Julie Sloat
Executive Vice President and Chief Financial Officer at American Electric Power
Thanks, Nick. Thank you very much. Thanks, Darcy. It's good to be with everyone this morning. Thanks for everyone -- thanks, everyone, for dialing in. I'm going to walk us through the fourth quarter and full year results and then share some updates on our service territory load and then finish with some commentary on our financing plans, credit metrics and liquidity as well, some thoughts on our revised guidance, financial targets and portfolio management. So let's go to Slide 10, which shows the comparison of GAAP to operating earnings for the quarter and year-to-date periods. GAAP earnings for the fourth quarter were $1.07 per share $0.88 per share in 2020. GAAP earnings for the year were $4.97 per share compared to $4.44 per share in 2020. There's a reconciliation of GAAP to operating earnings on Pages 17 and 18 of the presentation today. Let's walk through our quarterly operating earnings performance by segment, which is on Slide 11. Operating earnings for the fourth quarter totaled $0.98 per share or $496 million compared to $0.87 per share or $433 million in 2020. Operating earnings for the vertically integrated utilities were $0.39 per share, up $0.08. Favorable drivers included rate changes across multiple jurisdictions, increased transmission revenue and lower income tax. These items were somewhat offset by lower normalized growth and higher depreciation. I'll talk about load a little bit more here in a minute. The Transmission and Distribution Utilities segment earned $0.25 per share, up $0.06 compared to last year. Favorable drivers in this segment included rate changes, normalized load and transmission revenues. Offsetting these favorable items were unfavorable December weather and increased depreciation. The AEP Transmission Holdco segment continued to grow, contributing $0.33 per share, which was an improvement of $0.06 driven by the return on the investment growth. Generation and Marketing produced $0.06 per share, up $0.01 from last year, largely due to favorable income taxes, wholesale margins, offset by lower generation in land sales. Finally, Corporate and Other was down $0.10 per share, driven by lower investment gains and unfavorable income taxes. The lower investment gains are largely related to charge point gains that we had in the fourth quarter of last year. Let's have a look at our year-to-date results on Slide 12. Operating earnings for 2021 totaled $4.74 or $2.4 billion compared to $4.44 per share or $2.2 billion in 2020. Looking at the drivers by segment.
Operating earnings for the vertically integrated utilities were $2.26 per share, up $0.05 due to rate changes across multiple or various operating companies, favorable weather and increased transmission revenue. Offsetting these favorable variances were higher O&M as we return to a more normal level of O&M, increased depreciation expense and lower normalized retail load primarily in the residential class. On the transmission and distribution utilities segment, they earned $1.10 per share, up $0.07 from last year. Earnings in this segment were up due to higher transmission revenue, rate changes and increased normalized retail load which is mainly in the residential and commercial classes. Offsetting these favorable variances were increases in O&M, depreciation and other taxes, essentially property taxes related to the increased investment levels. The AEP Transmission Holdco segment contributed $1.35 per share, up $0.32 from last year related to investment growth and a favorable year-over-year true-up. Generation and Marketing produced $0.26 per share, down $0.10 last -- from last year, largely due to favorable onetime items in the prior year associated with the downward revision of the Oklaunion ARO liability in contemplation of the plant shut down and the sale of the Conesville plant. Additionally, while we had land sales in both years, the level of sales was lower in 2021 versus 2020. Finally, Corporate and Other was down $0.04 per share. You'll notice that we aren't talking about investment gains in the year-to-date as we had a lot of timing differences across the quarters between 2020 and 2021, but net-net, we're flat for the year. The year-over-year decline in this segment was primarily driven by slightly higher O&M, interest expense and income taxes. Let's go to Slide 13 and I'll update you on our normalized load performance for the quarter. Let me begin by providing you with a couple of interesting stats that highlight the status of the recovery throughout the AEP service territory. The first is the fact that we ended the year within 0.2% of our pre-pandemic sales levels and fully expect to exceed those levels in 2022. AEP's normalized load growth in 2021 was the strongest we've experienced in over a decade driven by the historic economic recovery throughout the service territory.
And to build on that, our current projection suggests that 2022 will be the second strongest year for load growth over the past decade following behind 2021. So let's start in the upper left corner. Normalized residential sales were down 1.9% compared to the fourth quarter of 2020, bringing the annual decrease in residential sales in 2021 to 1.1%. The decline was spread across every operating company. However, the decline in residential sales in 2021 was largely driven by the comparison basis of 2020 when COVID restrictions were at their highest levels even though residential sales were down compared to 2020, they were still 2% above their pre-pandemic levels in 2019. In addition, residential customer accounts increased by 0.7% in 2021, which was the second strongest year for customer growth in over a decade. Customer growth was nearly twice as strong in the West, up 0.9% when compared to the East territory, which was up 0.5%. The last item to point out on the residential chart is that you'll notice that we added the projected 2022 growth to the right of the chart. We're projecting a modest decrease in residential sales in 2022, recognizing that there will not be likely another fiscal stimulus to boost the economy in 2022, like we had in the past two years. So moving over to the right, weather normalized commercial sales increased by 4.3% for both the quarter and the annual comparison. This made 2021 the strongest year for commercial sales in AEP history. 2021 included a strong bounce back in the sectors most impacted by the pandemic, such as schools, churches and hotels. But the strongest growth in commercial sales came from the growth in data centers, especially in Central Ohio. Looking forward, we expect a modest decline in commercial sales growth in 2022, recognizing the challenging conditions businesses are managing with inflation, the labor shortages and higher interest rates expected in 2022. So if we move to the lower left corner, you'll see that the industrial sales also posted a very strong quarter. Industrial sales for the quarter increased by 2.4%, bringing the annual growth up to 3.7%. Industrial sales were up at most operating companies in the quarter and mainly -- in many of the largest sectors. Looking forward, we're projecting 5.7% growth in the industrial sales in 2022. This is mostly the result of the number of new large customer expansions that will be coming online as a result of our continued focus on economic development.
Finally, when you pull it all together in the lower right corner, you'll see that AEP's normalized retail sales increased by 1.4% for the quarter and ended the year up 2.1% above 2020 levels. By all indications, the recovery from the pandemic has locked a year and our service territory is positioned to benefit from the future economic growth. Let's have a quick look at the company's capitalization and liquidity position beginning on Page 14. On a GAAP basis, our debt-to-capital ratio increased 0.1% from the prior quarter to 62.1%. When adjusted for the Storm Uri event, the ratio is slightly lower than it was at year-end 2020 and now stands at 61.4%. Let's talk about our FFO to debt metric. The impact of Storm Uri continues to have a temporary and noticeable impact on this metric. Taking a look at the upper right quadrant of this page, you'll see our FFO to debt metric based on the traditional Moody's and GAAP calculated basis as well as on an adjusted Moody's and GAAP calculated basis. On an unadjusted Moody's basis, our FFO to debt ratio decreased by 0.3% during the quarter to 9.9%. As you know, the rating agencies continue to take the anticipated recovery into consideration as it relates to our credit rating. On an adjusted basis, the Moody's FFO to debt metric is 13.3%. As mentioned in prior calls, this 13.3% figure removes or adjusts the calculation to eliminate the impact of approximately $1.2 billion of cash outflows associated with covering the unplanned Uri-driven fuel and purchase power costs in the SPP region directly impacting PSO and SWEPCO in particular. The metric is also adjusted to remove the effect of the associated debt we used to fund the unplanned payments. This should give you a sense of where we are or where we would be from a business-as-usual perspective. As Nick mentioned, we're now targeting an FFO to debt metric in the 14% to 15% range, which is commensurate with the Baa2, BBB flat stable rating. We expect to see this metric to begin to trend toward this new range of 14% to 15% in the latter half of 2022 as we make progress on the regulatory matters that are underway, including the recovery of Uri costs.
As you know, we're in frequent contact with the rating agencies to keep them apprised of all aspects of our business and in the presentation today on Page 48, you'll see our financing plan. And aside from some modifications around the capital allocation and refinements on cash flows, everything remains intact as well as the general gist of the financing plan, including equity. Let's quickly visit our liquidity summary on the lower right side of this slide. Between our bank revolver capacity and cash balance, our liquidity position remains strong at $4 billion. And in the lower left, you can see our qualified pension funding continues to be strong, increasing 1.2% during the quarter to 104.8%. So let's go to Slide 15. The initiatives that we talked about today set a strong foundation for 2022 and beyond, all of which I would submit to you include a commitment to a boost in our earnings power, credit position and high-grading of our asset portfolio while derisking and simplifying our business profile. So to quickly recap of particular interest to our investor community, our equity investor community, we are lifting and tightening our long-term earnings growth rate to 6% to 7%. Consequently, we're increasing our 2022 earnings guidance range to $4.87 to $5.07 per share, up $0.02 from the original guidance. Of particular interest to our fixed income lender and credit rating agency community in addition to our equity investors, we're lifting and tightening our FFO to debt target range to 14% to 15%, which is consistent with a Baa2 stable and BBB flat stable rating. And of interest to all of our financial stakeholders, we are committed to the active management, high-grading and simplification of our asset portfolio to support our growth and transition to a clean energy future as a regulated utility holding company. The sale of our Kentucky operations is on track to close in the second quarter of this year and is reflected in our earnings guidance assumptions for 2022. And as we announced today, we've eliminated the growth capital in the contracted renewables area, moved that capital transmission and announced the sale process of all or a portion of the unregulated contract renewable portfolio with the goal of maximizing value.
We've already begun to reflect a portion of this asset rotation in our 5-year $38 billion capex guidance as evidenced by the $1.5 billion increase in transmission investment and the $1.3 billion reduction in the unregulated generation and marketing segment. While the reallocation of capital is now assumed in the guidance range we have updated for you, the utilization of sales proceeds is not yet reflected in the multiyear financing plan. And therefore, what you can anticipate hearing or seeing from us is that we will operate within the increased earnings growth and credit metric financial targets we provided to you today, working within those targets, funds from the sale activities will be directed to our regulated business as we continue our efforts to enhance the transmission infrastructure and to effectuate our generation transformation. Additionally, depending on the timing of the sale of our unregulated contract renewables portfolio or any future asset optimization activities, we will have a bias toward reducing and/or avoiding future equity needs. As you would expect, we'll update our guidance details once we have announcements so we can share with you. We're confident in our ability to deliver on our new and improved promises to you, given our focus on disciplined capital allocation, solid execution and positive regulatory outcomes. We really appreciate your time today. I'm going to hand it back to the operator now so we can get your questions.
