October 22, 2015 - AEP.com · 2015-10-22 · Earnings Update Delivered GAAP and operating earnings of $1.06 per share for the third quarter 2015 Delivered GAAP and operating earnings

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3rd Quarter 2015 Earnings Release Presentation

October 22, 2015

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its

Registrant Subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual

outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-

looking statements are: the economic climate, growth or contraction within and changes in market demand and demographic patterns in our service territory, inflationary

or deflationary interest rate trends, volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments

impairing our ability to finance new capital projects and refinance existing debt at attractive rates, the availability and cost of funds to finance working capital and capital

needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material, electric load, customer growth and the

impact of retail competition, weather conditions, including storms and drought conditions, and our ability to recover significant storm restoration costs, available sources

and costs of, and transportation for, fuels and the creditworthiness and performance of fuel suppliers and transporters, availability of necessary generation capacity and

the performance of our generation plants, our ability to recover increases in fuel and other energy costs through regulated or competitive electric rates, our ability to build

or acquire generation capacity and transmission lines and facilities (including our ability to obtain any necessary regulatory approvals and permits) when needed at

acceptable prices and terms and to recover those costs, new legislation, litigation and government regulation, including oversight of nuclear generation, energy

commodity trading and new or heightened requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or

additional regulation of fly ash and similar combustion products that could impact the continued operation, cost recovery and/or profitability of our generation plants and

related assets, evolving public perception of the risks associated with fuels used before, during and after the generation of electricity, including nuclear fuel, a reduction in

the federal statutory tax rate could result in an accelerated return of deferred federal income taxes to customers, timing and resolution of pending and future rate cases,

negotiations and other regulatory decisions including rate or other recovery of new investments in generation, distribution and transmission service and environmental

compliance, resolution of litigation, our ability to constrain operation and maintenance costs, our ability to develop and execute a strategy based on a view regarding

prices of electricity and other energy-related commodities, prices and demand for power that we generate and sell at wholesale, changes in technology, particularly with

respect to new, developing, alternative or distributed sources of generation, our ability to recover through rates or market prices any remaining unrecovered investment in

generation units that may be retired before the end of their previously projected useful lives, volatility and changes in markets for capacity and electricity, coal, and other

energy-related commodities, particularly changes in the price of natural gas, changes in utility regulation and the allocation of costs within regional transmission

organizations, including ERCOT, PJM and SPP, the transition to market for generation in Ohio, including the implementation of ESPs, our ability to successfully and

profitably manage our separate competitive generation assets, changes in the creditworthiness of the counterparties with whom we have contractual arrangements,

including participants in the energy trading market, actions of rating agencies, including changes in the ratings of our debt, the impact of volatility in the capital markets on

the value of the investments held by our pension, other postretirement benefit plans, captive insurance entity and nuclear decommissioning trust and the impact of such

volatility on future funding requirements, accounting pronouncements periodically issued by accounting standard-setting bodies and other risks and unforeseen events,

including wars, the effects of terrorism (including increased security costs), embargoes, cyber security threats and other catastrophic events.

Investor

Relations

Contacts

Bette Jo Rozsa Managing Director Investor Relations

614-716-2840 [email protected]

Brad Funk Director

Regulated Accounting 614-716-3162

[email protected] 2

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Third Quarter 2015 Highlights

Third Quarter 2015 Company Update

Refer to appendix for reconciliation between GAAP and Operating EPS

Earnings Update Delivered GAAP and operating earnings of $1.06 per share

for the third quarter 2015 Delivered GAAP and operating earnings of $3.22 per share

and $3.21 per share respectively, for YTD September 2015 Increasing operating earnings guidance range from $3.50-$3.65 to $3.67-$3.77 per share

Reaffirming 4%-6% EPS growth rate

Dividend Increase Board declared dividend of $0.56/share

This is a 5.7% increase (from $2.12 to $2.24 on an annual

basis

Regulatory Update AEP Ohio – PPA

Clean Power Plan

PJM Auction Results

Sale of AEP River Operations

YTD 2015

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* operating adjusts GAAP results by eliminating any material non operating items and is not weather normalized

Regulated Returns Twelve Months Ended 09/30/2015 Earned ROEs (Operating Earnings*)

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3rd Quarter 2015 vs. Prior Year By Segment

Refer to appendix for additional explanation of variances by segment

($0.07)

$0.06

$0.03

$0.03

Strong regulated operations drive 3rd quarter earnings

2015 Actual EPS $0.56 $0.23 $0.09 $0.19 $0.01 $(0.02)

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YTD September 2015 vs. Prior Year By Segment

Refer to appendix for additional explanation of variances by segment

$0.06

$0.03

$0.03

Raising operating earnings guidance to $3.67 to $3.77 per share

2015 Actual EPS $1.59 $0.59 $0.30 $0.73 $0.03 $(0.03)

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Normalized Load Trends

Note: Charts reflect connected load and exclude firm wholesale load & Buckeye Power backup load.

Q3-15: Positive load growth in all major retail classes, but earnings impacted by sales mix

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Economic Data

Source – Moody’s Analytics

2.9%

2.5% 2.9%

2.7%

2.0%

2.7% 2.3%

1.9% 1.6% 1.6%

0%

1%

2%

3%

4%

Q3-14 Q4-14 Q1-15 Q2-15 Q3-15

Gro

wth

vs

Pri

or

Ye

ar

GDP Growth by Quarter

US AEP

0%

1%

2%

3%

4%

Q3-14 Q4-14 Q1-15 Q2-15 Q3-15

Gro

wth

vs

Pri

or

Ye

ar

GDP Growth by Geography

US AEP-East AEP-West

2.0% 2.1% 2.3%

2.1% 2.0%

1.4% 1.3% 1.1% 0.9% 0.9%

0%

1%

2%

3%

Q3-14 Q4-14 Q1-15 Q2-15 Q3-15

Gro

wth

vs

Pri

or

Ye

ar

Employment Growth by Quarter US AEP

0%

1%

2%

3%

Q3-14 Q4-14 Q1-15 Q2-15 Q3-15

Gro

wth

vs

Pri

or

Ye

ar

Employment Growth by Geography

US AEP-East AEP-West

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AEP Shale Play Counties

Industrial Class Data

Shale counties in AEP service territory Non-Shale counties in AEP service territory

Shale gas development drives industrial load growth

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(unaudited) 9/30/2015 Actual

($ in millions) Amount Maturity

Revolving Credit Facility $1,750 Jul-18

Revolving Credit Facility $1,750 Jun-17

Total Credit Facilities $3,500

Plus

Cash & Cash Equivalents $178

Less

Commercial Paper Outstanding (32)

Letters of Credit Issued (33)

Net Available Liquidity $3,613

Actual Target

FFO Interest Coverage 5.7x >3.6x

FFO to Total Debt 21.6% 15%-20%

Capitalization & Liquidity

Liquidity Summary

Credit Statistics

Note: Credit statistics represent the trailing 12 months as of 09/30/2015

Total Debt / Total Capitalization

Strong balance sheet, credit metrics, and liquidity

Qualified Pension Funding

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EEI Financial Conference Themes

The new BOLD™ transmission line technology

Confirm 4% - 6% operating earnings growth rate

Update 2016 operating earnings guidance range and provide

details by segment

Detail growth in Regulated Utility Operations

Three year Cap-Ex forecast

Transmission opportunities update

Three year financing plan

Fleet Transition, Environmental Investment

Ohio PPA and Strategic Update

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Appendix

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Third Quarter Operating Earnings Per Share Overview

See slides 14 & 15 for items excluded from GAAP Net Income to reconcile to Operating Earnings

Weighted average no. of shares outstanding: 489M Q3-14 & 488M YTD-14; 491M Q3-15 & 490M YTD-15

Segment Q3-14

EPS Q3-15

EPS YTD-14

EPS YTD-15

EPS

Vertically Integrated Utilities $0.45 $0.56 $1.33 $1.59

Transmission & Distribution Utilities

0.19 0.23 0.57 0.59

AEP Transmission Holdco 0.09 0.09 0.23 0.30

Generation & Marketing 0.24 0.19 0.78 0.73

AEP River Operations 0.02 0.01 0.03 0.03

Corporate & Other 0.02 (0.02) 0.01 (0.03)

EPS from Operating Earnings $1.01 $1.06 $2.95 $3.21

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3rd Quarter Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

Q3-14 Q3-15 Change Q3-14 Q3-15 Change

Reported (GAAP) Earnings $493 $519 $26 $1.01 $1.06 $0.05

Non Operating Items:

Mark-to-Market Impact of Commodity Hedging Activities

- 2 2 - - -

AEP Operating Earnings $493 $521 $28 $1.01 $1.06 $0.05

Weighted average no. of shares outstanding: 489M Q3-14 & 491M Q3-15

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YTD September Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

YTD-14 YTD-15 Change YTD-14 YTD-15 Change

Reported (GAAP) Earnings $1,443 $1,578 $135 $2.95 $3.22 $0.27

Non Operating Items:

Mark-to-Market Impact of Commodity Hedging Activities

- (3) (3) - (0.01) (0.01)

AEP Operating Earnings $1,443 $1,575 $132 $2.95 $3.21 $0.26

Weighted average no. of shares outstanding: 488M YTD-14 & 490M YTD-15

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Vertically Integrated Utilities

Q3-14 Q3-15

$ millions (except EPS)

Operating Revenues $2,450 $2,471

Operating Expenses:

Energy Costs (1,010) (931)

Operations & Maintenance (615) (653)

Depreciation & Amortization (257) (264)

Taxes Other Than Income Taxes (95) (97)

Operating Income 473 526

Net Interest/AFUDC (118) (109)

Income Taxes (135) (142)

Other (1) (1)

Operating & GAAP Earnings $219 $274

EPS from Operating Earnings $0.45 $0.56

Third Quarter EPS Summary Key Drivers: Q3-15 vs. Q3-14

Rate changes: $64M primarily from APCo, SWEPCo & I&M

Weather: $51M favorable vs. prior year; $5M favorable vs. normal

Off-System Sales: $23M unfavorable vs. prior year due

to lower market prices in both PJM & SPP

Retail load: $22M unfavorable vs. prior year due to unfavorable retail prices variances and decreased residential sales

O&M: $21M unfavorable (net of offsets) vs. prior year primarily due to employee related expenses

Income Taxes: effective tax rate of 34.2% Q3-15 vs. 38.1% Q3-14

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Vertically Integrated Utilities

YTD-14 YTD-15



Operating Expenses:

Energy Costs (3,038) (2,695)

Operations & Maintenance (1,809) (1,844)



Operating Income 1,391 1,530



Other (2) (1)



YTD EPS Summary Key Drivers: YTD-15 vs. YTD-14

Rate changes: $176M primarily from APCo, SWEPCo & I&M

$23M VA Regulatory provision reversal

Weather: $52M favorable vs. prior year; $76M

favorable vs. normal Off-System Sales: $118M unfavorable vs. prior year due

to lower market prices in both PJM & SPP

Retail load: $55M unfavorable vs. prior year due to decreased residential sales and change in sales mix

O&M: $19M favorable (net of offsets) vs. prior year primarily due to lower forestry and storm related expenses

PJM Charges: $30M favorable vs. prior year primarily due to decreases in unrecovered PJM charges

Income Taxes: effective tax rate of 34.7% YTD-15 vs. 36.8% YTD-14

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Q3-14 Q3-15



Operating Expenses:

Energy Costs (404) (284)










Rate changes: $7M primarily from Ohio DIR

A $33M regulatory provision was recorded in Q3-2014


Retail Load comparable to prior year and normal

OSS: Unfavorable $9M due to OVEC

O&M: $9M unfavorable (net of offsets) vs. prior year primarily due to higher employee related and customer expenses

Income Taxes: effective tax rate of 34.3% Q3-15

vs. 35.5% Q3-14

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YTD-14 YTD-15



Operating Expenses:

Energy Costs (1,206) (1,042)










Rate changes: $22M from Ohio DIR A $33M regulatory provision was recorded in

2014


Retail Load: $5M unfavorable, primarily due to

sales mix

O&M: $25M unfavorable (net of offsets) vs. prior year primarily due to a donation to the Ohio Growth Fund and higher transmission and distribution services costs


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AEP Transmission Holdco

Q3-14 Q3-15


Operating Revenues $55 $88

Operating Expenses:





Net Interest/AFUDC 7 4


Equity Earnings 22 17

Other




$16M favorable operating income due to increased revenues and expenses, driven by increased capital investment in the wholly-owned Transcos

Taxes Other Than Income Taxes unfavorable $8M vs. prior year primarily due to higher property taxes

Equity Earnings from Joint Ventures $5M unfavorable vs. prior year primarily related to ETT expenses

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AEP Transmission Holdco

YTD-14 YTD-15



Operating Expenses:





Net Interest/AFUDC 17 13


Equity Earnings 62 63

Other - (1)




$56M favorable operating income due to increased revenues and expenses, driven by increased capital investment in the wholly-owned Transcos

Taxes Other Than Income Taxes unfavorable $27M vs. prior year primarily due to higher property taxes

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Generation & Marketing

Q3-14 Q3-15



Operating Expenses:

Energy Costs (529) (565)







Operating Earnings 117 93

Proforma Adjustments, Net of Tax - (2)

GAAP Earnings $117 $91


Third Quarter EPS Summary

See slide 14 for items excluded from Net Income to reconcile to Operating Earnings

Key Drivers: Q3-15 vs. Q3-14

Generation decreased 759 GWh (6.8%) Q3-15 vs.

Q3-14 AEP Dayton ATC liquidations down 10%:

$29.72/MWh in Q3-15 vs. $33.06/MWh in Q3-14

Generation revenue decreased due to lower capacity revenue

O&M: $62M favorable vs. prior year primarily due to decreased plant outages and settlement of asset retirement obligations

Income Taxes: effective tax rate of 35.1% Q3-15 vs. 31.7% Q3-14

Favorable hedge performance and fuel costs helped offset the impact of lower prices in Q3-15

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Generation & Marketing

YTD-14 YTD-15



Operating Expenses:

Energy Costs (1,894) (1,771)







Operating Earnings 378 357

Proforma Adjustments, Net of Tax - 3

GAAP Earnings $378 $360


YTD EPS Summary

See slide 15 for items excluded from Net Income to reconcile to Operating Earnings

Key Drivers: YTD-15 vs. YTD-14

Generation decreased 2,552 GWh (7.1%) YTD-15

vs. YTD-14

AEP Dayton ATC liquidations down 30%: $33.00/MWh in 2015 vs. $47.02/MWh 2014

Generation revenue decreased due to lower capacity revenue

O&M : $86M favorable vs. prior year primarily due to decreased plant outages and settlement of asset retirement obligations


Favorable hedge performance and fuel costs helped offset the impact of lower prices

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Rate Changes, net of offsets (in millions)

Q3-15 vs. Q3-14

APCo/WPCo $34

I&M $12

KPCo -

PSO $1

SWEPCO $17

Kingsport -

TOTAL $64

Impact on EPS

Retail Rate Performance

May not foot due to rounding

$0.09


Q3-15 vs. Q3-14

Ohio Power $7

Texas Central -

Texas North -

TOTAL $7

Impact on EPS $0.01

Transmission & Distribution Utilities Vertically Integrated Utilities

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YTD-15 vs. YTD-14

APCo/WPCo $70

I&M $48

KPCo -

PSO $3

SWEPCO $55

Kingsport -

TOTAL $176

Impact on EPS

Retail Rate Performance


$0.23


YTD-15 vs. YTD-14

Ohio Power $22

Texas Central -

Texas North -

TOTAL $22

Impact on EPS $0.03


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Retail Load*

(weather

normalized)

Q3-15 vs. Q3-14

Ohio Power 4.2%

Texas Central 0.9%

Texas North 1.2%

TOTAL 2.8%

Impact on EPS -

Retail Load*

(weather

normalized)

Q3-15 vs. Q3-14

APCo/WPCo -1.4%

I&M 2.0%

KPCo 0.8%

PSO 1.0%

SWEPCO -3.3%

Kingsport -2.5%

TOTAL -0.6%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.03

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Retail Load*

(weather

normalized)

YTD-15 vs. YTD-14

Ohio Power 1.5%

Texas Central 1.3%

Texas North 0.7%

TOTAL 1.4%

Impact on EPS

Retail Load*

(weather

normalized)

YTD-15 vs. YTD-14

APCo/WPCo -0.7%

I&M -0.2%

KPCo -2.2%

PSO 1.0%

SWEPCO -2.8%

Kingsport 0.5%

TOTAL -0.8%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.07

$0.01

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Weather Impact

(in millions)

Q3-15 vs. Q3-14

APCo/WPCo $15

I&M $9

KPCo $2

PSO $9

SWEPCO $16

Kingsport -

TOTAL $51

Impact on EPS

Weather Impact vs. Prior Year

Weather Impact

(in millions)

Q3-15 vs. Q3-14

Ohio Power -

Texas Central $3

Texas North $1

TOTAL $4

Impact on EPS


$0.01

$0.07

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Weather Impact

(in millions)

YTD-15 vs. YTD-14

APCo/WPCo $19

I&M $1

KPCo $4

PSO $6

SWEPCO $22

Kingsport -

TOTAL $52

Impact on EPS

Weather Impact

Weather Impact

(in millions)

YTD-15 vs. YTD-14

Ohio Power -

Texas Central $5

Texas North -

TOTAL $5

Impact on EPS



$0.01

$0.07

Documents

October 22, 2015 - AEP.com · 2015-10-22 · Earnings Update Delivered GAAP and operating earnings of $1.06 per share for the third quarter 2015 Delivered GAAP and operating earnings