AEP Analyst & Investor Meeting Feburary 10, 2012
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AEP Analyst & Investor Meeting Feburary 10, 2012

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American Electric Power (NYSE: AEP) will share 2012 to 2014 plans, including 2012 ongoing earnings guidance (earnings excluding special items) and expected capital spend, during a meeting today with ...

American Electric Power (NYSE: AEP) will share 2012 to 2014 plans, including 2012 ongoing earnings guidance (earnings excluding special items) and expected capital spend, during a meeting today with investors in New York.

The company is expected to announce an ongoing earnings guidance range for 2012 of $3.05 to $3.25 per share and set its 2012 capital budget at $3.1 billion. Capital expenditures for 2013 and 2014 are estimated at $3.5 billion to $3.7 billion per year.

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AEP Analyst & Investor Meeting Feburary 10, 2012 AEP Analyst & Investor Meeting Feburary 10, 2012 Presentation Transcript

  • Analyst & Investor Meeting New York, NY February 10, 2012
  • “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its RegistrantSubsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes andresults 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 and growth in, or contraction within, our service territory and changes in market demand and demographic patterns, inflationary or deflationary interestrate trends, volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments impairing our ability tofinance new capital projects and refinance existing debt at attractive rates, the availability and cost of funds to finance working capital and capital needs, particularly duringperiods 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,particularly in Ohio, weather conditions, including storms, and our ability to recover significant storm restoration costs through applicable rate mechanisms, available sourcesand costs of, and transportation for, fuels and the creditworthiness and performance of fuel suppliers and transporters, availability of necessary generating capacity and theperformance of our generating plants, our ability to resolve I&M’s Donald C. Cook Nuclear Plant Unit 1 restoration and outage-related issues through warranty, insuranceand the regulatory process, our ability to recover regulatory assets and stranded costs in connection with deregulation, our ability to recover increases in fuel and otherenergy costs through regulated or competitive electric rates, our ability to build or acquire generating capacity, and transmission lines and facilities (including our ability toobtain any necessary regulatory approvals and permits) when needed at acceptable prices and terms and to recover those costs (including the costs of projects that arecancelled) through applicable rate cases or competitive rates, new legislation, litigation and government regulation including oversight nuclear generation, energy commoditytrading and new or heightened requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or additionalregulation of fly ash and similar combustion products that could impact the continued operation and cost recovery of our plants and related assets, timing and resolution ofpending and future rate cases, negotiations and other regulatory decisions including rate or other recovery of new investments in generation, distribution and transmissionservice and environmental compliance, resolution of litigation, our ability to constrain operation and maintenance costs, our ability to develop and execute a strategy basedon a view regarding prices of electricity, natural gas and other energy-related commodities, changes in the creditworthiness of the counterparties with whom we havecontractual arrangements, including participants in the energy trading market, actions of rating agencies, including changes in the ratings of debt, volatility and changes inmarkets for electricity, natural gas, coal, nuclear fuel and other energy-related commodities, changes in utility regulation, including the implementation of ESPs and theexpected legal separation and transition to market for generation in Ohio and the allocation of costs within regional transmission organizations, including PJM and SPP,accounting pronouncements periodically issued by accounting standard-setting bodies, the impact of volatility in the capital markets on the value of the investments held byour pension, other postretirement benefit plans, captive insurance entity and nuclear decommissioning trust and the impact on future funding requirements, prices anddemand for power that we generate and sell at wholesale, changes in technology, particularly with respect to new, developing or alternative sources of generation, ourability to recover through rates or market prices any remaining unrecovered investment in generating units that may be retired before the end of their previously projecteduseful lives, our ability to successfully manage negotiations with stakeholders and obtain regulatory approval to terminate or amend the Interconnection Agreement andbreak up modify, or replace the AEP Power Pool, evolving public perception of the risks associated with fuels used before, during and after the generation of electricity,including nuclear fuel and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes, cyber security threatsand other catastrophic events. Investor Relations Contacts Chuck Zebula Bette Jo Rozsa Julie Sherwood Sara Macioch Treasurer Managing Director Director Analyst SVP Investor Relations Investor Relations Investor Relations Investor Relations 614-716-2800 614-716-2840 614-716-2663 614-716-2835 cezebula@aep.com bjrozsa@aep.com jasherwood@aep.com semacioch@aep.com p.2
  • Today’s Presenters Nick Akins President & Chief Executive Officer Brian Tierney Executive Vice President & Chief Financial Officer p.3
  • AEP Analyst & Investor Meeting What you will hear today…… Schedule Earnings range for 2012 - $3.05-$3.25/share Earnings growth range of 4-6% supported by8:00 AM….....Nick Akins rate base growth at regulated companies Strategy Company’s asset profile – 86% Regulated Dividend supported by Regulated Operations9:15 AM….…Brian Tierney Strong financial profile Financial Corporate separation filings at FERC today10:00 AM……Q&A Transition period – execution is key10:30 AM…....Meeting Competitive generation profile Adjourned Framework for today’s discussion …… Regulated Operations Competitive Operations p.4
  • AEP’s Track Record since 2004 Total Shareholder Return 2004-2011 Period 120% 110.9%Total Shareholder Return (%) 100% S&P 500 88.3% UTY Earnings 80% AEP 4.3% CAGR 60% 48.6% 44.8% 38.7% 40% 32.6% 22.2% 19.3% 20.8% 20.1% Dividend 20% 2.1% 4.1% Growth 0% -1.2% CAGR 1 Year 3 Year 5 Year 8 Year -20% Our re-dedication to the regulated business model in 2004 has Our re-dedication to the regulated business model in 2004 has rewarded shareholders well rewarded shareholders well p.5
  • Clarity Achieved in 2010-11Operating Company Model put in place in2010 aligns management decisions 2010-11 2010-11 Clarity ClarityFinancial controls in place to manage balancesheet and growth opportunities Strong financial platform in place Focus on capital spending discipline and allocationSeveral “overhangs” resolved MATS Rule Settled Arkansas coal plant (Turk) litigation Securitization opportunities in Texas and Ohio PUCO approval to separate “G” from “wires” in Ohio Enables execution Enables execution p.6
  • Execute in 2012-14Optimize Operating Company ROEs and 2012-14 2012-14invest in the regulated utility platform Execution ExecutionReposition the Generation ResourcePortfolioRefocus Transmission business for near-term growthCreate a robust competitive business Clarity, Execution, Line-of-Sight, Discipline Clarity, Execution, Line-of-Sight, Discipline p.7
  • Total Assets – Regulated/Competitive TOTAL ASSETS, based on Y/E 2011 in 2013 business structure * * Subsequent to corporate separationRegulated Companies Competitive CompaniesVertically-Integrated Power RelatedAppalachian Power $7.5B AEP Generation ResourcesKentucky Power 14% AEP Energy PartnersIndiana Michigan Power AEP Retail EnergyPublic Service Co of OklahomaSouthwestern Electric Power Bulk Commodity Transport AEP River OperationsRegulated Generation Co $44.5BAEP Generating Company 86%Wires CompaniesOhio PowerTexas CentralTexas North Transmission Companies Awaiting ApprovalTransmission Companies AEP Southwestern Transco (AR, LA)AEP Ohio Transco AEP Kentucky TranscoAEP Indiana Michigan Transco AEP Virginia TranscoAEP Oklahoma Transco AEP West Virginia TranscoJoint Ventures (ETT, Pioneer, etc.) Following corporate separation, we expect earnings contributions to approximate asset split Following corporate separation, we expect earnings contributions to approximate asset split p.8
  • Regulated Operations p.9
  • Regulated Operations Improved recoveryManagement Focus on Execution mechanisms in place over time Operating Company Focus – strengthen local relationships, earn allowed returns, allocation of capital, rate base growth 2008 80% Obtain regulatory approvals for East 20% Pool replacement Obtain additional regulatory approvals Improved Traditional for state Transcos (WV, VA, KY, AR, recovery rate mechanisms recovery LA) and JVs Focus on prudency, reliability, financial discipline and capital efficiency 2012 52% 48% Operating company line-of-sight drives results Operating company line-of-sight drives results p.10
  • Earned ROEs 2011 Proforma* Earned ROEs16.00%14.00%12.00%10.00%8.00%6.00% 10.60% 12.81% 7.48% 9.66% 8.82% 14.34% 10.97% 14.64%4.00%2.00%0.00% AEP System Ohio Power APCo KPCo I&M PSO SWEPCO AEP Texas * pro-forma adjusts GAAP results by eliminating any material nonrecurring items The diversity of our portfolio helps mitigate regulatory lag The diversity of our portfolio helps mitigate regulatory lag p.11
  • 2012 Regulated Capital Spending2012 Capital & Equity Contributions for Regulated Operations = $2.9B* ETT - $107M ETA - $9M Trans JV Equity Contributions, $116 Operating Company Transmission, $456AEP Ohio Transco - $206MAEP Indiana Michigan Transco - $79M AEP Transco, $350AEP Oklahoma Transco - $65M Corporate, $70SO2 Program - $199MAsh / CCR - $69MNOx Program - $67M EnvironmentalPrecipitators - $57M Generation, $451Mercury Program - $39MEffluent WWT - $10MOther - $10M Distribution, $845 New Generation, $201 Turk - $171M Dresden - $30M Nuclear Life Cycle Management, $153 Base Nuclear Generation, Base Fossil/Hydro $62 Generation, $205 * Excludes AFUDC; Includes Mitchell Plant and Amos Unit 3 2013 and 2014 Capital for Regulated Operations is estimated at $3.4B - $3.5B 2013 and 2014 Capital for Regulated Operations is estimated at $3.4B - $3.5B p.12
  • Regulated Fleet RepositioningExpected 2012-2020 regulated Regulated Environmental CAPEX by Rule for 2012-20 periodenvironmental capex forecast of $5 – $6 billion* 25%Retire older, less efficient regulated Water/CCR Rulesplants (~2,600MW) Air RulesNew capacity added to rate base to 75%replace portion of retirements – Dresden Combined Cycle (580MW, on-line January 2012) Regulated Environmental CAPEX by OPCO for – Turk Coal Plant (440MW, scheduled 2012-20 period * 4Q 2012) 17% 25%Particulate matter requirements inMATS Rule reduced overall SWEPCO PSOenvironmental CAPEX needs Kentucky Power I&MConcerns still exist over timing of 29% 16% APCorules and reliability impacts 13% * Excludes AFUDC Reposition fleet to controlled coal and natural gas-fired units Reposition fleet to controlled coal and natural gas-fired units p.13
  • Transmission Segment Growth AEP Transmission HoldCo Transmission (AEPTHCo) Capital $800 (AEPTHCo) Growth Opportunities $700 Transco Capital $667 $678 $692 $28 $35 JV Equity Contributions $82 $600Transcos $500 $466 $ in millions $361 $116– Increased project flow $400 $657 $96 $650 $300 $585– FERC formula rates (updated annually) $200 $350 $106– Approved in OH, MI, OK, IN $100 $56 $265 $50– Pending approval in WV, VA, KY, AR, LA $0 2010A 2011A 2012E 2013E 2014E 2015E– ROE : 11.49% (PJM) / 11.20% (SPP) Transmission (AEPTHCo) EPS $0.35Joint Ventures $0.30 $0.31– Electric Transmission Texas (ETT) $0.25 $0.24– Others: Prairie Wind, Pioneer $0.20 $0.15 $0.14– Longer term projects with FERC formula $0.10 $0.08 rates/bi-annual rate mechanisms $0.06 $0.05 $0.02– Continue to pursue new opportunities $0.00– ROE range: 9.96% to 12.8% 2010A 2011A 2012E 2013E 2014E 2015E Investing capital in transmission for reliability and growth Investing capital in transmission for reliability and growth p.14
  • Capital Recovery & Growth Cumulative Change in Net Regulated PP&E by Function $10.0 2011 Net Regulated PP&E = $32B Transcos. Rate recovery $9.0 6.0% CAGR in Net Regulated PP&E via FERC formula rates. $8.4 ROEs 11.49% (PJM) / $8.0 11.20% (SPP). $2.2 $7.0 $6.5 Operating company $6.0 investment in Transmission.$ in billions $1.6 $1.1 Rate recovery via $5.0 $4.4 trackers/TCOS mechanisms in $0.9 OH, TN, VA, MI, TX. ROEs $4.0 $1.0 range from 9.96% to 11.49%. $3.0 $0.7 $2.1 $5.1 $2.0 $0.4 $4.0 Operating company $0.4 $2.7 investment in Generation & $1.0 Distribution. $1.3 G & D rate adjustments via $0.0 base rate cases with certain 2012E 2013E 2014E 2015E tracker mechanisms for environmental and reliability Note: 2012 annual regulated depreciation is $1.14B; Transmission JV investments discussed on the investments. ROEs range previous page are not reflected above as the ventures are not consolidated on AEP’s financial statements from 10.0% to 10.9%. Growth in regulated PP&E supports overall earnings growth of 4-6% Growth in regulated PP&E supports overall earnings growth of 4-6% p.15
  • Corporate Separation &Competitive Operations p.16
  • Corporate Separation Next Steps Approximate Timeline Summary of Requests in FERC Filings: File FERC 203 and 205 Applications Corporate Separation of Ohio Power for Corporate Separation, Pool generation assets Replacement and Interim Allowance Transfer of Amos Unit 3 and Mitchell Q1 Agreement Termination 2012 Generating Facilities Approval of SSO Contract between AEP Generation Resources and Ohio Power (to File FERC 203 Application for serve non-shopping load during transition APCo-WPCo Merger period) Post Q1 Settlement Process with State Approval of Power Cost Sharing 2012 Commissions and Stakeholders Agreement (new 3-company pool) Bridge Agreement (interim agreement to address legacy Pool Agreement issues Target such as FRR obligations)1Q-2013 Final Settlements and FERC Orders Approval of APCo/WPCo merger Corporate Separation: reasonable process, achievable timeline Corporate Separation: reasonable process, achievable timeline p.17
  • 2013 / 2014 Transition Factors Current: Corporate Separation: Transition: Market: 2012 to 1Q 2013 1Q 2013 1Q 2013 to May 2015 post May 2015 3-company power cost APCo, I&M, 3-company power costMerger of Columbus sharing agreement; Kentucky Power sharing agreementSouthern and Ohio FRR capacityPower on 12/31/11APCo, I&M, Kentucky Transfer Mitchell/Amos Bridge Agreementand Ohio Power All capacity andcontinue 4-company Excess energy after energy available forpooling of generation AEP Generation SSO available for competitive marketresources for Resources competitive marketcapacity and energy SSO Power Supply Agreement RPM Capacity CapacityOSS shared Energy Fuel clause & non-fuel G-rateNon-switchingcustomers in Ohio SSO for non- SSO for remainingsupported by 4- switching customers Ohio Power customers atcompany pool at Power Supply auction price Agreement priceFactors: Shopping levels, Factors: Shopping levels, Factors: Fuel costs,power prices power prices power/capacity prices FERC filings made today FERC filings made today p.18
  • AEP Generation Resources Inc. Capacity Profile, 2010-16 Capacity Mix 16,000 To Be Retired 14,000 Transferred 86% FGD/SCR Competitive 35.5% 14% FGD 12,000 10,000 65% new CCMW 19% steam 8,000 16% new CT 6,000 64.5% 4,000 2,000 0 C o al Gas / H ydro 2010 2011 2012 2013 2014 2015 2016 End of Year 2011 Fuel Statistics (Ohio fleet average) Transfers – Mitchell (1,560 MW), Amos Unit 3 (870 MW) Delivered coal price -- $2.35/mmBtu ($56/ton) Retirements – 2,538 MW Delivered gas price -- $4.23/mmBtu AEP Generation Resources capacity position of 8,900 MW in 2015 consists primarily of AEP Generation Resources capacity position of 8,900 MW in 2015 consists primarily of competitive, controlled coal and natural gas-fired resources competitive, controlled coal and natural gas-fired resources p.19
  • Competitive Ohio CAPEX Competitive generation (OH) environmental CAPEX Ongoing spending reduced by $700M for 2012-20 period CAPEX 2.0 Capital for 2012 is 1.8 approximately Water/CCR Rules 1.6 $160M (about 1.4$ in Billions $0.5 Air Rules $15/kW) for the 1.2 entire Ohio 1.0 Generation 0.8 portfolio, mostly $0.5 allocated to the 0.6 $1.1 large, controlled 0.4 power plants. At this 0.2 $0.4 time, we expect 0.0 2013 and 2014 to be June 2011 Estimate Revised Estimate ~$100M per year. Note: Estimates reflected above exclude ~ $800 M related to the Mitchell and Amos 3 Plants (included in regulated capital); Capital reduced due to MATS PM limit changes All capital for our competitive generation fleet in Ohio is under study due to the change in All capital for our competitive generation fleet in Ohio is under study due to the change in business environment; capital discipline will be exercised business environment; capital discipline will be exercised p.20
  • Sales, Trading and MarketingCapacity and Energy Sales Hedging Strategy for competitive generation will explore all sales opportunitiesCapacity sales will be made in thePJM RPM market auction; auction inMay of 2012 for the 2015-16 capacityyear Planned Hedging Strategy 45,000Energy sales will be “optimized” 40,000between retail, bilateral contracts(munis/co-ops) wholesale auctions and 35,000the PJM market (see graph). 30,000 Open Position GWh 25,000 Formula RatesRecent announcement to acquire 20,000BlueStar Energy provides important 15,000 Wholesale Auctionsscale to our back office systems and 10,000allows additional leverage into our retail Municipal/Cooperative 5,000 Transactionsmarketing efforts ‐ Retail Sales 2015 Expect hedging levels of 75-80% Expect hedging levels of 75-80% p.21
  • Summary of DiscussionRegulated companies offer 6% growth innet PP&E through 2015 TOTAL ASSETS, Y/E – Operating company model 2011 in 2013 business – Improved recovery mechanisms structure * – Regulated fleet transformation – Efficient allocation of capitalCorporate Separation in 2013 $7.5B – Ohio generation phases – Current, Transition, 14% Market – Transfer of Mitchell, Amos 3 plants to APCo and Kentucky Power $44.5B – Filed with FERC today 86%Competitive Operations – Retirements due to environmental rules – Controlled fleet in 2015 Regulated – Capital discipline – Hedging program (75-80%) Competitive * Subsequent to corporate separation Supports overall 4-6% earnings growth Supports overall 4-6% earnings growth p.22
  • Financial p.23
  • 2011 Ongoing Earnings Results$4.00$3.50 $3.03 0.25 $3.12$3.00 0.18 0.05 0.06 (0.14) (0.10) (0.09)$2.50 (0.07) (0.05)$2.00 Reg Disallowances (0.14)$1.50 2009 SEET Refund Tax Settlement 0.06 0.13 Other 0.13$1.00$0.50$0.00 Customer Ohio POLR O&M, net of Weather Normalized TCC Cap. OSS, net of Other, Net Rate Relief, 2010A Switching offsets Retail Auct. True- sharing net of 2011A Margin up offsets Ongoing earnings of $3.12 per share exceeded the midpoint of our Ongoing earnings of $3.12 per share exceeded the midpoint of our original earnings guidance original earnings guidance p.24
  • Normalized Retail Load Trends AEP Residential Normalized GWh Sales AEP Commercial Normalized GWh Sales %Change vs. Prior Year %Change vs. Prior Year10% 10%5% 4.4% 5% 0.3% 0.4% 0.3% 1.2% -0.1% 0.5% 1.1%0% 0% -0.3% -1.7% -1.5% -1.0%-5% -5% 1Q11 2Q11 3Q11 4Q11 2011A 2012E 1Q11 2Q11 3Q11 4Q11 2011A 2012E AEP Industrial Normalized GWh Sales AEP Total Normalized GWh Sales* %Change vs. Prior Year %Change vs. Prior Year10% 10% 7.1% 5.2%5% 4.1% 5% 3.3% 2.5% 2.2% 1.9% 1.0% 1.9% 1.6% 2.0% 1.4%0% 0%-5% -5% 1Q11 2Q11 3Q11 4Q11 2011A 2012E 1Q11 2Q11 3Q11 4Q11 2011A 2012ENote: Chart represents connected load *includes firm wholesale load Modest load growth of 1.4 percent for 2012 Modest load growth of 1.4 percent for 2012 p.25
  • Industrial Sales Volumes AEP Industrial GWh by SectorGWh2,400 Primary Metal Manuf acturing Chemical Manuf acturing Petroleum and Coal Products Manuf acturing Industry 4Q11 vs. PY YTD vs. PY Mining (except Oil & Gas) Primary Metals 12.5% 14.1%2,000 Paper Manufacturing Chemical Mfg -7.1% 0.7% Petroleum & Coal Products 2.4% 4.6% These 5 sectors account for Mining (except Oil & Gas) 6.4% 4.6% Paper Mfg -0.2% -0.4% approximately 60% of AEPs total Industrial Sales.1,6001,200 800 400 - Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Industrial load near pre-recession levels Industrial load near pre-recession levels p.26
  • 2012 Ongoing Earnings Guidance$4.00$3.50 $3.12 0.43 $3.15$3.00 0.27 (0.24) 0.15$2.50 (0.21) 0.02 (0.15) (0.12) (0.11) (0.01)$2.00 Cost Control 0.11 Incremental 2011 Work 0.08$1.50 Eff Tax Rate (0.15) OH Reg. Orders 0.05 D&A (0.12) Storms 0.03 TCC Cap T-Up (0.04) Taxes Other (0.04) 3rd Party Trans 0.12$1.00 Other (0.01)$0.50$0.00 Other Utility Ohio Weather OSS, net of Ohio Non-Utility/ Trans Normalized O&M, net of Rate Relief, 2011A Costs, net Sw itching sharing POLR Parent Operations Retail offsets net of 2012E Margin offsets 2012 Ongoing Guidance Range: $3.05- $3.25 per share 2012 Ongoing Guidance Range: $3.05- $3.25 per share p.27
  • 2012 – 2014 Financing Plan $ in millions 2012E 2013E 2014E AEP System Capital Spend Cash from Operations 3,800 3,700 3,800 Cash from Securitization 800 875 - $4,000 2013/2014 Capital range of $3.5 - $3.7B Capital & JV Equity Contributions (3,114) (3,500) (3,500) $3,500 Other Investing A ctivities (350) (300) (200) $3,000 Common Dividends (911) (915) (919) $2,500 Excess (Required) Capital 225 (140) (819)$ in millions $2,000 $3,500 $3,500 Financing ($ in millions) 2012E 2013E * 2014E * $1,500 $3,114 Excess (Required) Capital 225 (140) (819) $1,000 Retirements ** (1,140) (1,715) (1,340) $500 Debt Issuances (E xcluding Securitization) 800 1,750 2,000 Equity Issuances (DRP) 100 100 100 $0 2012E 2013E 2014E Increase/(Decrease) in Short term debt (15) (5) (59) * Debt Capital Marke t Needs for 2013 and 2014 will be r efined based on timing, form and approval of cor porate separation a nd asset tr ansfers ** Retirements includes debt matur iti es and amortizati ons Increased cash receipts and capital discipline keep balance sheet strong Increased cash receipts and capital discipline keep balance sheet strong p.28
  • Ohio Power Recapitalization DEBT RECONCILIATION assuming separation by 1Q 2013 $ millions $4,062 Debt Outstanding at Ohio Power (1,141) 2012/2013 Sr. Note Maturities, PCRB ‘puts’, Debt with Par Call (475) Maturities within one year of Corporate Separation $2,446 $2,150 Senior Notes due after 2015 $296 PCRBs Tender Date after 2013 Debt capacity at Ohio Power - $1.9 to $2.4 B Note: Columbus Southern merged with Ohio Power on 12/31/11. Ohio Power assumed all outstanding obligations of Columbus Southern.AEP is committed to managing the business as investment gradeAEP is committed to managing the business as investment grade p.29
  • AEP’s Financial Strength Debt to Total Cap 60 57.5 $3.25B Credit Facilities 58 57.0Percent 56 55.3 54.9 55.3% 54 Year-end 2011 $1.5B credit facility extended to June 2015 52 Debt to Total Cap $1.75B credit facility renewed to July 2016 50 Supported by 27 bank institutions 2009 2010 2011 2012E Balance Sheet Liquidity Pension Credit Ratings 86% Funded Status at Y/E 2011 Investment Grade Credit Rating $950M contributions in 2010-11 Moody’s – Baa2 (stable) $200M contribution planned for 2012 S&P – BBB (stable) expected to bring funded status >90% Investment strategies being reviewed Fitch – BBB (stable) Solid investment grade credit profile Solid investment grade credit profile p.30
  • Dividend Policy and EPS Growth Rate Dividend Policy EPS Growth Rate expected to$2.40 65.0% Dividend P ayo ut Ratio average 4-6% over several$2.20 years 6 0 .1% 5 9 .3 % 9 .7 % 5 60.0%$2.00 5 6 .4 % Regulated net PP&E expected to 5 5 .2 % grow at 6% 5 4 .2 % $1.8 8$1.80 $1.8 5 55.0% – Supports overall earnings growth at the 5 2 .7 % 5 0 .6 % high end of range$1.60 $1.6 4 $1.6 4 $1.71 – Efficient allocation of capital $1.58 5 1.3 % 50.0% $1.50 Ohio Generation in Transition$1.40 $1.4 0 $1.4 2 – Switching levels and low capacity and$1.20 45.0% energy prices could put pressure on 2004 2005 2006 2007 2008 2009 2010 2011 2012E near-term growth 50-60% Payout Ratio – Expect uplift in capacity prices due to – Expect dividend growth < EPS growth environmental retirements – Dividend supported by regulated operations Equity needs over 2012-14 period Dividend History about $300M through dividend – 407th consecutive quarterly dividend declared reinvestment program – Dividend growth 4.1% CAGR since 2004 Current Yield of 4.8% AEP TOTAL RETURN OPPORTUNITY is 9-10% AEP TOTAL RETURN OPPORTUNITY is 9-10% p.31
  • Questions p.32
  • Appendix p.33
  • Detailed Ongoing Earnings Guidance 2011A: $3.12 2011A: $3.12 AEP Consolidated 2012E: $3.05 - $3.25 2012E: $3.05 - $3.25 Financial Results for 2011 Actual Vs 2012 Guidance 2011 Actual 2012 Guidance Performance Driver ($ m illions) Perform ance Driver ($ mi llions) UTILITY OPERATIONS: Gr oss Mar gin:1 East Regulated Integrated Util iti es 66,832 GW H @ $ 41.1 /MW hr 2,749 68,339 GW H @ $ 45.2 /MWhr 3,0872 Ohio Companies 51,445 GW H @ $ 52.0 /MW hr 2,673 48,349 GW H @ $ 52.3 /MWhr 2,5303 West Regulated Integrated Util iti es 43,380 GW H @ $ 32.5 /MW hr 1,408 42,476 GW H @ $ 32.4 /MWhr 1,3774 Texas Wires 29,288 GW H @ $ 22.1 /MW hr 648 28,274 GW H @ $ 22.1 /MWhr 6255 Off-System Sales, net of shari ng 25,693 GW H @ $ 13.3 /MW hr 343 27,742 GW H @ $ 9.0 /MWhr 2506 Transm issi on Revenue - 3 rd Par ty 417 5047 Other Operating Revenue 507 5468 Utility Gross Ma rgin 8,745 8,9199 Operatio ns & Maintenance (3,544) (3,416)10 Depr eciation & Amortization (1,613) (1,718)11 Taxes Other Than Income Taxes (812) (842)12 Interest Exp & Pre ferred Dividend (891) (906)13 Other Income & Deductions 239 21414 Income Taxes (669) (779)15 Utility Operat ions On-Going Earnings 1,455 1,47216 Transmission Operations On-Going Earnings 30 38 NON-UTILITY OP ERATIONS:17 AEP River Operations 45 5718 Generation & Marketing 14 (13)19 Parent & Ot her On- Going Earnings ( 40) (31)20 ON-GOING EARNINGS 1,504 1,523 p.34
  • 2012 Major Drivers Utility O&M Expense Rate Relief $4,000 $350 $3,544 $3,416 Future $320 $3,427 $3,500 $300 $51 $607 Secured $553 $679 Items with $3,000 Earnings $250 Offsets$ in millions $2,500 $ in millions $200 $2,000 $150 $1,500 $2,937 $269 $2,874 $2,737 Base Utility O&M $220 $100 $1,000 $50 $500 $0 $0 2010A 2011A 2012E 2011A 2012E OSS Assumptions, net of sharing Sensitivities $400 Sensitivity EPS $343 $350 $299 $300 Retail Sales 0.5% +/- 0.05 $250 $250 Customer Switching in Ohio (@ RPM) 1.0% +/- 0.01 $ in millions $200 19,171 25,693 Wholesale Market Prices $1 MWh +/- 0.03 $150 GWH GWH 27,742 GWH O&M Expense (excludes O&M with offsets) 1.0% +/- 0.04 $100 $50 Note: A $7.5M change in pre-tax earnings equals $0.01/share. $0 2010A 2011A 2012E p.35
  • 2012 Total System Capital ETT - $107M ETA - $9M AEP Ohio Transco - $206M Trans JV Equity Contributions, $116 Operating Company AEP Indiana Michigan Transco - $79M AEP Oklahoma Transco - $65M Transmission, $456 AEP Transco, $350 Corporate, $76 River Ops & Other Non- Utility, $39 SO2 Program - $201M NOx Program - $72M Environmental Precipitators - $62M Generation, $503 Ash / CCR - $79M Mercury Program - $39M Effluent WWT - $19M Other - $31M Distribution, $845 Turk - $171M New Generation, $201 Dresden - $30M Nuclear Life Cycle Management, $153 Base Nuclear Generation, Base Fossil/Hydro $62 Generation, $313* Excludes AFUDC Total 2012 Capital & Equity Contributions of $3.1B Total 2012 Capital & Equity Contributions of $3.1B p.36
  • 2012 Capital by Operating Company Excludes AFUDC $600 $563 $500 $463 $447 $428 $400$ in millions $300 $270 $203 $200 $126 $110 $100 $0 Ohio Power APCo I&M KPCo AEP Texas PSO SWEPCO Other Note: Ohio Power capex includes $103M related to Mitchell and Amos Unit 3 plants (to be transferred from Ohio Power to APCo and KPCo) p.37
  • Pending Rate Cases $ in millions CompanyI&M - Indiana Filing Staff Testimony Rate increase $148.7 n/a Rate base/investment $2,411.9 Return on equity 11.15% Equity component 42.67%Status: Case filed on September 23, 2011. Hearing on Case in Chiefbegins February 20, 2012. Staff & Intervenor testimony due April 27, 2012. $ in millions Company I&M - Michigan Filing Settlement Rate increase $24.5 $14.6 Rate base/investment $680.8 $663.2 Return on equity 11.15% 10.20% Equity component 44.30% 50.92% Status: Rates subject to refund went in place January 2012; settlement filed January 20, 2012 p.38
  • Joint Venture Growth Opportunities Status: Ongoing Business Pioneer is a 50/50 JV owned by AEP and Duke Energy toETT is a 50/50 JV owned by subsidiaries of AEP and construct approximately 240-280 miles of 765 kVMidAmerican Energy Holding Company that constructs and transmission line in Indiana in multiple phases.operates transmission projects within ERCOT. Total Debt to equity ratio of 50/50, authorized ROE of 12.54%investment opportunity of more than $3 billion. Estimated Cost: $1 billionDebt to equity ratio of 60/40, authorized ROE of 9.96%Current rate base of $565 million as of January 31, Phase 1:2012 Status: Approximately 60-70 milesProjected rate base growth: Estimated In-Service Date: 2015* MISO Approved Phases 2 and 3: Status: Approximately 170- 220 miles Pending inclusion Estimated In-Service Date: 2016 - 2018 in PJM RTEP *Estimate based on June 2011 MTEP Status: Status: Pending inclusion In Construction in PJM RTEPPrairie Wind is a 50/50 JV owned ETA and Westar Energyto construct approximately 110 miles of double circuit 345 RITELine is JV owned by AEP*, ETA, and Exelon tokV transmission line in Kansas. construct approximately 420 miles of 765 kV transmissionEstimated Cost: $225 million line throughout Indiana and Illinois.Debt to equity ratio of 50/50, authorized ROE of 12.8% Estimated Cost: $1.6 billionEstimated In-Service: 2014 Debt to equity ratio of 45/55, authorized ROE of 11.43% Estimated In-Service: 2016 - 2018 *AEP share of RITELine is approximately 20.5% p.39
  • AEP Generation Resources Inc. Post-2014 COAL MIX Generation Assets ILB (in Megawatts) CAPP 8% 5% COMPETITIVE ASSETS COMPETITIVE ASSETS COMPETITIVE ASSETS TRANSFERRED COMPETITIVE ASSETS TRANSFERREDGavin 1,2 Coal 2,640 Amos 3 Coal 870Cardinal 1 Coal 595 Mitchell 1,2 Coal 1,560Conesville 4 Coal 340 2,430Conesville 5,6 Coal 800Zimmer Coal 330 ASSETS to be RETIRED ASSETS TO BE RETIREDStuart 1-4 Coal 600OVEC Ownership Coal 434 Kammer 1-3 Coal 630 Musk. River 1-4 Coal 840 NAPPMusk. River 5 Gas 600 Sporn 2, 4, 5 Coal 750 87%Lawrenceburg Gas 1,186 Picway Coal 100Waterford Gas 840 Conesville 3 Coal 165Darby Gas 507 Beckjord Coal 53 POST-2014 COAL DELIVERY 2,538Racine Hydro 26 Truck 8,898 17% Rail 10% Barge 73% p.40
  • Pension and OPEB EstimateInvestment returns for our pension plan was a positive 8.1% for 2011 despitevolatility in the market; OPEB funds were also slightly positive at 0.4%.AEP made cash contributions to the pension totaling $450 million in 2011.The pension fund finished the year 86% funded compared to the ProjectedBenefit Obligation (PBO). The OPEB funds were 63% funded compared tothe Accumulated Postretirement Benefit Obligation (APBO).We expect to make a discretionary cash contribution of $200 million to thepension in 2012.Discount rates are 4.55% for pension and 4.75% for OPEB for 2012, downsubstantially from 5.05% and 5.25%, respectively, for 2011.Total pension costs are expected to be $127 million in 2012, up from $118million in 2011. Total OPEB costs are expected to be $95 million in 2012, upfrom $73 million in 2011. The O&M share is in the range of 65-70% of the totalcosts. p.41
  • Credit Ratings Current Ratings for AEP, Inc. & Subsidiaries Moodys S&P Fitch Senior Senior SeniorCompany Unsecured Outlook Unsecured Outlook Unsecured OutlookAmerican Electric Power Company Inc. Baa2 S BBB S BBB SAEP, Inc. Short Term Rating P2 S A2 S F2 SAEP Texas Central Company Baa2 S BBB S A- SAEP Texas North Company Baa2 S BBB S A- SAppalachian Power Company Baa2 S BBB S BBB SIndiana Michigan Power Company Baa2 S BBB S BBB SKentucky Power Company Baa2 S BBB S BBB SOhio Power Company Baa1 S BBB S A- SPublic Service Company of Oklahoma Baa1 S BBB S BBB+ SSouthwestern Electric Power Company Baa3 S BBB S BBB S p.42
  • Long-term Debt Maturities ($ in millions) Year 2012 2013 2014AEP, Inc. - - -AEP Generating Company - - $45Appalachian Power $365 $195 $204Indiana Michigan Power $100 $77 $275Kentucky Power - - -Ohio Power $195 $856 $404Public Service of Oklahoma - - $34Southwestern Electric Power $20 - -Texas Central Company $60 - -Texas North Company - $225 -Total $740 $1,353 $962Data as of December 31, 2011 p.43
  • Overview of FERC Transactions / Contracts Before Ohio Power APCo KPCo I&M (incl KgPCo Contract) 12,132 MW   6,806 MW  1,078 MW   5,381 MW  Capacity  Capacity Capacity Capacity Interconnection Agreement (IA) & Interim  IA & IAA IA & IAA IA & IAA IA & IAA Allowance Agreement (IAA) (205) WPCo (Contract) WPCo and APCo Merger (203) Sporn Operating  Sporn Operating  Sporn Generating Plant Operating  Agreement Agreement Agreement (205) Amos Unit 3 & Mitchell Transfer of Amos 3 and Mitchell (203) AfterAEP Generation  Ohio Power APCo KPCo I&M Resources Inc. (incl KgPCo Contract) 8,918 MW of   Corporate Separation of Ohio Power (203) Capacity 1,390 MW  5,381 MW  9,708 0 MW Capacity WPCo (Load) Capacity Capacity MW Capacity WPCo and APCo Merger (203) SSO Power Supply Agreement; Expires in  SSO Agreement SSO Agreement May 2015 (205) Bridge Agreement; Expires in May 2015 Bridge Agreement Bridge Agreement Bridge Agreement Bridge Agreement Bridge Agreement (203) PCS Agreement PCS Agreement PCS Agreement Power Cost Sharing (PCS) Agreement;  Section (205) Sporn Operating  Sporn Operating  Sporn Generating Plant Operating  Agreement Agreement Agreement (205) Mitchell Operating  Mitchell Operating  Mitchell Generating Plant Operating  Agreement Agreement Agreement (205) Amos 3, 80% Mitchell 20% Mitchell Transfer of Amos 3 and Mitchell (203) p.44