January 28, 2016 14th Quarter 2015 Earnings Release Presentation January 28, 2016 “Safe Harbor”...

1

4th Quarter 2015 Earnings Release Presentation January 28, 2016

“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

Investor Relations 614-716-3162

[email protected] 2

3

Fourth Quarter 2015 Highlights

Fourth Quarter 2015 Total Shareholder Return

Refer to appendix for reconciliation between GAAP and Operating EPS

YTD 2015

One Year Three Year Five Year

4

2015 Highlights & 2016 Focus

2015 Highlights

Financial Performance Deliver operating earnings guidance range of

$3.60 to $3.80 per share

Continue focus on disciplined capital allocation, investing $5 billion in cap-ex, substantially all in regulated entities, while increasing cap-ex for 2017 and 2018 from $4 billion to $5 billion each year

Commit to delivering 4%-6% earnings growth

off of 2015 original guidance

Regulatory and Strategic Initiatives Attain approval of PPA settlement

Complete strategic review of Competitive

Generation

Continue working with states to comply with Clean Power Plan

2016 Focus

Financial Performance Delivered Q4 2015 GAAP and operating earnings of

$0.96 and $0.48 per share, respectively Delivered 2015 GAAP and operating earnings of

$4.17 and $3.69 per share, respectively

Realized operating EPS growth of 7.6% over prior year

Achieved our expected regulated ROE of 9.6% for the year, an increase over the 2014 results of 9.0%

Increased quarterly dividend by 5.7%

Regulatory and Strategic Initiatives Completed sale of AEP River Operations

Reached settlement in AEP Ohio PPA proceeding

Initiated strategic review of competitive generation

Helped to shape outcome of Clean Power Plan

5

OPCo 11.9% APCo

10.7%

KPCo 8.6%

I&M 9.9% PSO

9.0% SWEPCO 7.8%

AEP TX 8.7%

Trans 10.2%

OPCo 11.6%

APCo 9.4%

KPCo 4.2%

I&M 10.2%

PSO 8.6%

SWEPCO 9.0% AEP TX

8.4%

Trans 11.1%

Regulated Returns Twelve Months Ended 12/31/2015 Earned & 2016 Pro-forma Operating ROE

Regulated Operations ROE of 9.6% as of December 31, 2015

Expected Regulated Operations ROE of 10.1% Pro-Forma 2016

2015 Earned Regulated ROE 2016 Pro-Forma Regulated ROE

6

4th Quarter 2015 vs. Prior Year By Segment

Refer to appendix for additional explanation of variances by segment

($0.07) $0.03

$0.03

2015 Actual EPS $0.24 $0.13 $0.09 $0.02 $0.03 $(0.03)

7

2015 vs. Prior Year By Segment

Refer to appendix for additional explanation of variances by segment

$0.06

$0.03

$0.03

2015 Actual EPS $1.83 $0.72 $0.39 $0.75 $0.06 $(0.06)

8

Normalized Load Trends

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

9

2.5%2.9% 2.7%

2.2% 2.2%2.3%

1.8%

1.4% 1.2%1.4%

0%

1%

2%

3%

4%

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

Gro

wth

vs

Pri

or

Ye

ar

GDP Growth by Quarter

US AEP

Economic Data

Source – Moody’s Analytics

0%

1%

2%

3%

4%

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

Gro

wth

vs

Pri

or

Ye

ar

GDP Growth by Geography

US AEP-East AEP-West

0%

1%

2%

3%

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

Gro

wth

vs

Pri

or

Ye

ar

Employment Growth by Geography

US AEP-East AEP-West

2.1%2.3%

2.1% 2.1%1.9%

1.3%1.1%

0.9% 0.8% 0.9%

0%

1%

2%

3%

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

Gro

wth

vs

Pri

or

Ye

ar

Employment Growth by Quarter

US AEP

10

AEP Shale Play Counties

Industrial Class Data

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

Continued growth in oil & gas, reductions in other industrials

$-

$15

$30

$45

$60

$75

$90

$105

$120

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

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

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

10.4%

14.9%

11.9%

10.1% 9.7%10.5%

4.7%0.9%

-0.8%

-3.2% -3.1%

-5.3%

-10%

-5%

0%

5%

10%

15%

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

Gro

wth

vs

Pri

or

Ye

ar

AEP Industrial GWh Growth

Oil & Gas Sectors

Non-Oil & Gas

-10%

0%

10%

20%

30%

40%

50%

60%

70%

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

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)

11

(unaudited) 12/31/2015 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 $176

Less

Commercial Paper Outstanding (125)

Letters of Credit Issued (23)

Net Available Liquidity $3,528

Actual Target

FFO Interest Coverage 5.5x >3.6x

FFO to Total Debt 20.8% 15%-20%

Capitalization & Liquidity

Liquidity Summary

Credit Statistics

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

Total Debt / Total Capitalization

Strong balance sheet, credit metrics, and liquidity

Qualified Pension Funding

12

Proven track record & 2016 Outlook

Reaffirm operating earnings guidance of $3.60 - $3.80

Proven track record 4% - 6% earnings growth

Dividend growth in line with earnings

O&M & Cap-ex discipline

Rate base and earnings growth, inclusive of

$4B Bonus depreciation 2008-2015

2016 Outlook 4%-6% growth rate

Operating earnings guidance range

of $3.60-$3.80

Clarity regarding PPA and strategic

review of competitive business

$3.0 $2.8 $2.8 $3.1 $3.0 $2.8

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

2011A 2012A 2013A 2014A 2015A 2016E

Proven Track Record of O&M Discipline (Amounts exclude River Operations and items recovered in riders/trackers)

$ in billions

13

Appendix

14

Fourth Quarter Operating Earnings Per Share Overview

See slides 15 & 16 for items excluded from GAAP Net Income to reconcile to Operating Earnings

Weighted average no. of shares outstanding: 489M Q4-14 & 489M YTD-14; 491M Q4-15 & 490M YTD-15

Segment Q4-14

EPS Q4-15

EPS YTD-14

EPS YTD-15

EPS

Vertically Integrated Utilities $0.12 $0.24 $1.45 $1.83

Transmission & Distribution Utilities

0.15 0.13 0.72 0.72

AEP Transmission Holdco 0.08 0.09 0.31 0.39

Generation & Marketing 0.06 0.02 0.84 0.75

AEP River Operations 0.07 0.03 0.10 0.06

Corporate & Other - (0.03) 0.01 (0.06)

EPS from Operating Earnings $0.48 $0.48 $3.43 $3.69

15

4th Quarter Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

Q4-14 Q4-15 Change Q4-14 Q4-15 Change

Reported (GAAP) Earnings $191 $469 $278 $0.39 $0.96 $0.57

Non Operating Items:

Discontinued Commercial Barging Activities

- (239) (239) - (0.48) (0.48)

Mark-to-Market Impact of Commodity Hedging Activities

6 3 (3) 0.01 - (0.01)

Coal Contract Termination 35 - (35) 0.08 - (0.08)

AEP Operating Earnings $232 $233 $1 $0.48 $0.48 -

Weighted average no. of shares outstanding: 489M Q4-14 & 491M Q4-15

16

YTD December Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

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

Reported (GAAP) Earnings $1,634 $2,047 $413 $3.34 $4.17 $0.83

Non Operating Items:

Discontinued Commercial Barging Activities

- (239) (239) - (0.48) (0.48)

Mark-to-Market Impact of Commodity Hedging Activities

6 - (6) 0.01 - (0.01)

Coal Contract Termination 35 - (35) 0.08 - (0.08)

AEP Operating Earnings $1,675 $1,808 $133 $3.43 $3.69 $0.26

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

17

Vertically Integrated Utilities

Q4-14 Q4-15

$ millions (except EPS)

Operating Revenues $2,197 $2,013

Operating Expenses:

Energy Costs (916) (718)

Operations & Maintenance (706) (686)

Depreciation & Amortization (261) (260)

Taxes Other Than Income Taxes (93) (95)

Operating Income 221 254

Net Interest/AFUDC (111) (105)

Income Taxes (53) (33)

Other - 1

Operating & GAAP Earnings $57 $117

EPS from Operating Earnings $0.12 $0.24

Fourth Quarter EPS Summary Key Drivers: Q4-15 vs. Q4-14

Rate changes: $60M primarily from APCo, SWEPCo, KPCo & I&M. Additional $36M and $29M favorable effect related to prior year regulatory provisions for KPCo and APCo, respectively

Weather: $84M unfavorable vs. prior year; $72M unfavorable vs. normal

Off-System Sales: $7M unfavorable vs. prior year due to

lower market prices in both PJM & SPP

Retail load: $14M unfavorable vs. prior year primarily due to decreased residential and industrial sales

O&M: $23M favorable (net of offsets) vs. prior year primarily due to decreased forestry and transmission expenses

Income Taxes: effective tax rate of 21.9% Q4-15 vs. 48.2% Q4-14. Prior year impacted by loss of charitable deduction carry-forward and manufacturing deduction

18

Vertically Integrated Utilities

YTD-14 YTD-15



Operating Expenses:

Energy Costs (3,953) (3,413)

Operations & Maintenance (2,515) (2,530)

Depreciation & Amortization (1,033) (1,063)


Operating Income 1,612 1,783



Other (1) 1



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

Rate changes: $236M primarily from APCo, SWEPCo, I&M and KPCo

$52M favorable effect from reversal of a 2014 VA

regulatory provision and $36M favorable effect from a 2014 KY regulatory provision

Weather: $32M unfavorable vs. prior year; $4M favorable vs. normal

Off-System Sales: $125M unfavorable vs. prior year due

to lower market prices in both PJM & SPP

Retail load: $70M unfavorable vs. prior year primarily due to decreased residential and industrial sales

O&M: $42M favorable (net of offsets) vs. prior year primarily due to decreased employee related expenses and lower forestry expenses

PJM Charges: $32M favorable vs. prior year primarily due to decreases in unrecovered PJM charges

Income Taxes: effective tax rate of 33.3% YTD-15 vs. 37.9% YTD-14

19


Q4-14 Q4-15



Operating Expenses:











Rate changes: $8M primarily from Ohio DIR and energy efficiency program recovery

OSS: Unfavorable $16M due to OVEC

Negligible impact from retail load

Income Taxes: effective tax rate of 31.4% Q4-15 vs. 40.9% Q4-14. Prior year impacted by loss of charitable deduction carry-forward

20


YTD-14 YTD-15



Operating Expenses:

Energy Costs (1,631) (1,283)

Operations & Maintenance (1,276) (1,330)









Rate changes: $31M primarily from Ohio DIR and energy efficiency program recovery

A $33M regulatory provision was recorded in

2014

OSS: Unfavorable $27M due to OVEC

Weather: $4M favorable vs. prior year; $9M favorable vs. normal

Retail Load: $7M unfavorable, primarily due to

sales mix

O&M: $37M unfavorable (net of offsets) vs. prior year primarily due to regulatory commitments and higher transmission services and distribution costs


21

AEP Transmission Holdco

Q4-14 Q4-15


Operating Revenues $52 $85

Operating Expenses:





Net Interest/AFUDC 4 3


Equity Earnings 23 23

Other - (1)




$18M 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 $9M vs. prior year primarily due to higher property taxes resulting from increased plant in service

22

AEP Transmission Holdco

YTD-14 YTD-15



Operating Expenses:





Net Interest/AFUDC 21 16


Equity Earnings 85 86

Other - (2)




$74M 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 $34M vs. prior year primarily due to higher property taxes resulting from increased plant in service

23

Generation & Marketing

Q4-14 Q4-15



Operating Expenses:








Operating Earnings 30 9

Proforma Adjustments, Net of Tax (41) (3)

GAAP Earnings (Loss) $(11) $6


Fourth Quarter EPS Summary

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

Key Drivers: Q4-15 vs. Q4-14

Generation decreased 3,107 GWh (32%) Q4-15

vs. Q4-14 AEP Dayton ATC liquidations down 24%:

$27.01/MWh in Q4-15 vs. $35.39/MWh in Q4-14

Generation revenue decreased due to lower capacity revenue

O&M: $56M favorable vs. prior year primarily due to decreased plant outage and maintenance costs and decreased asset retirement obligation costs

Favorable hedge performance and fuel costs helped offset the impact of lower prices in Q4-15

24

Generation & Marketing

YTD-14 YTD-15



Operating Expenses:

Energy Costs (2,381) (2,165)







Operating Earnings 408 366

Proforma Adjustments, Net of Tax (41) -

GAAP Earnings $367 $366


YTD EPS Summary

See slide 16 for items excluded from Net Income to reconcile to Operating Earnings

Key Drivers: YTD-15 vs. YTD-14

Generation decreased 5,659 GWh (12.4%) YTD-

15 vs. YTD-14

AEP Dayton ATC liquidations down 29%: $31.49/MWh in 2015 vs. $44.09/MWh 2014

Generation revenue decreased due to lower capacity revenue

O&M : $141M favorable vs. prior year primarily due to decreased plant outages, decreased employee related expenses and settlement of asset retirement obligations


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

25

Rate Changes, net of offsets (in millions)

Q4-15 vs. Q4-14

APCo/WPCo $30

I&M $8

KPCo $9

PSO $2

SWEPCO $11

Kingsport -

TOTAL $60

Impact on EPS

Retail Rate Performance

$0.08


Q4-15 vs. Q4-14

Ohio Power $8

Texas Central -

Texas North -

TOTAL $8

Impact on EPS $0.01

Transmission & Distribution Utilities Vertically Integrated Utilities

26


YTD-15 vs. YTD-14

APCo/WPCo $100

I&M $56

KPCo $8

PSO $5

SWEPCO $67

Kingsport -

TOTAL $236

Impact on EPS

Retail Rate Performance

$0.31


YTD-15 vs. YTD-14

Ohio Power $31

Texas Central -

Texas North -

TOTAL $31

Impact on EPS $0.04


27

Retail Load*

(weather

normalized)

Q4-15 vs. Q4-14

Ohio Power -3.7%

Texas Central -2.9%

Texas North -0.1%

TOTAL -3.1%

Impact on EPS -

Retail Load*

(weather

normalized)

Q4-15 vs. Q4-14

APCo/WPCo -4.4%

I&M -3.8%

KPCo -7.8%

PSO -1.8%

SWEPCO -5.1%

Kingsport -0.9%

TOTAL -4.1%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.02

28

Retail Load*

(weather

normalized)

YTD-15 vs. YTD-14

Ohio Power 0.2%

Texas Central 0.3%

Texas North 0.6%

TOTAL 0.3%

Impact on EPS

Retail Load*

(weather

normalized)

YTD-15 vs. YTD-14

APCo/WPCo -1.6%

I&M -1.1%

KPCo -3.6%

PSO 0.3%

SWEPCO -3.3%

Kingsport 0.2%

TOTAL -1.6%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.09

$0.01

29

Weather Impact

(in millions)

Q4-15 vs. Q4-14

APCo/WPCo ($44)

I&M ($12)

KPCo ($10)

PSO ($7)

SWEPCO ($9)

Kingsport ($2)

TOTAL ($84)

Impact on EPS

Weather Impact vs. Prior Year

Weather Impact

(in millions)

Q4-15 vs. Q4-14

Ohio Power -

Texas Central $1

Texas North ($1)

TOTAL -

Impact on EPS

-


$0.11

30

Weather Impact

(in millions)

YTD-15 vs. YTD-14

APCo/WPCo ($25)

I&M ($12)

KPCo ($7)

PSO -

SWEPCO $14

Kingsport ($2)

TOTAL ($32)

Impact on EPS

Weather Impact

Weather Impact

(in millions)

YTD-15 vs. YTD-14

Ohio Power -

Texas Central $5

Texas North ($1)

TOTAL $4

Impact on EPS


$0.01

$0.04

31

2015 – 2018 Financing Plan & Credit Metrics

Anticipated cash flows maintain solid credit metrics

*Assumes current

quarterly dividend of

$0.56 per share;

dividend evaluated by

board of directors each

quarter; stated target

payout ratio range is 60-

70%

**AGR term loan

matures April 2017, and

is assumed to be

refinanced for modeling

purposes

***Excludes

securitization debt

$ in millions 2015A 2016E 2017E 2018E

Cash from Operations 4,800 5,100 5,100 5,100

Capital & JV Equity Contributions (4,600) (5,000) (5,000) (5,000)

Other Investing Activities 500 (100) (200) (200)

Common Dividends @ $2.15/share 2015; $2.24/share - 2016 - 2018 * (1,100) (1,100) (1,100) (1,100)

Excess (Required) Capital (400) (1,100) (1,200) (1,200)

Financing ($ in millions) 2015A 2016E 2017E 2018E

Excess (Required) Capital (400) (1,100) (1,200) (1,200)

Debt Maturities (Senior Notes, PCRBs) (2,000) (1,100) (2,300) (1,200)

Securitzation Amortizations (300) (300) (300) (300)

AGR Term Loan ** - - 500 -

Equity Issuances (DRP/401K) 100 100 100 100

Debt Capital Market Needs (New) (2,600) (2,400) (3,200) (2,600)

Financial Metrics 2015A 2016E 2017E 2018E

Debt to Capitalization Target

FFO/Total Debt ***

Mid 50s

Mid -to- Upper teens

32

2016 – 2018 Cap-Ex

2016: $5.0B

2017: $5.0B

2018: $5.0B

Regulated Generation - $2.5B

Regulated Distribution - $3.9B

Regulated Transmission - $7.3B

95% of capital allocated to regulated businesses; 74% allocated to wires

$15B Cap-ex from 2016-2018 $ in millions excluding AFUDC

January 28, 2016 14th Quarter 2015 Earnings Release Presentation January 28, 2016 “Safe Harbor”...

Documents

Transcript of January 28, 2016 14th Quarter 2015 Earnings Release Presentation January 28, 2016 “Safe Harbor”...