April 23, 2015 - AEP.com€¦ · First Quarter 2015 Highlights First Quarter Company Update Refer...

1

1st Quarter 2015 Earnings Release Presentation

April 23, 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]

Ryan Mills Analyst

Investor Relations 614-716-2831

[email protected] 2

3

First Quarter 2015 Highlights

First Quarter Company Update

Refer to appendix for reconciliation between GAAP and Operating EPS

Earnings Update

Delivered GAAP earnings of $1.29 per share

Delivered operating earnings of $1.28 per share

Reaffirm guidance range of $3.40-$3.60

Reaffirm 4%-6% growth rate

Regulatory Update

AEP Ohio – PPA

PJM – Capacity Reform

West Virginia & Kentucky rate cases update

Clean Power Plan

4

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

Regulated Returns Twelve Months Ended 03/31/2015 Earned ROEs (Operating Earnings*)

5

First Quarter Operating Earnings Per Share Overview

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

First Quarter Results Driven By Performance of Regulated & Competitive Businesses

Weighted average no. of shares outstanding: 488M 1Q-14; 490M 1Q-15

Segment 1Q-14

EPS 1Q-15

EPS

Vertically Integrated Utilities $0.57 $0.61

Transmission & Distribution Utilities 0.20 0.20

AEP Transmission Holdco 0.05 0.07

Generation & Marketing 0.33 0.38

AEP River Operations 0.01 0.02

Corporate & Other (0.01) 0.00

EPS from Operating Earnings $1.15 $1.28

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1st Quarter 2015 vs. Prior Year By Segment

Refer to appendix for additional explanation of variances by segment

$0.02 ($0.07)

$0.06

$0.03

$0.03

2015 Actual EPS $0.61 $0.20 $0.07 $0.38 $0.02 $0.00

$1.15/sh 0.04 0.00 0.02

0.05 0.01 $1.28/sh 0.01

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

VerticallyIntegrated

Utilities

Transmission &Distribution

Utilities

AEP TransmissionHoldco

Generation andMarketing

AEP RiverOperations

Corporate andOther

2014 Actual

2015 Actual

Rate Changes 0.04$

Reg Prov - Va 0.03$

O&M 0.03$

OSS (0.09)$

PJM Chrgs 0.04$

Normal Load (0.04)$

Other 0.03$

Rate Changes 0.01$

Normal Load 0.01$

O&M (0.01)$

Other (0.01)$

AGR 0.01$

Trading & Mrkt 0.04$

Oklaunion PPA (0.01)$

Other 0.01$

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Normalized Load Trends

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

4.4%

-1.5% -1.1%

2.1%

-4.0%

0.2%

-5%

0%

5%

Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 2015E

AEP Residential Normalized GWh Sales % Change vs. Prior Year

2.9%

0.4% 0.2%

3.5%

-0.4% -0.4%

-5%

0%

5%

Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 2015E

AEP Commercial Normalized GWh Sales % Change vs. Prior Year

-2.9% -0.5%

1.2%

3.7%

1.2%

2.0%

-5%

0%

5%

Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 2015E

AEP Industrial GWh Sales % Change vs. Prior Year

1.5%

-0.5%

0.1%

3.0%

-1.3%

0.6%

-5%

0%

5%

Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 2015E

AEP Total Normalized GWh Sales % Change vs. Prior Year

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Economic Data

1.9%

2.6% 2.7% 2.4%

3.3%

2.2% 2.2% 2.2% 2.2% 2.1%

0%

1%

2%

3%

4%

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

Gro

wth

vs

Pri

or

Ye

ar

GDP Growth by Quarter

US AEP

0%

1%

2%

3%

4%

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

Gro

wth

vs

Pri

or

Ye

ar

GDP Growth by Geography

US AEP-East AEP-West

1.7% 1.9%

2.0% 2.1% 2.3%

1.2% 1.3%

1.5% 1.6%

1.7%

0%

1%

2%

3%

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

Gro

wth

vs

Pri

or

Ye

ar

Employment Growth by Quarter

US AEP

0%

1%

2%

3%

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

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

AEP Shale Gas Counties

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

Shale gas development drives industrial load growth

4% 9%

17%

28% 30%

39%

28%

23%

14%

-5.3% -3.5% -3.8%

-0.7% -1.7% -1.6%

1.1%

-0.7% -0.6%

$112

$103 $110 $109 $108 $110

$102

$76

$54

$-

$20

$40

$60

$80

$100

$120

-10%

0%

10%

20%

30%

40%

50%

Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15

Bre

nt O

il Price

($/b

arrel) G

Wh

Gro

wth

vs

Pri

or

Ye

ar

*Excluding Ormet

AEP Industrial Sales Growth

Shale Counties

Non-ShaleCountiesOil Price

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

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

GW

h G

row

th v

s P

rio

r Y

ear

Industrial Sales Growth in Shale Regions Eagle Ford (TX) Marcellus (WV)

Permian (TX) Utica (OH)

Woodford (OK)

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Oil & Gas Sector Growth

$-

$20

$40

$60

$80

$100

$120

$140

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15

Bre

nt O

il Price

($/B

arrel)

GW

h

AEP Industrial Sales to Oil & Gas Sectors

Oil & Gas Extraction

Pipeline Transportation

Petroleum & Coal Products

Oil Price

5.0%

-3.4%

1.2% 0.2%

-0.1%

23% 30% 33%

61%

44%

3%

10% 11% 11% 11%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

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

GW

h G

row

th v

s P

rio

r Y

ear

Growth in AEP Industrial Sales to Oil & Gas Sectors

Petroleum & Coal Products

Pipeline Transportation

Oil & Gas Extraction

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(unaudited) 3/31/2015 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 $190

Less

Commercial Paper Outstanding (115)

Letters of Credit Issued (75)

Net Available Liquidity $3,500

Actual Target

FFO Interest Coverage 5.62x >3.6x

FFO to Total Debt 22.2% 15%-20%

Capitalization & Liquidity

Liquidity Summary

Credit Statistics

Note: Credit statistics represent the trailing 12 months as of 03/31/2015

Total Debt / Total Capitalization

Strong balance sheet, credit metrics, and liquidity

Qualified Pension Funding

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Summary

Strong start to 2015 for our customers, shareholders and employees

Reaffirming 4%-6% growth rate

Reaffirming 2015 Operating Earnings Guidance of $3.40 to $3.60/share

Executing on our commitments including O&M discipline & capital allocation

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Appendix

14

1st Quarter Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

1Q-14 1Q-15 Change 1Q-14 1Q-15 Change

Reported (GAAP) Earnings $560 $629 $69 $1.15 $1.29 $0.14

Non Operating Items:

Mark-to-Market Impact of Commodity Hedging Activities

- (4) (4) - (0.01) (0.01)

AEP Operating Earnings $560 $625 $65 $1.15 $1.28 $0.13

Weighted average no. of shares outstanding: 488M 1Q-14; 490M 1Q-15

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Vertically Integrated Utilities

1Q-14 1Q-15

$ millions (except EPS)

Operating Revenues $2,586 $2,505

Operating Expenses:

Energy Costs (1,094) (983)

Operations & Maintenance (576) (576)

Depreciation & Amortization (263) (272)

Taxes Other Than Income Taxes (96) (97)

Operating Income 557 577

Net Interest/AFUDC (122) (114)

Income Taxes (157) (164)

Operating & GAAP Earnings $278 $299


First Quarter Summary Key Drivers: 1Q-15 vs. 1Q-14

Rate changes: $30M from various jurisdictions

$23M VA Regulatory provision reversal

Weather: $4M unfavorable vs. prior year; $62M favorable vs. normal

Off-System Sales: $71M unfavorable vs. prior year due

to significantly lower market prices in both PJM & SPP

Retail load: $27M unfavorable vs. prior year due to decreased residential sales and unfavorable price variances

O&M net of offsets: $24M favorable vs. prior year primarily due to employee, environmental remediation, and storm related expenses

PJM Charges: $31M favorable vs. prior year primarily due to decreases in unrecovered PJM charges

Income Taxes: effective tax rate of 35.3% 1Q15 vs. 36.0% 1Q14

16

Transmission & Distribution Utilities

1Q-14 1Q-15



Operating Expenses:

Energy Costs (434) (452)










Rate changes: $8M from Ohio DIR Weather: $2M favorable vs. prior year; $7M

favorable vs. normal

Retail Load: $8M favorable, primarily due to OPCO’s change in seasonal rates

O&M net of offsets: $4M unfavorable vs. prior year primarily due to a donation to the Ohio Growth Fund which was partially offset by lower storm expense

Income Taxes: effective tax rate of 35.7% 1Q15 vs. 35.6% 1Q15

17

AEP Transmission Holdco

1Q-14 1Q-15


Operating Revenues $28 $58

Operating Expenses:





Net Interest/AFUDC 4 4


Equity Earnings 17 22

Other (1)




$14M favorable operating income due to increased revenues and expenses, driven by increased capital investment in the wholly-owned Transcos.

Equity earnings from Joint Ventures $5M favorable vs. prior year; primarily related to Electric Transmission Texas

18

Generation & Marketing

1Q-14 1Q-15



Operating Expenses:

Energy Costs (805) (716)







Operating Earnings 163 183

Proforma Adjustments, Net of Tax - 4

GAAP Earnings $163 $187


First Quarter Summary

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

Key Drivers: 1Q-15 vs. 1Q-14

Generation decreased 216 GWh (1.6%) 1Q-15

vs. 1Q-14

AEP Dayton ATC liquidations down 44%: $38.02/MWh in 1Q-15 vs. $68.07/MWh in 1Q-14

O&M : $16M favorable vs. prior year primarily due to decreased plant outages and employee related expenses

Income Taxes: effective tax rate of 34.2% 1Q-15 vs. 34.9% 1Q-14

Favorable hedge performance and fuel costs helped offset the impact of lower prices in 1Q15

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Rate Changes, net of offsets (in millions)

1Q-15 vs. 1Q-14

APCo/WPCo $16

I&M $6

KPCo $0

PSO $1

SWEPCO $7

Kingsport $0

TOTAL $30

Impact on EPS

Retail Rate Performance

May not foot due to rounding

$0.04

Rate Changes, net of offsets (in millions)

1Q-15 vs. 1Q-14

Ohio Power $8

Texas Central $0

Texas North $0

TOTAL $8

Impact on EPS $0.01

Transmission & Distribution Utilities Vertically Integrated Utilities

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Retail Load*

(weather

normalized)

1Q-15 vs. 1Q-14

Ohio Power -1.7%

Texas Central 0.5%

Texas North -2.1%

TOTAL -1.1%

Impact on EPS

Retail Load*

(weather

normalized)

1Q-15 vs. 1Q-14

APCo/WPCo -0.5%

I&M -2.6%

KPCo -4.2%

PSO 0.4%

SWEPCO -4.0%

Kingsport 2.5%

TOTAL -1.6%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.04

$0.01

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Weather Impact

(in millions)

1Q-15 vs. 1Q-14

APCo/WPCo ($1)

I&M ($4)

KPCo $0

PSO ($1)

SWEPCO $2

Kingsport $0

TOTAL ($4)

Impact on EPS

$0.00

Weather Impact

Weather Impact

(in millions)

1Q-15 vs. 1Q-14

Ohio Power $0

Texas Central $1

Texas North $1

TOTAL $2

Impact on EPS $0.00


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AEP Generation Resources

Volumes Generated by Source (in million MWh)

Percentage Volumes Sold by Channel

Short-term/Spot Wholesale Retail Ohio Power & Wheeling Power PPAs

QTD/YTD Power prices down 44% Natural gas prices down 43% Volumes down 2% Capacity Factor up 3%

Hydro Natural Gas Coal

April 23, 2015 - AEP.com€¦ · First Quarter 2015 Highlights First Quarter Company Update Refer...

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