Contributing to AEP’s financial success in 2014 were a number of factors: the accelerated growth of our transmission business; successful regulatory proceedings in several states; strong off-system sales; annual load growth in all customer classes; and, sustainable savings and enhanced revenue sources identified through employee-led continuous improvement efforts.
AEP also benefited from the reliable performance of our generation fleet during extremely cold weather in 2014 that produced sufficient earnings to allow us to advance O&M spending from future years. These shifts, combined with ongoing fiscal discipline, will help us manage the revenue challenges we face in 2016 as a consequence of the Ohio deregulation transition and the poor 2016/2017 PJM capacity auction results.
AEP’s earnings for 2014, based on Generally Accepted Accounting Principles (GAAP), totaled $1.6 billion or $3.34 per share, compared with $1.4 billion or $3.04 per share for 2013. AEP’s operating earnings in 2014, or GAAP earnings excluding special items, totaled $1.6 billion or $3.43 per share, compared with $1.5 billion or $3.23 per share in 2013. AEP Transmission Holding Company (AEPTHCo) contributed 31 cents per share in 2014 – $0.02 higher than originally forecasted – reflecting its accelerated growth. We expect AEPTHCo to contribute $0.38 per share to operating earnings in 2015. Overall, AEP delivered operating earnings per share at the high end of our earnings guidance. We reaffirmed our earnings growth range between 4 percent and 6 percent.
2014 operating earnings were higher than GAAP earnings due to the exclusion of charges related to a coal contract termination and a mark-to-market adjustment for hedging activities. Weather-adjusted retail sales of electricity grew one percent in 2014. Our 2014 industrial sales increased 0.4 percent compared with 2013, despite the closure of Ormet, a large aluminum company. Excluding Ormet, our industrial sales volume increased by 3.9 percent. In 2014, 9 of our top 10 industrial sectors experienced growth compared with 2013. Residential and commercial sales also increased by 1.1 percent and 1.7 percent, respectively, compared with 2013.
The strongest growth came from customers in our oil and gas-related industrial sectors. In 2014, we saw 30 percent growth in our shale counties compared with 2013. This shale region growth is significant for AEP because 17 percent of our industrial sales are located in shale gas counties. The recent downturn in oil and gas prices could impact that growth in 2015. However, because AEP has a diversified industrial base within our service territory, we are shielded from the effects of downturns in any one specific industry. This is an example of how AEP’s makeup provides not only a geographically diverse buffer for exposures to weather extremes, but also diverse regional economies that afford steady growth in spite of various economic conditions.
Fiscal discipline is central to our business strategy, and we work hard to be efficient and thoughtful about how we spend our resources. We strive to manage those resources in ways that consider the customer impact in essentially every decision we make and with every dollar we spend.
Our operations and maintenance (O&M) expense was higher in 2014 than in 2013, due in part to planned incremental spending and increased employee-related costs. Depreciation expense was also higher due to increased capital investments.
At AEP, we strive to align our investments to provide our customers with reliable, sustainable service, at a fair and reasonable rate that allows us to reward our investors. That’s the philosophy driving our capital investment strategy. Customers want safe, reliable and affordable electricity. About 97 percent of our capital funds are forecasted to be invested in our regulated operations. In 2014, we invested $4 billion in our regulated businesses (excluding AFUDC debt and equity). Of that, we invested approximately $3 billion in our transmission and distribution functions and approximately $0.9 billion in our regulated generation, mostly for environmental compliance and life cycle management at the Cook Nuclear station.
In 2014, our total debt-to-capitalization ratio remained strong at 54.4 percent. This compares with a debt-to-capitalization ratio of 54.3 percent at the end of 2013 and 57.2 percent in 2009. This is important because a lower ratio positions AEP well in the debt capital markets when it seeks capital for infrastructure development.
Our other credit metrics remain strong as well. In 2014, AEP maintained its liquidity position – the ability to gain access to cash when it’s needed. AEP’s liquidity position of approximately $3 billion is underpinned by our two revolving credit facilities. Our strong balance sheet and solid credit metrics reflect adequate liquidity to support our growth strategy.
Our qualified, defined benefit pension plan was 97 percent funded at the end of 2014. Our pension contribution in 2014 was $71 million. We expect to make a contribution of $87 million in 2015. In 2014, the value of our pension plans’ assets increased to $5 billion compared with $4.7 billion in 2013. Our strategy has been to maintain the funded status of the plan to the benefit of our employees, retirees and customers. We are working hard to match the duration of the plan’s assets to its liabilities to reduce risk as the plan approaches full funding. In 2014, the qualified plan paid $289 million in benefits to plan participants.