Chicagoland Investors Expo | 3.2.2013

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AEP's dividend policy and expected EPS growth rate are detailed in this handout, which was shared at the Greater Chicagoland Coalition of Better Investing. …

AEP's dividend policy and expected EPS growth rate are detailed in this handout, which was shared at the Greater Chicagoland Coalition of Better Investing.

This presentation reflects conditions at the time it was delivered and do not include later developments. Updated information about current conditions can be found in the companies' filings with the Securities and Exchange Commission. AEP has not undertaken an obligation to update the presentation on this page.

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  • 1. Chicagoland Investors Expo Chicago, IL March 2, 2013
  • 2. “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 outcomesand results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-lookingstatements are: the economic climate and growth in or contraction within and changes in market demand and demographic patterns in our service territory, inflationary ordeflationary interest rate trends, volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developmentsimpairing 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 capitalneeds, 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 impactof retail competition, particularly in Ohio, weather conditions, including storms and drought conditions, and our ability to recover significant storm restoration costs throughapplicable rate mechanisms, available sources and costs of, and transportation for, fuels and the creditworthiness and performance of fuel suppliers and transporters,availability of necessary generating capacity and the performance of our generating plants, our ability to recover increases in fuel and other energy costs through regulatedor competitive electric rates, our ability to build or acquire generating capacity, and transmission lines and facilities (including our ability to obtain any necessary regulatoryapprovals and permits) when needed at acceptable prices and terms and to recover those costs (including the costs of projects that are cancelled) through applicable ratecases or competitive rates, new legislation, litigation and government regulation including oversight of nuclear generation, energy commodity trading and new orheightened requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or additional regulation of fly ash andsimilar combustion products that could impact the continued operation and cost recovery of our plants and related assets, evolving public perception of the risksassociated 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 anaccelerated return of deferred federal income taxes to customers, timing and resolution of pending and future rate cases, negotiations and other regulatory decisionsincluding rate or other recovery of new investments in generation, distribution and transmission service and environmental compliance, resolution of litigation, our ability toconstrain operation and maintenance costs, our ability to develop and execute a strategy based on a view regarding prices of electricity, coal, natural gas and otherenergy-related commodities, prices and demand for power that we generate and sell at wholesale, changes in technology, particularly with respect to new, developing oralternative sources of generation, our ability to recover through rates or market prices any remaining unrecovered investment in generating units that may be retired beforethe end of their previously projected useful lives, volatility and changes in markets for electricity, natural gas, and other energy-related commodities, changes in utilityregulation, including the implementation of ESPs and the transition to market and expected legal separation for generation in Ohio and the allocation of costs withinregional transmission organizations, including PJM and SPP, our ability to successfully manage negotiations with stakeholders and obtain regulatory approval to terminatethe Interconnection Agreement, changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energytrading 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 byour pension, other postretirement benefit plans, captive insurance entity and nuclear decommissioning trust and the impact on future funding requirements, accountingpronouncements periodically issued by accounting standard-setting bodies and other risks and unforeseen events, including wars, the effects of terrorism (includingincreased security costs), embargoes, cyber security threats and other catastrophic events Investor Relations Contacts Bette Jo Rozsa Julie Sherwood Sara Macioch Managing Director Director Analyst Investor Relations Investor Relations Investor Relations 614-716-2840 614-716-2663 614-716-2835 bjrozsa@aep.com jasherwood@aep.com semacioch@aep.com 2
  • 3. American Electric PowerPredominantly regulated business focused onclarity, execution, line-of-sight and disciplineSignificant transmission growth opportunitiesStable regulatory relationshipsRationalized cost structureDividend growth supported by regulatedearnings with a strong balance sheet AEP Fast Facts $14.9B Revenues *Ohio generation fleet and related retail and $1.3B Net Income *wholesale marketing business well-positionedfor success in a competitive market BBB-/Baa2/BBB senior unsecured credit rating ** * represents GAAP results for 2012 ** S&P/Moody’s/Fitch Serving 5.3 million electric customers in 11 states 3
  • 4. AEP Return and Stock StatisticsTotal Shareholder Return Stock Statistics as of Dec. 31, 2012 as of Feb. 28, 2013 Closing Price: $46.79 52 Week Range: $36.97 - $47.03 Market Capitalization: $22.7 billion Annual Dividend: $1.88/share Dividend yield: 4.0% AEP 2013 P/E Multiple: 14.81 Year 3 Year 5 Year AEP 2014 P/E Multiple: 14.1 AEP S&P 500 Electric Utilities Index Wall Street Analyst Coverage – 11 Buys, 13 Holds S&P 500 Strong historic stock performance with a competitive dividend yield 4
  • 5. Highly Diversified Regulated Utility Platform Twelve Months Ended 12/31/12 Proforma* Earned ROEs * pro-forma adjusts GAAP results by eliminating any material nonrecurring items and is not weather normalized Customers: 1,459,000 960,000 173,000 584,000 535,000 524,000 986,000 Employees: 3,131 2,128 392 2,649 1,127 1,472 1,315Total Assets: $13.0B $10.5B $1.6B $7.8B $3.3B $6.3B $6.9B Utility Operations ROE of 10.6% as of December 31, 2012 5
  • 6. Generation Fleet Pumped Pumped Storage/Wind/ Storage/Wind/ Hydro/Solar Hydro/Solar 4% 10% Nuclear 7% Nuclear 6% Coal/Lignite Demand Controlled Response/Energy Natural 35% Efficiency Gas/Oil 7% Coal/Lignite 25% Controlled 50% Natural Gas/Oil Coal/Lignite 27% Coal/Lignite Announced Uncontrolled Retirements 15% 14%2013 Generation Capacity 2020 Generation Capacity by Fuel Type by Fuel Type Based on 37,594 MW Based on 39,740 MW We are investing $4-5 billion to transform our fleet over the next several years 6
  • 7. Transmission Holdco Business GrowthCumulative Transmission Holdco Net Property, Plant & Equipment AEP Transmission Holdco 2010 Net PP&E = $50M (excluding unconsolidated JVs) 124% CAGR in Net Transmission Holdco PP&E $2.8 Transcos and Transource Regulated by FERC $2.2 Revenue requirement reset annually based on prior year’s activity plus the current year’s projected plant-in-service $1.4 balances, reducing regulatory lag Transcos: ROEs 11.49% (PJM) / $0.7 11.20% (SPP) $0.3 Transource: 86% ownership; capital investment begins in 2014 Note: 2013 annual depreciation is $9M; Transmission JV investments, other than Transource, are not reflected above as the ventures are not consolidated on AEP’s financial statements Expected growth in EPS contribution closely tied to growing capital investment 7 7
  • 8. Ohio Business in Transition Customer choice for generation service has been in place since 2000 Ohio Power has experienced increased customer shopping for generation service over the past two years with 51percent of the load switched as of December 31, 2012 Recent PUCO orders address the transition of Ohio Power generation to the competitive marketTargeting corporate separation implementation on January 1, 2014 8
  • 9. Dividend Policy Dividend History Since 2004Dividend statistics $/share - Current yield: 4.0% - Current quarterly payment: $0.47/share - Current payout ratio: 59.7% - Growth of 3.8% per annum since 2004 - Paid 410 consecutive quartersIn January 2013, board increasedtargeted payout ratio to 60 – 70%of consolidated earningsDividend level supported byearnings from regulatedoperationsDividend expected to grow in linewith earnings from regulatedoperations Board increased targeted payout ratio to 60-70 percent 9
  • 10. Expected EPS Growth RateExpected EPS growth rate of 4 –6% off of 2013 operating Expected Operating Earnings Per Share Growth Rateearnings guidance range $3.55Supported by rate base growth $3.45 $3.15 - $3.45of regulated operations $3.35 6% - Capital investment of $3.6B in 2013 $3.05 - $3.25 and $3.8B in 2014 and 2015 $3.25 - Priority allocation of capital to $3.15 transmission investment 4% $3.05 - Authorized ROE range of 9.96% (AEP 2013E 2014E Texas) to 12.8% (Prairie Wind JV) 4 – 6% Operating Earnings Per Share Growth Rate 10
  • 11. AEP’s Financial Strength Liquidity Summary Credit MetricsAEP has two core credit facilities 12/31/2011 12/31/2012available: FFO to Interest 4.5x 4.6x Coverage - $1.75 billion core credit FFO to Debt 18.7% 19.9% facility due June 2016 Debt to 55.3% 55.2% - $1.75 billion core credit Capitalization facility due July 2017 AEP Corporate Credit RatingsAEP also has a $1 billion interimcredit facility due May 2015 tofund certain Ohio Power S&P Moodys Fitchmaturities during the transition BBB (Stable) Baa2 (Stable) BBB (Negative) Balance sheet stable at mid-50% debt to capitalization ratio 11
  • 12. AEP Investment OpportunityClear regulated business model Stable dividend with an attractivedefines AEP yield, supported by earnings from - Stable income and cash flows regulated operations - Significant investment opportunities in infrastructure upgrades to improve Strong balance sheet reliability and operations - Diversified across 11 jurisdictions Anticipated equity needs met through - Critical mass in transmission for dividend reinvestment program, future growth securitization and bonus depreciationCreating a path for a successful Expected earnings growth rate of 4 –competitive business 6% off 2013 base 12
  • 13. Questions 13