, independent auditor,
internal audits and
managing major risks.
Directors & Corporate
Governance
Oversees Board
qualifications and selection;
Board independence,
composition, compensation, size and committees; Board evaluation and education; corporate Governance Principles; corporate compliance; Corporate Sustainability Report and political engagement.
Board of | Directors | Board Committee | Oversight | ||
Executive Committee | Finance Committee | Human Resources | ||
Acts on behalf | Oversees monitoring | Committee | ||
Oversees CEO & | ||||
of the Board of | capital requirements, | |||
Directors in handling | capital deployment and | senior executive goals, | ||
matters that need | financing plans and | performance, salaries and | ||
immediate attention. | programs of AEP and | compensation; employee | ||
its subsidiaries; and | incentive, long-term and | |||
short- and long-term | equity compensation plans; | |||
financing plans and | benefit programs; culture | |||
programs of AEP and | and employee engagement; | |||
its subsidiaries. | diversity and inclusion | |||
strategy and compliance; | ||||
succession planning; and | ||||
human capital risks. | ||||
Nuclear Oversight
Committee
Oversees management,
operation, safety,
reliability of nuclear
operations; compliance
with nuclear safety.
operations and
environmental laws: and control of mitigation of nuclear risks.
Technology Committee
Oversees AEP's IT and cybersecurity strategy, investments and internal and external labor strategy; frameworks and programs to identify, assess, manage and mitigate cybersecurity and IT risks and a response framework to address disruptive incidents.
Policy Oversight
Regular oversight of policy matters affecting the AEP system, including receiving updates from outside experts on significant public policy issues.
Executive Leadership Teams | Executive/Senior Leader Working Committee & Councils
Risk
Executive
Committee
Climate Change
Executive
Group
Reliability
Compliance
Strategy Team
Reliability
Compliance
Committee
Safety &
Health
Committee
Culture &
Inclusion
Council
Social Issues | Environmenal |
Advisory Council | & Social Justice |
Advisory Team | |
Third-Party
Governance
Committee
Corporate
Compliance
Disclosure Committee
Executive Policy
Advisory
Committee
Vice President & Chief Sustainability Officer | Cross-FunctionalCommittee & Councils
Enterprise Sustainability Council
Members represent all aspects of our business, serving as strategic ambassadors and providing guidance and support to ensure the success of our sustainable development strategy. They do this by integrating sustainability across the enterprise and in corporate strategy.
Corporate ESG Steering Committee
A cross-functional committee of the Company that will assist the enterprise regarding ESG matters, including increasing understanding of all three dimensions - environmental, social and governance - across AEP. The ESG Steering Committee provides a structured advisory forum to identify and address ESG-related issues (risks, opportunities, threats, etc.) that could affect AEP financially or operationally.
9 AEP's 2024 EEI Investor ESG Report
Today, natural gas is the largest fuel source for the power sector. The tradeoff is that heavier reliance upon gas for power generation could mean increased GHG emissions in the short-term. However, we remain confident that as technology and infrastructure catch up, emissions will decline at an accelerated rate. Natural gas and existing coal generation, along with a growing renewable portfolio, will provide a bridge to net- zero by protecting grid reliability and affordability for customers.
There are many factors that influence the decision to retire a generating unit, including ongoing cost and risk to current and future customers, age and condition of facilities, federal and state environmental requirements make it cost prohibitive to run the plant, and/or changing market economics, such as fuel costs. In making the difficult decision to retire a generating plant, we focus on balancing the plant's remaining life and economic viability with other options for delivering power. This includes a mix of renewable energy with natural gas, nuclear and hydroelectric generation to provide reliable, secure and affordable energy to customers and benefit the environment.
Climate Governance
public policy, legislation and regulation, in the context of AEP's goal to ensure a durable and sustainable transition to a low-carbon energy economy. The Board's focus is to achieve this by balancing the energy transition with system reliability, resiliency, security and affordability.
In addition, the Board participates in outside educational activities to enhance their knowledge of climate-related issues, emerging trends and issues and updates on technological advancements. At other times, topical experts are invited to speak with the Board.
Just Transition
The nation's energy transition has practical challenges affecting people, communities and society at large. These challenges are particularly apparent in communities and regions dependent upon the fossil fuel industry for jobs, a tax base that supports public services
AEP's New Just Transition Principles
At AEP, we believe in facilitating a Just Transition that benefits our customers and communities, each other and the future.
Climate governance is a shared responsibility between management and the Board of Directors. At the management level, the Climate Change Executive Group ensures an integrated, enterprise-wide approach to understanding and managing climate risks and opportunities to inform public policy advocacy, evaluate and direct AEP's strategy and align actions with AEP's regulatory strategy.
The Board of Directors is actively engaged in working with management to oversee the company's planning and response to climate-related impacts. The Board understands the importance of climate change issues and its significance to our customers, employees, regulators, investors and other stakeholders. The Board regularly discusses climate-related issues, including GHG emission reductions,
Our Customers & Communities
- We strive to provide our customers and communities with safe, reliable and affordable power throughout our energy transition.
- We acknowledge the impacts of generation plant retirements on a community.
- We believe proactive, transparent engagement is vital to empower communities to create and own their future.
Each Other
- We will treat our workforce respectfully throughout our transition.
- We believe proactive partnership with employees can position them for future success.
The Future
- We believe a Just Transition requires responsible decommissioning and planning for the site's future.
- We commit to continuously improve our Just Transition processes and to share updates on our journey with key stakeholders.
10 AEP's 2024 EEI Investor ESG Report
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
AEP - American Electric Power Company Inc. published this content on 06 June 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 June 2024 13:59:08 UTC.