Charles E. Zebula
Executive Vice President and Chief Financial Officer at American Electric Power
Thanks, Peggy, and good morning to everyone on the call. I'll walk us through the fourth quarter and full year results for 2023, share some updates on our service territory load, our outlook for this year and finish with commentary on credit metrics and liquidity.
Let's go to Slide 9, which shows the comparison of GAAP to operating earnings for the quarter and year-to-date periods. GAAP earnings for the fourth quarter were $0.64 per share compared to $0.75 per share in 2022. For the year, GAAP earnings were $4.26 compared to $4.51 in 2022.
As we have highlighted throughout 2023, our year-to-date comparison of GAAP to operating earnings reflects the gain or loss related to the sale of certain businesses, regulatory outcomes, as well as our typical mark-to-market adjustments as non-operating. Our team is committed to minimizing the variances between GAAP and operating earnings as we go forward. Detailed reconciliations of GAAP to operating earnings are shown on Slides 16 and 17 of the presentation today.
Let's quickly cover the fourth quarter. Our fourth quarter earnings came in at $1.23 per share, which was an $0.18 improvement over the same period in 2022. Note that we had $0.25 of favorable O&M and strong performance in our Generation and Marketing segment, partially offset by $0.06 of unfavorable weather, $0.09 of higher interest costs and lower performance in Transmission Holdco. December weather in particular was the 28th warmest out of the last 30 years. For reference, the full details of our fourth quarter results are shown on Slide 15 of the presentation.
Let's have a look at our full year results for 2023 on Slide 10. Operating earnings were $5.25 per share compared to $5.09 per share in 2022. Looking at the drivers by segment, operating earnings for Vertically Integrated Utilities were $2.47 per share, down $0.09, mostly due to unfavorable weather, higher interest expense and higher income taxes. These items were partially offset by rate changes across various operating companies, increased transmission revenue, higher normalized retail load, favorable depreciation and lower O&M. Once again, depreciation is favorable at the Vertically Integrated segment, primarily due to the expiration of the Rockport Unit 2 lease in December 2022.
The transmission and distribution utility segment earned $1.30 per share, up $0.14 from last year. Positive drivers in this segment included increased transmission revenue, rate changes in Texas and Ohio and lower O&M. Partially offsetting these items were unfavorable weather, higher depreciation and higher interest expense.
The AEP Transmission Holdco segment contributed $1.43 per share, up $0.11 from last year. Positive investment growth of $0.09 and favorable income taxes of $0.05 were the main drivers in this segment. As Peggy mentioned, we received the FERC NOLC order in January, resulting in an unfavorable net impact to consolidated earnings of $0.07 per share, with the majority of that impact occurring at the Transmission Holdco. The impact of this order to our 2024 plan is approximately $0.03 per share.
Generation and marketing produced $0.59 per share, up $0.09 from last year. The positive variance here is primarily due to improved retail and wholesale power margins, the sale of renewable development sites and favorable impacts associated with the contracted renewable sale in August. These items were partially offset by higher interest expense and unfavorable income taxes.
Finally, corporate and other was down $0.09 per share, driven by higher interest expense, partially offset by a favorable year-over-year change in investment gains, largely due to investment losses that occurred in the fourth quarter of 2022. As we mentioned earlier, we are reaffirming our guidance range for 2024. For convenience, we've included an updated waterfall bridging, our actual 2023 results to the midpoint of our guidance this year in Slide 24. While some variances changed due to last year's actual results, there is no change to our segments or overall guidance.
Turning to Slide 11, I'll provide an update on weather normalized load performance. Overall retail load grew 2.5% in 2023. This was stronger than the 0.7% in our original guidance, thanks to an acceleration in data center growth and our commitment to economic development across our service territory. This is most apparent when looking at the incredible expansion in commercial load, shown in the upper right-hand quadrant of the slide. Commercial sales grew 7.8% for the year, and were again dominated by data centers. We are encouraged that the gains are becoming more geographically diverse.
New projects have come online in Michigan, Kentucky and Oklahoma to supplement the development of what we see in Ohio and Texas. This is a trend we expect to continue over the next several years as the global demand for data storage and processing accelerates through the growth of AI and other technologies. We expect commercial load to continue to grow from its new higher base this year as projects work their way through the queue and commitments for 2025 are exceptionally robust. I believe that some of the 2025 load is going to accelerate and bleed into this year.
Industrial sales grew at 1.6%, which you can see in the lower left-hand quadrant of the slide. This is mostly attributable to a number of large industrial loads we've recently added across our service territories, which are more than offsetting any economic challenges seen by our existing customers. We expect industrial load growth to continue to reflect the softness in manufacturing nationally, with only a modest increase this year. However, growth in industrial sales beyond this year should accelerate as borrowing costs moderate and several large loads currently under construction come online.
In the upper left-hand corner of the slide, you'll see that residential load declined slightly in 2023. Usage per residential customer has declined for the past two years as homes have become more energy-efficient and workers spend more time in an office instead of at home. The negative impact of inflation on household budgets may be influencing usage as well.
On a positive note, we've seen our residential customer base grow consistently in certain regions. In 2023, we added almost 31,000 net new residential customers across our footprint, resulting in a positive offset to this segment. Overall, we're optimistic about the positive trends in load over the next several years, especially from a commercial and industrial perspective. Our conservative approach to estimating large loads gives us a lot of confidence in the growth we forecasted. In our next update, however, I would expect to see some upside in this area.
Let's move on to Slide 12 to discuss the company's capitalization and liquidity position. In the top left table, you can see the FFO to debt metric stands at 13.2% for 2023. Positive changes in FFO were as outlined on the third quarter call and included favorable changes in cash collateral, fuel recovery and other various drivers. These positive changes were somewhat offset by an $830 million increase in debt during the quarter primarily due to the issuance of long-term debt to prefund our March 2024 AEP parent maturity.
We are pleased that the team has overcome strong financial headwinds due to unfavorable weather and an unprecedented increase in interest rates to end the year above Moody's downgrade threshold of 13%. We expect our FFO to debt metric to continue to improve throughout 2024 as we progress towards our targeted range of 14% to 15%. This continued positive trend assumes normal weather for 2024 and continued growth in our cash flows through various regulatory activities, including recovery of our deferred fuel balances of approximately $425 million.
Our debt to cap increased from the prior quarter by 60 basis points to 63%, and our parent debt to total debt is approximately 21.7%. In the lower left quadrant of this slide, you can see our liquidity summary, which remains strong at $3.4 billion, and is supported by our bank revolver and credit facility. Lastly, on the qualified pension front, our funding status remains unchanged from the prior quarter to end the year at just over 100%. While falling interest rates increased the liability during the quarter, this increase was offset by positive asset returns.
Turning to Slide 13, I'll give a quick recap of today's message. We delivered on our commitments for 2023. Despite the significant challenges we faced, weather was one of the most mild years on record for the AEP system in the past 30 years, resulting in a negative $0.37 impact year-over-year and $0.21 versus normal weather.
To put a little more context to those numbers, our heating degree days were down 36% compared to normal across the system. Also, interest expense was a $0.45 hurdle to overcome versus 2022 results. We work diligently throughout the year to reprioritize and balance our plan by adjusting the timing of discretionary spend, while staying focused on meeting our core business needs. While admittedly facing some challenges on the regulatory front, we secured many rate outcomes that were critical in supporting our objectives to provide reliable service to our customers.
Looking into this year, we are optimistic about the opportunities and prepared to face any challenges ahead of us. We reaffirm our guidance for 2024 of $5.53 to $5.73 per share, our long-term growth rate of 6% to 7% and an improved balance sheet while continuing to implement our capital program, taking care of the customer, earning our authorized return and executing on our strategic priorities.
I would like to take a moment and thank Julie Sloat for her 23 years with AEP. Julie has made a positive impact on AEP and will be missed by many. Ben, we welcome you to the AEP management team. Your leadership in the industry is well respected, and you will be embraced by the employees of AEP. The entire management team looks forward to working with you and the Board as we look to enhance value for all AEP stakeholders.
Thank you for your time today. Operator, can you open up the call for questions?
