Charles E. Zebula
Executive Vice President and Chief Financial Officer at American Electric Power
Thank you, Julie. It's good to be with you and everyone on the call this morning. As many of you know, I've been in many different roles at AP, but this is my first earnings call as the CFO. I'm truly honored to return to the exceptional finance team at AEP and lead this area as we embrace the opportunity to invest in our regulated utilities and serve our customers with affordable and reliable electric service. Today, I will discuss our third quarter and year-to-date results.
Share some updates on our service territory load and economy and finish with commentary on credit metrics and liquidity as well as confirming our guidance financial targets and a recap of our commitments to stakeholders. Let's go to slide nine, which shows the comparison of GAAP to operating earnings GAAP earnings for the third quarter were $1.83 per share compared to $1.33 per share in 2022. Year-to-date GAAP earnings through September were $3.62 per share compared to $3.76 per share in 2022.
As was mentioned on the second quarter earnings call, our year-to-date comparison of GAAP to operating earnings reflects the loss on the sale of the contracted renewables business as a nonoperating cost as well as an adjustment to true-up costs related to the terminated Kentucky transaction. In addition, we have reflected our typical mark-to-market adjustment and the impact of capitalized incentive compensation in Texas as nonoperating earnings as well. There's a detailed reconciliation of GAAP to operating earnings on pages 17 and 18 of the presentation today.
Moving to slide 10. Operating earnings for the third quarter totaled $1.77 per share or $924 million compared to $1.62 per share or $831 million last year. The higher performance compared to last year was primarily driven by favorable rate changes and transmission project execution, increased retail load and favorable O&M across our segments. Operating earnings for vertically integrated utilities were $1 per share, up $0.03 from last year.
Favorable drivers included rate changes across multiple jurisdictions, increases in retail load, depreciation, transmission revenue and O&M. These items were somewhat offset by higher interest expense and unfavorable weather year-over-year. the vertically integrated segment did see positive weather versus normal in the third quarter of about $0.04 per share, but this was compared to positive weather in the third quarter last year of about $0.06 per share. Consistent with our first and second quarter results, depreciation was favorable at the vertically integrated segment by $0.01 in quarter 3, primarily due to the expiration of the Rockport Unit two lease in December 2022.
However, if we exclude the impact of the lease depreciation would have been about $0.02 unfavorable, which is consistent with incremental investment activity in our vertically integrated segment. INM should see an additional $0.02 favorable net depreciation in the fourth quarter as well. The Transmission & Distribution Utility segment earned $0.39 per share, up $0.07 compared to last year. Favorable drivers in this segment included increased retail load, transmission revenue, positive rate changes in Texas and Ohio and favorable O&M Partially offsetting these favorable items were higher depreciation and higher interest expense.
The AEP Transmission Holdco segment contributed $0.39 per share, up $0.06 compared to last year. Favorable investment growth of $0.02, coupled with favorable income taxes of $0.02 are largely driving the change here. Generation and Marketing produced $0.18 per share, up $0.04 from last year. The positive variance is primarily due to favorable impacts associated with the contracted renewable sale in August, along with higher generation margins and land sales. These favorable items were partially offset by lower retail and wholesale power margins.
Finally, Corporate and Other was down $0.05 per share, driven by unfavorable interest and partially offset by favorable O&M. Please note that our year-to-date operating earnings performance by segment is shown on slide 16 in the appendix of our presentation today. Many of the positive drivers are the same for the year as for the quarter, and the negative year-to-date variance is driven largely by unfavorable weather and higher interest expenses.
Before we move on, I want to add a few more comments on O&M, including our outlook for the remainder of the year. We saw favorable O&M in the third quarter compared to the prior year, which was consistent with our expectations. For the fourth quarter, we are expecting more than $100 million of favorable O&M versus the prior year, which would bring us to a net favorable position for the full year from a consolidated perspective.
The favorable change anticipated in the fourth quarter is largely a result of the timing of O&M spending in the prior year, including employee-related expenses and a contribution to the AEP Foundation in the fourth quarter of last year, along with continued actions we have taken, such as holding employment positions open, reducing travel and adjusting the timing of discretionary spending. Turning to slide 11. I will provide an update on whether normalized low performance for the quarter and our expectations through the end of the year.
Overall, load has come in ahead of plan all year, and the third quarter was no exception. Looking to the bottom right-hand quadrant. Normalized retail load grew 2.1% in Q3 from a year earlier. You also noticed that we have updated our full year 2023 estimates based on the strong loan growth we've experienced year-to-date. Weather normalized retail load is now expected to finish this year 2.3% higher than 2022, an increase that is nearly three times higher than our original expectations.
This strength comes from exceptional growth in commercial load driven by data centers in Ohio, Texas and Indiana, but the third quarter also saw positive trends in our residential class, which is shown in the upper left-hand quadrant of the slide. Residential load increased for the first time in more than a year in Q3 with growth of 0.6% from a year earlier. The relationship between customer incomes and inflation is a key driver of residential usage and has begun to stabilize as expected in the second half of this year.
This month's CPI data point was yet another encouraging sign that inflationary pressures on our residential customers are continuing to lessen. We note that residential usage per customer have seen slight declines this year as energy efficiencies increase, more workers return to offices and customers change behavior due to inflation. Fortunately, we are seeing strong enough growth in our customer base, especially in Texas and Ohio to help partially offset these trends. Year-to-date, we have added nearly 30,000 residential customers across our footprint.
Moving to the lower left-hand quadrant of the slide, our investor load declined in the third quarter, driven by a pullback in usage by some of our key manufacturing customers. namely chemical, plastic and tire producers as well as downstream participants of the energy industry. This reflects some of the softness in manufacturing nationally as producers have slowed activity in response to uncertainty around the economic outlook. We expect this to reverse itself in the months ahead as recent inflation and jobs data have reduced the probability of a recession occurring in the next year.
We are forecasting industrial load to remain positive through the end of next year and beyond. Moving to the upper right-hand quadrant of the slide, we see another impressive quarter for commercial load. In the third quarter, commercial load was 7.5% higher than a year ago, driven by the addition of new data center customers, mostly in Ohio, Texas and Indiana. We expect the pace of year-over-year growth in our commercial load to moderate some in 2024 as new projects work their way through the queue.
Many of the large projects currently underway within our footprint won't come fully online until 2025. However, there is upside if a few of these projects move forward earlier than expected. Many of these gains are directly attributable to our ongoing efforts to facilitate more economic development across our operating footprint. We know that working with local stakeholders to attract more economic activity is a key strategy to providing value to the communities we serve. It allows us to prioritize investments that improve the customer experience while also mitigating rate impacts on our customer base.
Moving to slide 12. In the lower left corner, you can see our FFO to debt metric stands at 11.4%, which is an increase of 30 basis points from last quarter but continues to be well below our targeted range of 14% to 15%. The primary reason for the increase is a $1.8 billion decrease in debt during the quarter due to long and short-term debt retirements, driven by proceeds received from our contracted renewable sale and the successful completion of our planned equity units conversion, both of which occurred in August.
We expect this metric will continue to improve throughout the remainder of this year and anticipate reaching our targeted range in early next year as we see an improvement in FFO during that time. We have included a table on the slide that shows the path to the targeted FFO to debt range early next year. These items -- these are items that impact both the 12-month rolling average as well as an estimated increase in the quarterly FFO.
We anticipate a 180 to 190 basis point positive impact on FFO that enables the metric to be in the 13% to 14% range by year-end based on the following items: a roll-off of roughly $600 million in cash collateral, deferred fuel and other outflows from the fourth quarter of 2022 and continued cash recovery of deferred fuel balances in the fourth quarter of this year that total between $150 million and $200 million in accordance with the regulatory orders we have already received.
Moving into 2024, the continued roll-off of prior year cash collateral outfall in the amount of $390 million in the first quarter of 2023 and a $90 million adjustment from unfavorable weather in the first quarter of this year to normal weather in our forecast for next year, will result in an incremental 100 basis point improvement put us within our target range of 14% to 15%. Also, please note that we have updated our 2023 cash flow, as shown on page 29 in the appendix.
An increase of $1.2 billion in required capital is shown versus the original forecast, mostly due to a decrease of $800 million in cash from ops largely due to fuel inventory and an increase of $300 million in capital expenditures. Please note that our equity needs for 2023 are unchanged. The remaining years 2024 to 2027, along with rebilling 2028, will be updated at the upcoming EEI conference. Expect that this update will be consistent with our prior equity meetings and disclosures. Moving to slide 13.
You can see our liquidity summary in the middle of the slide. Our five year $4 billion bank revolver and our two year $1 billion revolving credit facility to support our liquidity position, which remains strong at $3.5 billion. On a GAAP basis, our debt to cap decreased from the prior quarter by 220 basis points to 62.4%. This large change can be attributed to the large reduction in debt, driven by our contracted renewable sale and the completion of our planned equity units that I mentioned earlier. On the qualified pension front, our funding status decreased 1.9% during the quarter to 100.3%.
This is largely due to equity and fixed income losses in the third quarter as interest rates increased and equity indices fell in both August and September. These losses are partially offset by a decreased liability due to rising interest rates. Let's go to slide 14 for a quick recap of today's message. The third quarter produced growth in earnings well above the prior year, driven primarily by favorable rate changes, increased load and favorable O&M offsetting milder weather and increased interest expense. As we continue to move through the fourth quarter, we are focused on cost management efforts with the goal of mitigating the headwinds we have faced this year, primarily unfavorable weather and higher interest costs.
The strong third quarter results and low growth, coupled with our proactive plan for the balance of the year, allow us to confidently narrow our operating guidance range to $5.24 to $5.34 per share. We also continue to be committed to our long-term growth rate of 6% to 7%. And as Julie mentioned earlier, our sales efforts to simplify and derisk the AEP portfolio remain on track. We really appreciate your time and our management team and I look forward to seeing you at the upcoming EEI Financial Conference in Phoenix.
With that, I'm going to ask the operator to open the call so we can hear your questions or comments.
