AEP Sustainability - Chairman's Message

Dear Friends and Colleagues,

Nicholas K. Akins, Chairman, President & Chief Executive Officer

At AEP, we never stop moving forward. Energy is an essential service that is life-sustaining and crucial to our nation’s health and economic well-being. Our vision for a sustainable energy future is unwavering, and we believe it is more important than ever. We are witness to unprecedented challenges due to the COVID-19 pandemic. Every person, every business and every community across the globe is affected in some way. The availability of safe, reliable electric service has been essential to sustaining our communities during this time. The ability to shelter in place, to stay connected with one another, to work remotely and safely in the comfort of our homes, to educate students in virtual classrooms and to simply entertain us by providing a distraction to the challenging news of the day have all been enabled by the electric system.

This pandemic has reaffirmed the value of electricity in every facet of our lives. At AEP, we never have been more certain of our responsibility to a sustainable energy future for our customers, communities and employees. We will continue to take steps to reduce our carbon footprint, to empower customers and to value and develop our workforce. Together, our energy and future are truly boundless.

The 2019 Coronavirus Disease Pandemic: A Storm Like No Other

When the COVID-19 pandemic reached the U.S., AEP’s emergency and business continuity plans were already activated and preparations underway. Our industry is one of the most prepared to manage crises; we respond to many types of emergencies, and one of our greatest strengths is our ability to mobilize and adapt quickly to changing circumstances. The pandemic is a historic storm larger and more impactful than any we have seen, but we were prepared. Our primary responsibilities are to keep our employees safe and the lights on for our customers. These commitments are not new; they represent our core values. As this situation unfolds in the months to come, these will always remain our priorities.

The public health crisis has amplified the role the electric power grid plays as a social safety net. In anticipation of the predicted economic downturn and concern for our customers’ ability to pay for basic needs, support their employees or maintain their businesses, AEP voluntarily suspended customer disconnections for nonpayment. In addition, the American Electric Power Foundation committed to donating $3 million in emergency funds to support basic human needs and help address the hardships faced by customers and communities. We also donated approximately 9,000 N95 masks and 110,000 gloves to help protect healthcare workers at facilities in the states we serve. In addition, our Charge digital hub converted one of its labs to build 1,200 3-D printed transparent protective face shields for healthcare workers on the frontline. We also trained and dedicated a team of call center representatives to help small business owners apply for federal programs and to make payment arrangements as they recover.

The service we provide is essential. Our ability to provide uninterrupted service during this crisis required that we minimize the disruption to our normal workday while maintaining the health and safety of our employees as our top priority. Our dedicated employees understand the critical nature of the service we provide, and we are taking significant steps to keep them and their families healthy while ensuring continued service to our customers. For example, we are following the prevention measures recommended by the U.S. Centers for Disease Control and Prevention (CDC) for employees critical to maintaining service. In addition, approximately 12,000 employees who could work remotely did so to help prevent the spread of disease. In addition, we developed comprehensive pay and leave programs to support our employees in the event of personal or family illness or the need to provide care to dependents whose traditional forms of routine care were interrupted. We successfully worked with federal, state and local government agencies to designate our essential employees as critical responders, allowing them to travel when necessary to keep the lights on and have access to pandemic child and adult care services. We are also working with our equipment suppliers and support industries essential to our business so they can continue operating.

While the final chapter of this crisis is yet to be written, I am immensely proud of the response and professionalism of AEP’s entire team and their dedication to our customers. The power grid is one of the most critical infrastructures supporting the nation’s response to the pandemic, and it will be even more important during our country’s recovery. We are ready to lead the way forward.

Achieving zero harm means every employee returns home at the end of their shift in the same or better condition than when they came to work. Zero Harm is what we value most and commit to wholeheartedly. It is hard work, as it requires full focus every moment of every day. We hold ourselves accountable and we are always striving to be better. For us, Zero Harm is not an option; it is a mandate we live by.

Despite our efforts, I am deeply saddened to report that in 2019 we lost an employee on the job when road erosion on the side of a hill caused his truck to roll over. This is a profound loss for his family, friends, and co-workers and for all of AEP. It is unacceptable, and we are reminding our employees of the importance to take time to pause to ensure that every job they do is clear and safe, before they begin.

Now in the fourth year of our Zero Harm transformation, we have put tools, training and processes in place to strengthen our safety-first culture and mindset. Our focus is on learning from events and developing leading indicators to be even more proactive in preventing harm.

We still have more work to do to keep our employees, contractors and the public safe, and we will be relentless in our Zero Harm mission. Our employees are proving it is achievable across AEP, and we are learning from them as we move forward.

Our vision for a clean energy future is clearer than ever. We are taking actions, setting aggressive goals, investing in large-scale renewable energy and deploying new technologies to help accelerate the transition to a clean energy economy. During this time of rebuilding, we have an unprecedented opportunity to lead the nation forward with a clean electric power grid that delivers secure, reliable energy as well as economic and health benefits. We see the grid as the enabler of our future. In fact, the electric utility industry is no longer the largest carbon emitter; the transportation sector is now larger. AEP believes we not only can make a difference within our own operations but also be a catalyst for carbon reductions in other sectors of the economy, including transportation.

We continue making significant investments in renewable energy, inside and outside of our traditional regulated service territory.

AEP alone cannot make the magnitude of change needed. We need partners, advocates and collaborators to change public policies, advance technology development and deployment, and help our customers and communities through the transition. We have experience building and nurturing strong, trusting relationships with our many stakeholders, positioning AEP to be a convener of change – a role that is natural for us and one we are ready to lead.

At AEP, we have already made excellent progress in reducing our own carbon footprint. Through 2019, we have achieved a carbon emissions reduction of 65%, from a 2000 baseline. We have set aggressive goals for 2030 and 2050 that we review annually and adjust as needed, which we did in 2019. In 2020, we are undertaking a climate scenario analysis to understand the risks and opportunities to our business from climate change. We expect to publish our findings later this year.

We continue making significant investments in renewable energy, inside and outside of our traditional regulated service territory. Within our footprint, our integrated resource plans call for the addition of more than 8,000 MW of wind and solar between 2020 and 2030. This includes 1,485 MW from our proposed North Central Wind Energy Facilities project in Oklahoma. Pending regulatory approval, this project would deliver clean energy and lower bills to customers in Oklahoma, Louisiana, Arkansas and Texas. In addition, our plans would add 1,607 MW of natural gas.

In our competitive business, AEP Renewables invested $1.4 billion in contracted renewables in 2019, bringing the total of clean energy projects in its portfolio to 13 across 11 states. Our acquisition of the wind assets of Sempra Renewables in 2019 was critical in helping us grow this arm of our business.

As we continue to reduce our carbon profile, we see many opportunities for the electric power grid to enable other sectors of the economy to follow suit. Electrification facilitates a quicker path to achieving carbon reduction goals. AEP is supporting public policies and working with technology and research partners, customers and other stakeholders to understand the implications of large-scale electrification as we transition to a digital economy.

AEP Ohio’s $10 million fund to support charging infrastructure for electric vehicles (EVs) is nearly fully subscribed – less than a year after this Smart City initiative was launched. We are encouraged by West Virginia’s expansion of energy efficiency programs to include beneficial electrification and Oklahoma’s extension of a state tax credit for alternative fuel vehicles. These are important steps towards electrifying our economy and achieving climate goals. We already see the impact this could have in major cities in the U.S. and around the world where the reduction in conventional vehicles on the road during the pandemic has resulted in substantially cleaner air. Think of what we could achieve with wide-scale adoption of EVs that could unite the objectives of clean mobility, vigorous commerce and healthier communities.

AEP is participating in industry-wide research programs, including as a founding member of a five-year Low Carbon Resource Initiative with the Electric Power Research Institute and Gas Technology Institute. Technology plays a critical role in achieving a clean energy economy and these types of initiatives help our entire industry move forward.

Our commitment to operational excellence provides a strong foundation for growth. We understand that one operational error has the potential to negatively affect the safety and reliability of our service, as well as our reputation and brand. Our focus on continuous improvement ensures that we are efficiently keeping pace with customer expectations and new technologies that benefit customers.

I am confident we have the agility, commitment and strong foundation to get through this. AEP has a long history of consistent dividends, earnings and fiscal stewardship. Our capital investment strategy targets projects that deliver the most value to our customers while strengthening the resilience and reliability of the grid. That focus will not change. In 2019, we launched a program called Achieving Excellence to evaluate and develop recommendations to reduce our expenses across the company. While this effort is not yet complete, our employees submitted thousands of ideas to help us become more efficient, optimize operations, and provide additional services and value to our customers. This work is critical to our future and will have immediate impacts as we weather this storm.

The challenges we face from this COVID-19 pandemic will certainly test our collective resiliency. We are concerned about the business and social impacts as we resume disconnections for nonpayment. In light of the pandemic, our voluntary suspension was the right thing to do, but it was not permanent. We are developing plans and working with our industry and regulators to manage this in the most fair and thoughtful way possible. Our business continuity and emergency plans prepare us for keeping the lights on during a crisis, as well as ensuring our own financial stability as we meet our obligation to serve. Our response is consistent with our commitments to clean energy, resiliency and the reliability of the grid that serves and protects our customers. We came into this crisis with a solid foundation of fiscal responsibility, strategic investment and a deep commitment to our customers and investors. We have much work to do to manage through the pandemic crisis, but we are confident we will emerge stronger and more nimble than ever.

Protecting the electric power grid from cyber and physical attacks is a high priority for our industry. As our economy becomes digital and more connected, the greater the threat becomes. New technologies and apps, as well as our growing reliance on cloud-based programs, are among the many risks to the system. In terms of cybersecurity protections, the electric utility industry is one of the most regulated. The North American Electric Reliability Corporation (NERC) develops and enforces Reliability Standards such as the Critical Infrastructure Protection (CIP) regulations that constantly change to adapt to new threats from malicious hackers or nation-states.

We invest in protecting the grid, participate in drills to test our systems, and work with the federal government and other partners to anticipate and respond as effectively as possible. AEP is also a member of the Electricity Subsector Coordinating Council, which is the principal liaison between the federal government and our industry. Our most important partner in protecting the grid is our workforce. Our employees’ role is that much more critical as bad actors try to take advantage of the pandemic crisis.

In addition, AEP has a rigorous cyber and physical security governance structure in place that includes an Enterprise Security Advisory Council. Regular oversight of our efforts also comes from the Audit Committee of the Board of Directors, with an annual review by the full Board.

A combination of changing customer expectations, technology advancement and an aging workforce demographic are leading AEP to reimagine work and how we do that work. This includes reviewing the skills our workforce needs now and well into the future. The pandemic taught us that we should also be looking more thoughtfully at where we do the work, as thousands of our employees have quickly pivoted to work remotely and have stayed highly productive in the process.

AEP is reimagining how we do work. This includes reviewing the skills our workforce needs now and well into the future.

We are collaborating with academic, business and government partners to create the talent pool we will need for the future. In Ohio, Columbus State Community College created the Office of Talent Strategy in 2019 to build a talent pipeline for high-demand jobs in cybersecurity, data analytics and cloud technologies. With an expected shortage of skilled labor, which is so critical to our industry, we have two Line Mechanic Apprentice training programs that are registered with the Department of Labor. Eligible veterans may apply their GI Bill benefits while in the program as they seek to obtain their journeyman status. We are also tapping into our retirees to help us fill temporary gaps as we transition our business, such as we did at the Conesville Plant in Ohio, where many returned to staff the plant until its retirement. Our Credits CountSM STEM education program continues to flourish as we encourage young people to embrace STEM-related career choices. We want to be on the leading edge of preparing our employees while developing our future workforce, especially because we expect as many as 4,500 employees will leave or retire in the next few years.

Our culture reflects the heart and soul of AEP. I am very proud that AEP has been recognized by Gallup with its Exceptional Workplace Award, a testament to our collective efforts to create a great place to work every day. AEP is one of 38 companies receiving this recognition and one of two utilities on the list. While we have more work to do to keep our culture thriving, we are making significant progress. Our employees show their commitment every day by staying engaged. Our culture survey includes indices for accountability, inclusiveness and supervisor effectiveness – all of which showed marked improvement in 2019. AEP’s culture of Zero Harm continues to be our biggest strength. These are excellent results, and we are committed to continuously getting better.

We are leveraging and increasing the diversity of our workforce because it is smart business practice. Diversity and inclusion have the capacity to foster innovation, creativity, resilience and increased profitability. A diverse workforce is a valuable asset that requires careful nurturing and intentional focus to unleash its potential. We have accomplished quite a bit in the past few years, but we still have a long road ahead. We formed a Diversity & Inclusion (D&I) Advisory Council, conducted an enterprise-wide listening tour, launched an inclusive leadership education and awareness initiative, implemented a multicultural holiday, and hosted a D&I Town Hall for employees. Our newest initiative is “State of Diversity” discussions with leaders, to help us continue moving in a positive direction.

Everything we do, we do with the customer experience and the communities we serve in mind. Beyond basic electricity delivery, customers want more personalization, greater choices and advanced innovation. They want more digitally enabled products and services closely linked to their energy needs, along with others that are more lifestyle connected, such as home energy management and an online marketplace. Customer expectations are high and evolving: They want us to be available 24/7 across multiple communication channels to help them solve their issues, including providing reliable information when outages occur. We want to be their first choice for providing comprehensive solutions and to be their trusted resource for technology, sustainability, electrification and economic development.

Building strong, vibrant and sustainable communities requires innovation, investment and collaboration among state, regional and local business partners.

We are making significant investments to enhance our relationship with customers, empowering them with information, choices, convenience and technology. We are meeting them in their channels of choice and asking them how we can do better. Our interactions with customers in social media are having a positive impact on customer sentiment and customer experience with AEP. In addition, we are continuously enhancing our mobile apps to put more decision-useful information in their hands.

As we sharpen our focus on delivering new technologies and custom energy solutions for our customers, we have named a new senior vice president and chief information & technology officer. Therace Risch has extensive experience in fast-moving customer-focused industries with a record of accomplishment of driving change and using technology to evolve legacy business models. This new leadership position will enable us to coordinate resources and strategy to support innovation and technology, information technology, telecommunications and our digital innovation hub – all of which are fundamental to our success.

The strength and vitality of our communities are integral to creating a bright future for all. We are seeking new ways to leverage the capabilities of our network to improve quality of life in the communities we serve. One exciting new opportunity is a pilot to expand access to high-speed broadband to underserved parts of rural Virginia. Other states also are exploring the opportunity to expand broadband access. The availability of high-speed broadband in remote areas provides social benefits through direct entry to health care, jobs and education. It also enables innovation, expansion, and e-commerce – all of which will be vital to small business recovery following the pandemic.

Building resilient, vibrant communities takes a village of partners. At AEP, we have pledged to pursue economic development aggressively to help our states diversify their economies; attract new businesses, people, and jobs; improve mobility; and support education. We provide training to local economic development officials and offer a Qualified Sites Program that helps communities attract new business. We are proud of our support for our Appalachian communities that were the hardest hit during the decline of the coal industry. Working with our regional partners, we created Appalachian Sky – an initiative to attract the aerospace and aviation industry to our service territory. Through this work, more than 30 counties are now certified as AEROreadyTM. In addition, central Ohio has become a choice location for large-scale data center development because of AEP’s commitment to ensuring adequate grid capacity and clean energy resources. In Texas, a new, $1.8 billion steel mill will soon begin construction, creating approximately 600 new jobs when operational.

The road ahead in the wake of the pandemic is going to present a myriad of economic and community challenges for many, making it more important than ever that we move forward together.

The success of our transition to a clean energy future requires new skills, a diverse workforce and forward-thinking leaders to mitigate risks and cultivate new opportunities. As we prepare our workforce, we are also expanding upon the expertise and diversity of our Board of Directors.

In 2019, Art Garcia, retired executive vice president and chief financial officer of Ryder, was appointed to AEP’s Board. Art brings significant strategic and financial expertise to our Board, including experience developing and executing corporate growth strategies.

Margaret McCarthy, former executive vice president of technology integration at CVS Health Corp., also joined the Board in 2019. Meg brings experience and leadership in the highly regulated and competitive insurance and healthcare industries, particularly in the areas of cybersecurity and information technology. She is also a Navy veteran.

Meg’s election brings to four the number of women serving on our Board. This distinction earned AEP recognition by 2020 Women on Boards as a Winning “W” Company for the third consecutive year. The additions of Meg and Art strengthen the experience and expertise of our Board in important growth areas for AEP.

In 2020, longtime Board member Lionel Nowell III decided not to seek another term. I will personally miss Lionel’s leadership, his extensive knowledge in strategy development and execution, and his corporate finance experience. Most importantly, he is a friend to AEP and myself, and we are deeply grateful for his service.

At AEP, we know the basic needs of our customers are constant and simple – reliable, safe, secure and affordable electricity. We take to heart our responsibility to help meet those needs every day, regardless of what is happening in the world around us. As we recover from the challenges created by the pandemic, we have an extraordinary opportunity to quicken the pace of the country’s transition to a clean energy economy.

I believe this is the moment to advance electrification for social good. AEP can be a catalyst for change through advanced digitization and automation, driving efficiencies in transportation, and leveraging our utility assets to enable greater access and connectivity through high-speed broadband. We share the vision for a clean energy economy with our stakeholders, including public policymakers, technology providers, customer groups, NGOs, investors of all types, our community partners and many others. We believe we are uniquely qualified to be the convening authority to advance these objectives because this is not new to us. Rather, we engage and collaborate every day with stakeholders to advance energy-related policies that enable a clean and brighter energy future.

Our vision for the future is clear and we are executing our strategy to achieve our goals. Let us work together to electrify the transportation and industrial sectors; expand high-speed broadband; create new opportunities for small business growth and access to basic needs; deploy advanced technologies, giving customers more control and choices; and enhance the use of information and data to protect and manage the most critical infrastructure in this country – the electric power grid. As we do this, we can accelerate decarbonization efforts across all sectors of our economy.

Our employees have repeatedly proven their dedication to our customers, in good times and in crisis. We are profoundly grateful for their hard work to keep our operations running smoothly and the power on for our customers during this pandemic. I am proud of their commitment to our communities and to each other. Our culture and focus on financial and operational excellence provide a strong foundation to move us forward as we work together to redefine the future of energy and develop innovative solutions to power communities and improve lives.

Sincerely,
nick akins signature
Nicholas K. Akins
Chairman, President & Chief Executive Officer
American Electric Power