July 25, 2014 · 2015-05-13 · Earnings Update Delivered GAAP and operating earnings of $0.80 per...

2nd Quarter 2014 Earnings Release Presentation

July 25, 2014

“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]

Julie Sherwood Director

Investor Relations 614-716-2663

[email protected] 2

3

Second Quarter 2014 Highlights

Second Quarter 2014 Company Update

Refer to appendix for reconciliation between GAAP and Operating EPS

Earnings Update Delivered GAAP and operating earnings of $0.80 per share

for the second quarter 2014

Delivered GAAP and operating earnings of $1.95 per share for YTD June 2014

Reaffirming 2014 operating earnings guidance range of $3.35 - $3.55 per share

Financial Update Committed to delivering 4-6% earnings growth off of 2013

original guidance

Continuous improvement initiatives and O&M shifting

Transmission: Allocating an additional $100M of capital in 2014 ($76M to Transcos, $24M to Opcos); Electric Transmission Texas received a Baa1 rating from Moody’s and began paying a dividend to its owners

Regulatory Update APCo – West Virginia Base Rate Case filed June 30, 2014 PSO – Base Rate Case settlement filed June 17, 2014

EPA Clean Power Plan

YTD 2014

4

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

Strong Regulated Results Twelve Months Ended 06/30/2014 Earned ROEs (Operating Earnings)

5

Operating Earnings Per Share Overview

2Q13 EPS

2Q14 EPS

YTD13 EPS

YTD14 EPS

Vertically Integrated Utilities $0.31 $0.31 $0.72 $0.88

Transmission & Distribution Utilities

0.15 0.18 0.34 0.38

AEP Transmission Holdco 0.04 0.10 0.06 0.15

Generation & Marketing 0.18 0.20 0.37 0.54

AEP River Operations (0.02) 0.01 (0.02) 0.01

Corporate & Other 0.07 0.00 0.06 (0.01)

EPS from Operating Earnings $0.73 $0.80 $1.53 $1.95

See slides 13 and 14 for items excluded from GAAP Net Income to reconcile to Operating Earnings

Favorable 2Q14 performance driven by strong regulated business growth; YTD bolstered by cold weather

Weighted average no. of shares outstanding: 486M 2Q13; 488M 2Q14; 486M YTD13; 488M YTD14

6

2Q14 Performance

Refer to appendix for additional explanation of variances by segment

Drivers Rate Changes $ 0.06 OSS 0.03 Normal Load 0.01 O&M (0.07) Depreciation (0.02) Other (0.01)

$0.00

$0.02 ($0.07)

$0.06

$0.03

Drivers Rate Changes $0.01 Trans. Rev 0.04 O&M (0.03) Other 0.01

Drivers AGR $0.01 Other 0.01

$0.03

Favorable 2Q14 performance driven by strong regulated business growth

Driver Int. Inc. ($0.06) Other ($0.01)

2Q14 EPS $0.31 $0.18 $0.10 $0.20 $0.01 $0.00

7

Normalized Load Trends

-0.1%

-1.8%

0.9%

4.4%

-1.5%

1.8%

-10%

-5%

0%

5%

2Q13 3Q13 4Q13 1Q14 2Q14 YTD14

-2.2%

1.2%0.2%

2.9%

0.4%1.6%

-10%

-5%

0%

5%

2Q13 3Q13 4Q13 1Q14 2Q14 YTD14

-5.2%

-3.8%-3.2% -2.9%

-0.5%

-1.6%

-3.0%-1.2%

1.6%2.2% 4.5%

3.4%

-10%

-5%

0%

5%

2Q13 3Q13 4Q13 1Q14 2Q14 YTD14

-2.7%-1.5%

-0.8%

1.5%

-0.5%

0.6%-1.9%

-0.7%0.9%

3.2%

1.3%2.3%

-10%

-5%

0%

5%

2Q13 3Q13 4Q13 1Q14 2Q14 YTD14

AEP Residential Normalized GWh Sales %Change vs. Prior Year

AEP Commercial Normalized GWh Sales %Change vs. Prior Year

AEP Industrial GWh Sales %Change vs. Prior Year

AEP Total Normalized GWh Sales %Change vs. Prior Year

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

Note: Line represents Industrial excluding Ormet Note: Line represents Retail excluding Ormet

8

Economic Data

1.6%

2.0%

2.6%

2.0%

2.5%

3.0% 2.9% 2.8% 2.8% 3.0%

0.5%

1.5%

2.5%

3.5%

4.5%

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

Gro

wth

vs

PY

GDP Growth by Quarter

US AEP

1.7% 1.8% 1.8%

1.7% 1.7%

1.1% 1.0% 1.0%

1.1% 1.3%

0.0%

0.5%

1.0%

1.5%

2.0%

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

Gro

wth

vs

PY

Employment Growth by Quarter US AEP

0.5%

1.5%

2.5%

3.5%

4.5%

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

Gro

wth

vs

PY

GDP Growth by Geography US AEP-East AEP-West

0.0%

0.5%

1.0%

1.5%

2.0%

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

Gro

wth

vs

PY

Employment Growth by Geography US AEP-East AEP-West

9

9%

17%

28% 30%

39%

-3.5% -3.8% -0.7% -1.7% -1.6%

-10%

0%

10%

20%

30%

40%

50%

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

GW

h G

row

th v

s P

Y

AEP Industrial Sales Growth ShaleCounties

Non-ShaleCounties

Industrial Class Data

AEP Shale Gas Counties

Shale Counties in AEP service territory Non-Shale Counties in AEP service territory

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

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

GW

h G

row

th v

s P

Y

Industrial Sales Growth in Shale Regions

Eagle Ford (TX) Marcellus (WV)Permian (TX) Utica (OH)Woodford (OK)

*

* Excluding Ormet

Shale gas development drives industrial load growth

10

Actual Target

FFO Interest Coverage 5.0 >3.6x

FFO to Total Debt 20.3% 15%-20%

Capitalization & Liquidity

Liquidity Summary

Credit Statistics

Note: Credit statistics represent the trailing 12 months as of 06/30/2014

Total Debt / Total Capitalization

Strong balance sheet, solid credit metrics and adequate liquidity

Qualified Pension Funding

(unaudited) 06/30/2014 Actual

($ in millions) Amount Maturity

Revolving Credit Facility $1,750 Jul-17

Revolving Credit Facility $1,750 Jun-16

Total Credit Facilities $3,500

Plus

Cash & Cash Equivalents $190

Less

Commercial Paper Outstanding (732)

Letters of Credit Issued (49)

Net Available Liquidity $2,909

11 Executing on our commitments

Summary

Strong first half of 2014

Executing on our commitments Accelerating transmission investment LEAN and other continuous

improvement initiatives Cost shifting

Reaffirming 2014 Operating Earnings Guidance $3.35 - $3.55 per share

12

Appendix

13

2nd Quarter Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

2nd Qtr. 2013

2nd Qtr. 2014

Change 2nd Qtr.

2013 2nd Qtr.

2014 Change

Reported (GAAP) Earnings

$338 $390 $52 $0.69 $0.80 $0.11

Non Operating Items:

UK Windfall Taxes (80) - 80 (0.16) - 0.16

Muskingum River Plant Unit 5 Impairment

99 - (99) 0.20 - (0.20)

Mark-to-Market Impact of Economic Hedging Activities

- - - - - -

AEP Operating Earnings $357 $390 $33 $0.73 $0.80 $0.07

Weighted average no. of shares outstanding: 486M 2Q13; 488M 2Q14

14

YTD June Reconciliation of GAAP to Operating Earnings

$ millions Earnings Per Share

YTD June 2013

YTD June 2014

Change YTD June 2013

YTD June 2014

Change

Reported (GAAP) Earnings $701 $950 $249 $1.44 $1.95 $0.51

Non Operating Items:

Restructuring Program 5 - (5) 0.01 - (0.01)

Reversal of Storm Deferral – Virginia

19 - (19) 0.04 - (0.04)

UK Windfall Taxes (80) - 80 (0.16) - 0.16

Muskingum River Plant Unit 5 Impairment

99 - (99) 0.20 - (0.20)

Mark-to-Market Impact of Economic Hedging Activities

- - - - - -

AEP Operating Earnings $744 $950 $206 $1.53 $1.95 $0.42

Weighted average no. of shares outstanding: 486M YTD13; 488M YTD14

15

YTD 2014 Performance

Drivers Rate Changes $0.14 Weather 0.07 OSS 0.14 Normal Load 0.01 O&M (0.10) Depreciation (0.04) Other (0.06)

$0.16

$0.17

($0.07)

$0.09

$0.03

Drivers Rate Changes $0.03 Weather 0.01 Trans. Rev. 0.06 Normal Load (0.01) O&M (0.05)

Drivers AGR $0.15 Other 0.02 $0.04

Favorable 2014 performance driven by strong regulated and competitive business results, bolstered by cold weather

YTD14 EPS $0.88 $0.38 $0.15 $0.54 $0.01 $(0.01)

Driver Int. Inc. ($0.06) Other ($0.01)

16

Vertically Integrated Utilities

2Q13 2Q14

$ millions (except EPS)

Operating Revenues $2,302 $2,252

Operating Expenses:

Energy Costs (1,064) (934)

Operations & Maintenance (551) (618)

Depreciation & Amortization (235) (252)

Taxes Other Than Income Taxes (93) (87)

Operating Income 360 361

Net Interest/AFUDC (118) (119)

Income Taxes (89) (88)

Other (1) (1)

Operating Earnings 152 153

Proforma Adjustments, Net of Tax - -

GAAP Net Income $152 $153

EPS from Operating Earnings $0.31 $0.31

Second Quarter EPS Summary

See slide 13 for items excluded from Net Income to reconcile to Operating Earnings

Key Drivers – 2Q14 vs. 2Q13

Rate changes: $44M from various jurisdictions

Weather: $3M unfavorable vs. prior year; $3M favorable vs. normal

Off-System Sales: $21M favorable vs. prior year due to higher power prices

Retail load: $10M favorable vs. prior year due to favorable price variance and higher industrial sales

O&M net of offsets: $52M unfavorable vs. prior year primarily due to an increase in transmission service expenses and increased plant outage and maintenance expenses

D&A: $14M unfavorable vs. prior year primarily due to higher depreciable property balances

Income Taxes: effective tax rate of 36.4% 2Q14 vs. 37.2% 2Q13

17

Vertically Integrated Utilities

YTD Jun 2013

YTD Jun 2014



Operating Expenses:

Energy Costs (2,265) (2,028)

Operations & Maintenance (1,096) (1,194)






Other (1) (1)


Proforma Adjustments, Net of Tax (22) -



YTD EPS Summary


Key Drivers – YTD14 vs.YTD13

Rate changes: $107M from various jurisdictions

Weather: $52M favorable vs. prior year; $69M favorable vs. normal

Off-System Sales: $106M favorable vs. prior year due to higher power prices and increased volumes

O&M net of offsets: $77M unfavorable vs. prior year primarily due to an increase in transmission service expenses and a favorable agreement reached to settle an insurance claim in 1Q13

Depreciation: $33M unfavorable vs. prior year primarily due to higher depreciable property balances

Income Taxes: effective tax rate of 36.2% YTD14 vs. 36.9% YTD13

18


2Q13 2Q14



Operating Expenses:

Energy Costs (405) (368)








Proforma Adjustments, Net of Tax - -






Rate changes: $11M from Ohio

Weather: $2M unfavorable vs. prior year; $1M unfavorable vs. normal

Transmission Revenue: $33M favorable vs. prior year primarily due to increased transmission investment, revenues from Ohio customers who have switched to alternative CRES providers and rate increases for customers in the PJM region

O&M net of offsets: $24M unfavorable vs.

prior year primarily due to higher transmission service expenses and storm-related expenses in Ohio


19


YTD Jun 2013

YTD Jun 2014



Operating Expenses:









Proforma Adjustments, Net of Tax 1 -



YTD EPS Summary



Rate changes: $17M from Ohio

Weather: $7M favorable vs. prior year; $5M favorable vs. normal

Transmission Revenue: $47M favorable vs. prior year primarily due to increased transmission investment, revenues from Ohio customers who have switched to alternative CRES providers and rate increases for customers in the PJM region

O&M net of offsets: $36M unfavorable vs.

prior year primarily due to increased transmission and distribution expenses and storm-related expenses in Ohio

Taxes Other Than Income Taxes: $18M unfavorable vs. prior year primarily due to increased property taxes


20

AEP Transmission Holdco

2Q13 2Q14


Operating Revenues $18 $58

Operating Expenses:





Net Interest/AFUDC 5 6


Equity Earnings 14 23

Operating & GAAP Earnings $19 $48


Second Quarter EPS Summary Key Drivers – 2Q14 vs. 2Q13

Increased revenues and expenses primarily due to increased capital investment by the wholly-owned Transcos

Equity earnings from Joint Ventures - $9M favorable vs. prior year; primarily related to Electric Transmission Texas

21


YTD Jun 2013

YTD Jun 2014



Operating Expenses:





Net Interest/AFUDC 8 10


Equity Earnings 27 40

Operating & GAAP Earnings $31 $71


YTD EPS Summary Key Drivers – YTD14 vs.YTD13

Increased revenues and expenses due to increased capital investment by the wholly-owned Transcos

Equity earnings from Joint Ventures - $13M favorable vs. prior year; primarily related to Electric Transmission Texas

22

Generation & Marketing

2Q13 2Q14



Operating Expenses:










GAAP Net Income (Loss) $(9) $98





2013 reflects Ohio Generation in regulated

power pool vs. 2014 corporately separated

Generation increased 739 GWh (7%) 2014 vs. 2013

AEP Dayton ATC liquidations up 11%: $40.32/MWh in 2014 vs. $36.35/MWh in 2013

O&M net of offsets: $17M unfavorable vs. prior year primarily due to increased plant maintenance expenses


23

Generation & Marketing

YTD Jun 2013

YTD Jun 2014



Operating Expenses:

Energy Costs (1,116) (1,365)











YTD EPS Summary



2013 reflects Ohio Generation in regulated power pool vs. 2014 corporately separated

Generation increased 3,094 GWh (14%) 2014 vs. 2013

AEP Dayton ATC liquidations up 54%: $54.12/MWh in 2014 vs. $35.21/MWh in 2013

O&M, net of offsets: $21M unfavorable vs. prior year primarily due to increased plant maintenance expenses

D&A: $12M favorable vs. prior year primarily due to the cessation of depreciation on Muskingum River Unit 5 in June 2013


24

Rate Changes, net of offsets (in millions)

2Q14 vs. 2Q13

APCo/WPCo $22

I&M ($11)

KPCo $13

PSO $0

SWEPCO $20

Kingsport $0

TOTAL $44

Impact on EPS

Retail Rate Performance

May not foot due to rounding

$0.06


2Q14 vs. 2Q13

Ohio Power $11

Texas Central $0

Texas North $0

TOTAL $11

Impact on EPS $0.01

Transmission & Distribution Utilities Vertically Integrated Utilities

25


YTD14 vs. YTD13

APCo/WPCo $35

I&M $5

KPCo $24

PSO $0

SWEPCO $43

Kingsport $0

TOTAL $107

Impact on EPS

Retail Rate Performance

May not foot due to rounding

$0.14


YTD14 vs. YTD13

Ohio Power $17

Texas Central $0

Texas North $0

TOTAL $17

Impact on EPS $0.03


26

Retail Load*

(weather

normalized)

2Q14 vs. 2Q13

Ohio Power -4.8%

Texas Central 0.4%

Texas North 7.2%

TOTAL -2.2%

Impact on EPS $0.00

Retail Load*

(weather

normalized)

2Q14 vs. 2Q13

APCo/WPCo 2.1%

I&M 1.7%

KPCo 1.4%

PSO 1.9%

SWEPCO -3.1%

Kingsport 1.7%

TOTAL 0.9%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.01

27

Retail Load*

(weather

normalized)

YTD14 vs. YTD13

Ohio Power -3.7%

Texas Central 2.8%

Texas North 13.1%

TOTAL -0.5%

Impact on EPS

Retail Load*

(weather

normalized)

YTD14 vs. YTD13

APCo/WPCo 0.6%

I&M 1.0%

KPCo 1.1%

PSO 2.5%

SWEPCO 2.1%

Kingsport 3.1%

TOTAL 1.4%

Impact on EPS

Retail Load Performance

*Excludes Firm Wholesale Load


$0.01

$0.01

28

Weather Impact

(in millions)

2Q14 vs. 2Q13

APCo/WPCo $1

I&M $2

KPCo ($2)

PSO ($1)

SWEPCO ($3)

Kingsport $0

TOTAL ($3)

Impact on EPS $0.00

Weather Impact

Weather Impact

(in millions)

2Q14 vs. 2Q13

Ohio Power $0

Texas Central ($2)

Texas North $0

TOTAL ($2)

Impact on EPS $0.00


29

Weather Impact

(in millions)

YTD14 vs. YTD13

APCo/WPCo $28

I&M $15

KPCo $4

PSO $1

SWEPCO $4

Kingsport $0

TOTAL $52

Impact on EPS

Weather Impact

$0.07

Weather Impact

(in millions)

YTD14 vs. YTD13

Ohio Power $0

Texas Central $6

Texas North $1

TOTAL $7

Impact on EPS $0.01


30

Vertically Integrated Utilities Off System Sales Gross Margin Detail

Physical off-system sales margins increased from prior year by $36M

Sharing with customers increased from prior year by $10M

AEP/Dayton Hub ATC pricing: 11% increase in liquidation prices

Second Quarter

2Q14

GWh $ in

millions

Physical Off-System Sales 5,704 $57

Trading & Marketing 6

Pre-Sharing Gross Margin 63

Margin Shared with Customers (25)

Net Off-System Sales $38

YTD June

Physical off-system sales margins increased from prior year by $181M

Sharing with customers increased from prior year by $67M

AEP/Dayton Hub ATC pricing: 54% increase in liquidation prices

YTD June 2014

GWh $ in

millions

Physical Off-System Sales 12,328 $225

Trading & Marketing 13

Pre-Sharing Gross Margin 238

Margin Shared with Customers (99)

Net Off-System Sales $139

31

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

Cost-competitive fleet captured significant spot opportunities

QTD Power prices up 11% Natural gas prices up 14% Volumes up 7% Capacity Factor up 3%

Hydro Natural Gas Coal

YTD Power prices up 54% Natural gas prices up 28% Volumes up 14% Capacity Factor up 6%

32

$0.38

$0.45

$0.57

$0.67

$0.30

$0.16

$0.80

$0.39

$0.67

$0.51


4 types of projects: Regional projects for retirements,

renewables, economic and market efficiencies

Local reliability plans Aging infrastructure Customer-driven projects

Cumulative Base Case Capital Investment

High Case Incremental Capital Investment

EPS High Case Contribution

$/share

EPS Base Case Contribution

$/share

Non-firm joint venture projects not included; high case investment is strictly related to the Transcos (no assumption for securing

competitive opportunities); no projects included above subject to loss due to FERC Order 1000 right of first refusal

July 25, 2014 · 2015-05-13 · Earnings Update Delivered GAAP and operating earnings of $0.80 per...

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Transcript of July 25, 2014 · 2015-05-13 · Earnings Update Delivered GAAP and operating earnings of $0.80 per...