aep analyst & investor meeting feburary 10, 2012
DESCRIPTION
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.TRANSCRIPT
Analyst & Investor MeetingNew York, NY
February 10, 2012
p.2
Investor Relations Contacts
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Chuck ZebulaTreasurer
SVP Investor Relations614-716-2800
Bette Jo RozsaManaging DirectorInvestor Relations
Julie SherwoodDirector
Investor Relations614-716-2663
Sara MaciochAnalyst
Investor Relations614-716-2835
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 and growth in, or contraction within, our service territory and changes in market demand and demographic patterns, 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, particularly in Ohio, weather conditions, including storms, and our ability to recover significant storm restoration costs through applicable 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 resolve I&M’s Donald C. Cook Nuclear Plant Unit 1 restoration and outage-related issues through warranty, insurance and the regulatory process, our ability to recover regulatory assets and stranded costs in connection with deregulation, our ability to recover increases in fuel and other energy costs through regulated or competitive electric rates, our ability to build or acquire generating 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 (including the costs of projects that are cancelled) through applicable rate cases or competitive rates, new legislation, litigation and government regulation including oversight 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 and cost recovery of our plants and related assets, 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, natural gas and other energy-related commodities, 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 debt, volatility and changes in markets for electricity, natural gas, coal, nuclear fuel and other energy-related commodities, changes in utility regulation, including the implementation of ESPs and the expected 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 by our pension, other postretirement benefit plans, captive insurance entity and nuclear decommissioning trust and the impact on future funding requirements, prices and demand for power that we generate and sell at wholesale, changes in technology, particularly with respect to new, developing or alternative sources of generation, our ability to recover through rates or market prices any remaining unrecovered investment in generating units that may be retired before the end of their previously projected useful lives, our ability to successfully manage negotiations with stakeholders and obtain regulatory approval to terminate or amend the Interconnection Agreement and break 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 threats and other catastrophic events.
p.3
Today’s Presenters
Nick AkinsPresident & Chief Executive Officer
Brian TierneyExecutive Vice President &Chief Financial Officer
p.4
8:00 AM….....Nick AkinsStrategy
9:15 AM….…Brian TierneyFinancial
10:00 AM……Q&A
10:30 AM…....MeetingAdjourned
AEP Analyst & Investor Meeting
ScheduleWhat you will hear today……
Earnings range for 2012 - $3.05-$3.25/shareEarnings growth range of 4-6% supported by rate base growth at regulated companiesCompany’s asset profile – 86% RegulatedDividend supported by Regulated OperationsStrong financial profile
Corporate separation filings at FERC todayTransition period – execution is keyCompetitive generation profile
Framework for today’s discussion ……Regulated OperationsCompetitive Operations
p.5
AEP’s Track Record since 2004
Our re-dedication to the regulated business model in 2004 has rewarded shareholders well
Our re-dedication to the regulated business model in 2004 has rewarded shareholders well
Total Shareholder Return
2.1%
48.6%
-1.2%
20.1%
110.9%
32.6%
19.3%
38.7%
88.3%
20.8%
44.8%
22.2%
-20%
0%
20%
40%
60%
80%
100%
120%
Tota
l Sha
reho
lder
Ret
urn
(%) S&P 500
UTYAEP
1 Year 3 Year 5 Year 8 Year
EarningsCAGR
DividendGrowthCAGR
4.3%
4.1%
2004-2011 Period
p.6
Clarity Achieved in 2010-11
2010-11 Clarity
2010-11 Clarity
Operating Company Model put in place in 2010 aligns management decisions
Financial controls in place to manage balance sheet and growth opportunities
Strong financial platform in placeFocus on capital spending discipline and allocation
Several “overhangs” resolvedMATS Rule Settled Arkansas coal plant (Turk) litigationSecuritization opportunities in Texas and OhioPUCO approval to separate “G” from “wires” in Ohio
Enables executionEnables execution
p.7
Execute in 2012-14
2012-14 Execution2012-14
ExecutionOptimize Operating Company ROEs and invest in the regulated utility platform
Reposition the Generation Resource Portfolio
Refocus Transmission business for near-term growth
Create a robust competitive business
Clarity, Execution, Line-of-Sight, DisciplineClarity, Execution, Line-of-Sight, Discipline
p.8
Total Assets – Regulated/Competitive
Following corporate separation, we expect earnings contributions to approximate asset splitFollowing corporate separation, we expect earnings contributions to approximate asset split
$7.5B 14%
$44.5B 86%
Regulated Companies Competitive Companies
Vertically-IntegratedAppalachian PowerKentucky PowerIndiana Michigan PowerPublic Service Co of Oklahoma Southwestern Electric Power
Regulated Generation CoAEP Generating Company
Wires CompaniesOhio PowerTexas CentralTexas North
Transmission CompaniesAEP Ohio TranscoAEP Indiana Michigan TranscoAEP Oklahoma TranscoJoint Ventures (ETT, Pioneer, etc.)
Power RelatedAEP Generation ResourcesAEP Energy PartnersAEP Retail Energy
Bulk Commodity TransportAEP River Operations
Transmission Companies Awaiting ApprovalAEP Southwestern Transco (AR, LA)AEP Kentucky TranscoAEP Virginia TranscoAEP West Virginia Transco
TOTAL ASSETS, based on Y/E 2011 in 2013 business structure ** Subsequent to corporate separation
p.9
Regulated Operations
p.10
Regulated Operations
Management Focus on Execution
Operating Company Focus – strengthen local relationships, earn allowed returns, allocation of capital, rate base growth
Obtain regulatory approvals for East Pool replacement
Obtain additional regulatory approvals for state Transcos (WV, VA, KY, AR, LA) and JVs
Focus on prudency, reliability, financial discipline and capital efficiency
Improved recovery mechanisms in place
over time
2008
2012
Improved recovery
mechanisms
20%
48%
80%
52%
Traditionalrate
recovery
Operating company line-of-sight drives resultsOperating company line-of-sight drives results
p.11
14.64%14.34%9.66%10.60% 10.97%8.82%12.81% 7.48%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
AEP System Ohio Power APCo KPCo I&M PSO SWEPCO AEP Texas
Earned ROEs
The diversity of our portfolio helps mitigate regulatory lagThe diversity of our portfolio helps mitigate regulatory lag
2011 Proforma* Earned ROEs
* pro-forma adjusts GAAP results by eliminating any material nonrecurring items
p.12
Corporate, $70
Distribution, $845
Base Fossil/Hydro Generation, $205
Base Nuclear Generation, $62
Nuclear Life Cycle Management, $153
New Generation, $201
Environmental Generation, $451
AEP Transco, $350
Trans JV EquityContributions, $116 Operating Company
Transmission, $456
2012 Regulated Capital Spending
SO2 Program - $199MAsh / CCR - $69MNOx Program - $67MPrecipitators - $57MMercury Program - $39MEffluent WWT - $10MOther - $10M
Turk - $171MDresden - $30M
AEP Ohio Transco - $206MAEP Indiana Michigan Transco - $79MAEP Oklahoma Transco - $65M
ETT - $107META - $9M
2012 Capital & Equity Contributions for Regulated Operations = $2.9B*
2013 and 2014 Capital for Regulated Operations is estimated at $3.4B - $3.5B2013 and 2014 Capital for Regulated Operations is estimated at $3.4B - $3.5B
* Excludes AFUDC; Includes Mitchell Plant and Amos Unit 3
p.13
25%
16%
13%
29%
17%
SWEPCOPSOKentucky PowerI&MAPCo
25%
75%
Water/CCR Rules
Air Rules
Regulated Fleet Repositioning
Retire older, less efficient regulated plants (~2,600MW)
New capacity added to rate base to replace portion of retirements
– Dresden Combined Cycle (580MW, on-line January 2012)
– Turk Coal Plant (440MW, scheduled 4Q 2012)
Particulate matter requirements in MATS Rule reduced overall environmental CAPEX needs
Concerns still exist over timing of rules and reliability impacts
Reposition fleet to controlled coal and natural gas-fired unitsReposition fleet to controlled coal and natural gas-fired units
Regulated Environmental CAPEX by Rule for 2012-20 period
Regulated Environmental CAPEX by OPCO for 2012-20 period *
Expected 2012-2020 regulated environmental capex forecast
of $5 – $6 billion*
* Excludes AFUDC
p.14
$50
$265$350
$585$650
$56
$96
$116
$82$28 $35
$657
$0
$100
$200
$300
$400
$500
$600
$700
$800
2010A 2011A 2012E 2013E 2014E 2015E
$ in
mill
ions
$106
$361
$466
$667 $678 $692
Transmission Segment Growth
Transcos– Increased project flow– FERC formula rates (updated annually)– Approved in OH, MI, OK, IN– Pending approval in WV, VA, KY, AR, LA– ROE : 11.49% (PJM) / 11.20% (SPP)
Joint Ventures– Electric Transmission Texas (ETT)– Others: Prairie Wind, Pioneer– Longer term projects with FERC formula
rates/bi-annual rate mechanisms– Continue to pursue new opportunities – ROE range: 9.96% to 12.8%
Investing capital in transmission for reliability and growthInvesting capital in transmission for reliability and growth
$0.02
$0.06$0.08
$0.14
$0.24
$0.31
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
2010A 2011A 2012E 2013E 2014E 2015E
Transmission (AEPTHCo) Capital
Transmission (AEPTHCo) EPS
AEP Transmission HoldCo (AEPTHCo) Growth Opportunities Transco Capital
JV Equity Contributions
p.15
$5.1$0.4
$1.0
$1.6
$2.2
$2.1
$4.4
$6.5
$8.4
$4.0$2.7
$1.3
$1.1
$0.7
$0.4
$0.9
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
2012E 2013E 2014E 2015E
$ in
bill
ions
Capital Recovery & Growth
Growth in regulated PP&E supports overall earnings growth of 4-6%Growth in regulated PP&E supports overall earnings growth of 4-6%
Cumulative Change in Net Regulated PP&E by Function
Operating company investment in Generation & Distribution.G & D rate adjustments via base rate cases with certain tracker mechanisms for environmental and reliability investments. ROEs range from 10.0% to 10.9%.
Operating company investment in Transmission. Rate recovery via trackers/TCOS mechanisms in OH, TN, VA, MI, TX. ROEs range from 9.96% to 11.49%.
Transcos. Rate recovery via FERC formula rates. ROEs 11.49% (PJM) / 11.20% (SPP).
2011 Net Regulated PP&E = $32B6.0% CAGR in Net Regulated PP&E
Note: 2012 annual regulated depreciation is $1.14B; Transmission JV investments discussed on theprevious page are not reflected above as the ventures are not consolidated on AEP’s financialstatements
p.16
Corporate Separation &
Competitive Operations
p.17
Corporate Separation Next Steps
File FERC 203 and 205 Applications for Corporate Separation, Pool Replacement and Interim Allowance Agreement Termination
File FERC 203 Application for APCo-WPCo Merger
Settlement Process with State Commissions and Stakeholders
Q12012
PostQ1
2012
Target1Q-2013 Final Settlements and FERC Orders
Corporate Separation: reasonable process, achievable timelineCorporate Separation: reasonable process, achievable timeline
Corporate Separation of Ohio Power generation assetsTransfer of Amos Unit 3 and Mitchell Generating FacilitiesApproval of SSO Contract between AEP Generation Resources and Ohio Power (to serve non-shopping load during transition period)Approval of Power Cost Sharing Agreement (new 3-company pool)Bridge Agreement (interim agreement to address legacy Pool Agreement issues such as FRR obligations)Approval of APCo/WPCo merger
Summary of Requests inFERC Filings:
Approximate Timeline
p.18
Transfer Mitchell/Amos
2013 / 2014 Transition Factors
FERC filings made todayFERC filings made today
AEP Generation Resources
Ohio Power
Merger of Columbus Southern and Ohio Power on 12/31/11
APCo, I&M, Kentucky and Ohio Power continue 4-company pooling of generation resources for capacity and energy
OSS shared
Non-switching customers in Ohio supported by 4-company pool
Current: 2012 to 1Q 2013
3-company power cost sharing agreement
Excess energy after SSO available for competitive market
SSO for non-switching customers at Power Supply Agreement price
APCo, I&M,Kentucky Power
Corporate Separation:1Q 2013
Transition: 1Q 2013 to May 2015
All capacity and energy available for competitive market
RPM Capacity
Bridge Agreement
SSO Power Supply Agreement
CapacityEnergy Fuel clause &
non-fuel G-rate
3-company power cost sharing agreement; FRR capacity
Market: post May 2015
SSO for remaining customers at auction price
Factors: Shopping levels, power prices
Factors: Shopping levels, power prices
Factors: Fuel costs, power/capacity prices
p.19
AEP Generation Resources Inc.
AEP Generation Resources capacity position of 8,900 MW in 2015 consists primarily of competitive, controlled coal and natural gas-fired resources
AEP Generation Resources capacity position of 8,900 MW in 2015 consists primarily of competitive, controlled coal and natural gas-fired resources
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2010 2011 2012 2013 2014 2015 2016
To Be Retired
Transferred
Competitive
Capacity Profile, 2010-16
35.5%
64.5%
C o al Gas/ H ydro
Capacity Mix
65% new CC19% steam16% new CT
86% FGD/SCR14% FGD
2011 Fuel Statistics (Ohio fleet average)Delivered coal price -- $2.35/mmBtu ($56/ton)Delivered gas price -- $4.23/mmBtu
Transfers – Mitchell (1,560 MW), Amos Unit 3 (870 MW)Retirements – 2,538 MW
End of Year
MW
p.20
Competitive Ohio CAPEX
All capital for our competitive generation fleet in Ohio is under study due to the change in business environment; capital discipline will be exercised
All capital for our competitive generation fleet in Ohio is under study due to the change in business environment; capital discipline will be exercised
$1.1
$0.4
$0.5
$0.5
0.00.20.40.60.81.01.21.41.61.82.0
June 2011 Estimate Revised Estimate
$ in
Bill
ions
Water/CCR Rules
Air Rules
Competitive generation (OH) environmental CAPEX spending reduced by $700M for 2012-20 period
Ongoing CAPEX
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
Capital for 2012 is approximately $160M (about
$15/kW) for the entire Ohio Generation
portfolio, mostly allocated to the large, controlled
power plants. At this time, we expect
2013 and 2014 to be ~$100M per year.
p.21
‐
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2015
Open Position
Formula Rates
Wholesale Auctions
Municipal/CooperativeTransactions
Retail Sales
Sales, Trading and Marketing
Hedging Strategy for competitive generation will
explore all sales opportunities
Planned Hedging Strategy
Capacity sales will be made in the PJM RPM market auction; auction in May of 2012 for the 2015-16 capacity year
Energy sales will be “optimized”between retail, bilateral contracts (munis/co-ops) wholesale auctions and the PJM market (see graph).
Recent announcement to acquire BlueStar Energy provides important scale to our back office systems and allows additional leverage into our retail marketing efforts
Capacity and Energy Sales
Expect hedging levels of 75-80%Expect hedging levels of 75-80%
GW
h
p.22
Summary of Discussion
$7.5B 14%
$44.5B 86%
TOTAL ASSETS, Y/E 2011 in 2013 business
structure *
RegulatedCompetitive
Regulated companies offer 6% growth in net PP&E through 2015
– Operating company model– Improved recovery mechanisms– Regulated fleet transformation– Efficient allocation of capital
Corporate Separation in 2013– Ohio generation phases – Current, Transition,
Market– Transfer of Mitchell, Amos 3 plants to APCo
and Kentucky Power– Filed with FERC today
Competitive Operations– Retirements due to environmental rules– Controlled fleet in 2015– Capital discipline– Hedging program (75-80%)
* Subsequent to corporate separation
Supports overall 4-6% earnings growthSupports overall 4-6% earnings growth
p.23
Financial
p.24
$3.12 0.18
0.06 0.05
(0.05)(0.07) (0.09)(0.10)(0.14)
0.25 $3.03
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
CustomerSwitching
Ohio POLR O&M, net ofoffsets
Weather NormalizedRetailMargin
TCC Cap.Auct. True-
up
OSS, net ofsharing
Other, Net Rate Relief,net ofoffsets
2011A2010A
2011 Ongoing Earnings Results
Ongoing earnings of $3.12 per share exceeded the midpoint of ouroriginal earnings guidance
Ongoing earnings of $3.12 per share exceeded the midpoint of ouroriginal earnings guidance
Reg Disallowances (0.14)2009 SEET Refund 0.06Tax Settlement 0.13Other 0.13
p.25
-1.7%
4.4%
-0.1% 0.3% 0.4% 0.3%
-5%
0%
5%
10%
1Q11 2Q11 3Q11 4Q11 2011A 2012E
Normalized Retail Load Trends
1.2%
-1.5%
0.5%
-0.3%
1.1%
-1.0%-5%
0%
5%
10%
1Q11 2Q11 3Q11 4Q11 2011A 2012E
7.1%
3.3%
5.2%
1.0%
4.1%2.2%
-5%
0%
5%
10%
1Q11 2Q11 3Q11 4Q11 2011A 2012E
2.5% 1.9% 1.9% 1.6% 2.0% 1.4%
-5%
0%
5%
10%
1Q11 2Q11 3Q11 4Q11 2011A 2012E
AEP Residential Normalized GWh Sales%Change vs. Prior Year
AEP Commercial Normalized GWh Sales%Change vs. Prior Year
AEP Industrial Normalized GWh Sales%Change vs. Prior Year
AEP Total Normalized GWh Sales*%Change vs. Prior Year
*includes firm wholesale loadNote: Chart represents connected load
Modest load growth of 1.4 percent for 2012Modest load growth of 1.4 percent for 2012
p.26
AEP Industrial GWh by Sector
-
400
800
1,200
1,600
2,000
2,400
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
GWh
Primary Metal ManufacturingChemical ManufacturingPetroleum and Coal Products ManufacturingMining (except Oil & Gas)Paper Manufacturing
These 5 sectors account for approximately 60% of AEP's total Industrial Sales.
Industrial Sales Volumes
Industrial load near pre-recession levelsIndustrial load near pre-recession levels
Industry 4Q11 vs. PY YTD vs. PYPrimary Metals 12.5% 14.1%Chemical Mfg -7.1% 0.7%Petroleum & Coal Products 2.4% 4.6%Mining (except Oil & Gas) 6.4% 4.6% Paper Mfg -0.2% -0.4%
p.27
$3.12 $3.15
(0.24) (0.21)
(0.15) (0.12) (0.11) (0.01)
0.020.15
0.27
0.43
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Other UtilityCosts, net
OhioSw itching
Weather OSS, net ofsharing
OhioPOLR
Non-Utility/Parent
TransOperations
NormalizedRetailMargin
O&M, net ofoffsets
Rate Relief,net of
offsets
2011A 2012E
2012 Ongoing Earnings Guidance
2012 Ongoing Guidance Range: $3.05- $3.25 per share2012 Ongoing Guidance Range: $3.05- $3.25 per share
Eff Tax Rate (0.15)D&A (0.12)TCC Cap T-Up (0.04)Taxes Other (0.04)3rd Party Trans 0.12 Other (0.01)
Cost Control 0.11Incremental 2011 Work 0.08OH Reg. Orders 0.05Storms 0.03
p.28
$3,114$3,500 $3,500
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2012E 2013E 2014E
$ in
mill
ions
2012 – 2014 Financing Plan
Increased cash receipts and capital discipline keep balance sheet strongIncreased cash receipts and capital discipline keep balance sheet strong
AEP System Capital Spend
2013/2014 Capital range of $3.5 - $3.7B
$ in millions 2012E 2013E 2014E
Cash from Operations 3,800 3,700 3,800
Cash from Securitization 800 875 -
Capital & JV Equity Contributions (3,114) (3,500) (3,500)
Other Investing Activities (350) (300) (200)
Common Dividends (911) (915) (919)
Excess (Required) Capital 225 (140) (819)
Financing ($ in millions) 2012E 2013E * 2014E *
Excess (Required) Capital 225 (140) (819)
Retirements ** (1,140) (1,715) (1,340)
Debt Issuances (Excluding Securitization) 800 1,750 2,000
Equity Issuances (DRP) 100 100 100
Increase/(Decrease) in Short term debt (15) (5) (59)
* Debt Capital Market Needs for 2013 and 2014 will be refined based on timing,
form and approval of corporate separation and asset transfers
** Retirements includes debt matur ities and amortizations
p.29
Ohio Power Recapitalization
AEP is committed to managing the business as investment gradeAEP is committed to managing the business as investment grade
$4,062(1,141)
(475)$2,446
Debt Outstanding at Ohio Power2012/2013 Sr. Note Maturities, PCRB ‘puts’, Debt with Par CallMaturities within one year of Corporate Separation
$2,150$296
Senior Notes due after 2015PCRBs Tender Date after 2013
Debt capacity at Ohio Power - $1.9 to $2.4 B
$ millions
DEBT RECONCILIATIONassuming separation by 1Q 2013
Note: Columbus Southern merged with Ohio Power on 12/31/11. Ohio Powerassumed all outstanding obligations of Columbus Southern.
p.30
AEP’s Financial Strength
Solid investment grade credit profileSolid investment grade credit profile
Liquidity
Credit Ratings
Balance Sheet
Pension
57.5 57.055.3 54.9
50
52
54
56
58
60
2009 2010 2011 2012E
55.3%Year-end 2011
Debt to Total Cap
Debt to Total Cap
Perc
ent
$3.25B Credit Facilities
$1.5B credit facility extended to June 2015$1.75B credit facility renewed to July 2016Supported by 27 bank institutions
$950M contributions in 2010-11$200M contribution planned for 2012 expected to bring funded status >90%Investment strategies being reviewed
86% Funded Status at Y/E 2011
Moody’s – Baa2 (stable)S&P – BBB (stable)Fitch – BBB (stable)
Investment Grade Credit Rating
p.31
$1.4 0 $1.4 2
$1.50
$1.58$1.6 4 $1.6 4
$1.8 5 $1.8 8
$1.71
51.3%
60.1%
54.2%
52.7%50.6%
55.2%
56.4%
59.3%59.7%
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
2004 2005 2006 2007 2008 2009 2010 2011 2012E45.0%
50.0%
55.0%
60.0%
65.0%Dividend Payout Ratio
Dividend Policy and EPS Growth Rate
AEP TOTAL RETURN OPPORTUNITY is 9-10%AEP TOTAL RETURN OPPORTUNITY is 9-10%
50-60% Payout Ratio– Expect dividend growth < EPS growth– Dividend supported by regulated operations
Dividend History– 407th consecutive quarterly dividend declared– Dividend growth 4.1% CAGR since 2004
Current Yield of 4.8%
Dividend Policy EPS Growth Rate expected to average 4-6% over several
years
Regulated net PP&E expected to grow at 6%
– Supports overall earnings growth at the high end of range
– Efficient allocation of capitalOhio Generation in Transition
– Switching levels and low capacity and energy prices could put pressure on near-term growth
– Expect uplift in capacity prices due to environmental retirements
Equity needs over 2012-14 period about $300M through dividend reinvestment program
p.32
Questions
p.33
Appendix
p.34
Detailed Ongoing Earnings Guidance
($ m illions)
1 $ 41.1 /MW hr 2,749 68,339 GW H @ $ 45.2 /MWhr
2 $ 52.0 /MW hr 2,673 48,349 GW H @ $ 52.3 /MWhr
3 $ 32.5 /MW hr 1,408 42,476 GW H @ $ 32.4 /MWhr
4 $ 22.1 /MW hr 648 28,274 GW H @ $ 22.1 /MWhr
5 $ 13.3 /MW hr 343 27,742 GW H @ $ 9.0 /MWhr
6 417
7 507
8 8,745
9 (3,544)
10 (1,613)
11 (812)
12 (891)
13 239
14 (669)
15 1,455
16 30
17 45
18 14
19 (40)
20 1,504
AEP ConsolidatedFinancial Results for 2011 Actual Vs 2012 Guidance
2011 Actual
Performance Driver Perform ance Driver
UTILITY OPERATIONS:Gross Margin:
East Regulated Integrated Util ities 66,832 GW H @
Ohio Companies 51,445 GW H @
West Regulated Integrated Util ities 43,380 GW H @
Texas Wires 29,288 GW H @
Off-System Sales, net of sharing 25,693 GW H @
Transm ission Revenue - 3rd Party
Other Operating Revenue
Utility Gross Margin
Operations & Maintenance
Depreciation & Amortization
Taxes Other Than Income Taxes
Interest Exp & Preferred Dividend
Other Income & Deductions
Income Taxes
Transmission Operations On-Going Earnings
Utility Operations On-Going Earnings
Generation & Marketing
NON-UTILITY OPERATIONS:AEP River Operations
ON-GOING EARNINGSParent & Other On-Going Earnings
2012 Guidance
($ mi llions)
3,087
2,530
1,377
625
250
504
546
8,919
(3,416)
(1,718)
(842)
(906)
214
(779)
1,472
38
1,523
57
(13)
(31)
2011A: $3.122011A: $3.12 2012E: $3.05 - $3.252012E: $3.05 - $3.25
p.35
$2,874 $2,937 $2,737
$553 $607$679
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2010A 2011A 2012E
$ in
mill
ions
Items withEarningsOffsets
Base UtilityO&M
$3,427 $3,544 $3,416
$220$269
$51
$0
$50
$100
$150
$200
$250
$300
$350
2011A 2012E
$ in
mill
ions
Future
Secured
$299
$343
$250
$0
$50
$100
$150
$200
$250
$300
$350
$400
2010A 2011A 2012E
$ in
mill
ions
2012 Major DriversRate Relief
OSS Assumptions, net of sharing
19,171GWH
25,693GWH 27,742
GWH
Utility O&M Expense
Sensitivities
$320
Sensitivity
Retail Sales 0.5% +/- 0.05
Customer Switching in Ohio (@ RPM) 1.0% +/- 0.01
Wholesale Market Prices $1 MWh +/- 0.03
O&M Expense (excludes O&M with offsets) 1.0% +/- 0.04
Note: A $7.5M change in pre-tax earnings equals $0.01/share.
EPS
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Corporate, $76
Distribution, $845
Base Fossil/Hydro Generation, $313
Base Nuclear Generation, $62
Nuclear Life Cycle Management, $153
New Generation, $201
Environmental Generation, $503
Trans JV EquityContributions, $116
River Ops & Other Non-Utility, $39
AEP Transco, $350
Operating Company Transmission, $456
2012 Total System Capital
SO2 Program - $201MNOx Program - $72MPrecipitators - $62MAsh / CCR - $79MMercury Program - $39MEffluent WWT - $19MOther - $31M
Turk - $171MDresden - $30M
AEP Ohio Transco - $206MAEP Indiana Michigan Transco - $79MAEP Oklahoma Transco - $65M
ETT - $107META - $9M
Total 2012 Capital & Equity Contributions of $3.1BTotal 2012 Capital & Equity Contributions of $3.1B
* Excludes AFUDC
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$0
$100
$200
$300
$400
$500
$600
Ohio Power APCo I&M KPCo AEP Texas PSO SWEPCO Other
$ in
mill
ions
2012 Capital by Operating Company
$563
$447$463
$110
$270
$203
$428
$126
Excludes AFUDC
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.38
Pending Rate Cases
$ in millions CompanyI&M - Indiana Filing Staff Testimony
Rate increase $148.7 n/a
Rate base/investment $2,411.9Return on equity 11.15%
Equity component 42.67%
Status: Case filed on September 23, 2011. Hearing on Case in Chief begins February 20, 2012. Staff & Intervenor testimony due April 27, 2012.
$ in millions CompanyI&M - Michigan Filing Settlement
Rate increase $24.5 $14.6Rate base/investment $680.8 $663.2Return 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
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Pioneer is a 50/50 JV owned by AEP and Duke Energy to construct approximately 240-280 miles of 765 kV transmission line in Indiana in multiple phases.Debt to equity ratio of 50/50, authorized ROE of 12.54%Estimated Cost: $1 billion
Phase 1:Approximately 60-70 milesEstimated In-Service Date: 2015*
Phases 2 and 3:Approximately 170- 220 milesEstimated In-Service Date: 2016 - 2018
*Estimate based on June 2011 MTEP
RITELine is JV owned by AEP*, ETA, and Exelon to construct approximately 420 miles of 765 kV transmission line throughout Indiana and Illinois.Estimated Cost: $1.6 billionDebt to equity ratio of 45/55, authorized ROE of 11.43%Estimated In-Service: 2016 - 2018
ETT is a 50/50 JV owned by subsidiaries of AEP and MidAmerican Energy Holding Company that constructs and operates transmission projects within ERCOT. Total investment opportunity of more than $3 billion.Debt to equity ratio of 60/40, authorized ROE of 9.96%Current rate base of $565 million as of January 31, 2012Projected rate base growth:
Prairie Wind is a 50/50 JV owned ETA and Westar Energy to construct approximately 110 miles of double circuit 345 kV transmission line in Kansas.Estimated Cost: $225 millionDebt to equity ratio of 50/50, authorized ROE of 12.8%Estimated In-Service: 2014
Joint Venture Growth Opportunities
*AEP share of RITELine is approximately 20.5%
Status: In Construction
Status: Pending inclusion in PJM RTEP
Status: Pending inclusion in PJM RTEP
Status: MISO Approved
Status: Ongoing Business
p.40
Gavin 1,2 Coal 2,640 Amos 3 Coal 870 Cardinal 1 Coal 595 Mitchell 1,2 Coal 1,560 Conesville 4 Coal 340 2,430 Conesville 5,6 Coal 800 Zimmer Coal 330 Stuart 1-4 Coal 600 OVEC Ownership Coal 434 Kammer 1-3 Coal 630
Musk. River 1-4 Coal 840 Musk. River 5 Gas 600 Sporn 2, 4, 5 Coal 750 Lawrenceburg Gas 1,186 Picway Coal 100 Waterford Gas 840 Conesville 3 Coal 165 Darby Gas 507 Beckjord Coal 53
2,538 Racine Hydro 26
8,898
COMPETITIVE ASSETS COMPETITIVE ASSETS TRANSFERRED
ASSETS to be RETIRED
AEP Generation Resources Inc.
Generation Assets(in Megawatts)
COMPETITIVE ASSETS COMPETITIVE ASSETS TRANSFERRED
ASSETS TO BE RETIRED
Post-2014 COAL MIX
POST-2014 COAL DELIVERY
Barge73%
Rail10%
Truck17%
NAPP87%
CAPP5%
ILB8%
p.41
Pension and OPEB Estimate
Investment returns for our pension plan was a positive 8.1% for 2011 despite volatility 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 Projected Benefit Obligation (PBO). The OPEB funds were 63% funded compared to the Accumulated Postretirement Benefit Obligation (APBO).
We expect to make a discretionary cash contribution of $200 million to the pension in 2012.
Discount rates are 4.55% for pension and 4.75% for OPEB for 2012, down substantially from 5.05% and 5.25%, respectively, for 2011.
Total pension costs are expected to be $127 million in 2012, up from $118 million in 2011. Total OPEB costs are expected to be $95 million in 2012, up from $73 million in 2011. The O&M share is in the range of 65-70% of the total costs.
p.42
Credit Ratings
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
Current Ratings for AEP, Inc. & Subsidiaries Moody's S&P Fitch
p.43
Long-term Debt Maturities
Year 2012 2013 2014
AEP, 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 $962
Data as of December 31, 2011
($ in millions)
p.44
Overview of FERC Transactions / Contracts
Ohio Power
12,132 MW Capacity
APCo(incl KgPCo Contract)
6,806 MW Capacity
KPCo
1,078 MW Capacity
I&M
5,381 MW Capacity
IA & IAA IA & IAA IA & IAA IA & IAA
Before
Ohio Power
0 MW Capacity
APCo(incl KgPCo Contract)
8,918 MW of Capacity
KPCo
1,390 MW Capacity
I&M
5,381 MW Capacity
AEP Generation Resources Inc.
9,708MW Capacity
SSO Agreement
Bridge Agreement Bridge Agreement Bridge AgreementBridge Agreement
SSO Agreement
PCS Agreement PCS Agreement PCS Agreement
After
WPCo (Load)
20% Mitchell
Amos Unit 3 & Mitchell
Mitchell Operating Agreement
Mitchell Operating Agreement
Bridge Agreement
Sporn Operating Agreement
Amos 3, 80% Mitchell
Interconnection Agreement (IA) & Interim Allowance Agreement (IAA) (205)
Transfer of Amos 3 and Mitchell (203)
WPCo and APCo Merger (203)
SSO Power Supply Agreement; Expires in May 2015 (205)
Bridge Agreement; Expires in May 2015 (203)
Power Cost Sharing (PCS) Agreement; Section (205)
Sporn Generating Plant Operating Agreement (205)
Mitchell Generating Plant Operating Agreement (205)
Transfer of Amos 3 and Mitchell (203)
WPCo and APCo Merger (203)
Sporn Generating Plant Operating Agreement (205)
WPCo (Contract)
Corporate Separation of Ohio Power (203)
Sporn Operating Agreement
Sporn Operating Agreement
Sporn Operating Agreement