4 th Quarter 2013 Earnings Release Presentation January 27, 2014

Transcription

1 4 th Quarter 2013 Earnings Release Presentation January 27, 2014

2 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 Although AEP and each ofits 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 forwardlooking statements are: the economic climate and 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, particularly in Ohio, weather conditions, including storms and drought conditions, 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 recover increases in fuel and other energy costs through regulated or competitive electric rates, our ability to build or acquire generating capacity, and transmission line 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 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 and cost recovery of our 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 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, 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 PJM and SPP, the transition to market and the legal separation of generation in Ohio, including the implementation of ESPs and the successful approval, where applicable, and transfer of such Ohio generation assets and liabilities to regulated and non-regulated entities at book value, our ability to successfully manage negotiations with stakeholders and obtain regulatory approval to terminate the Interconnection Agreement, 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 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 bjrozsa@aep.com Julie Sherwood Director Investor Relations jasherwood@aep.com Sara Macioch Analyst Investor Relations semacioch@aep.com 2

3 2013 AEP Highlights 2013 Highlights Total Shareholder Return Refer to appendix for reconciliations between GAAP and Operating EPS Positive 2013 results for shareholders, customers and employees 3

4 Management Focus 2014 Focus Forecasted Growth in Operating Earnings $3.8B capital investment per year ; priority allocation to transmission opportunities Sustainable cost savings and O&M discipline support earnings growth 4

5 Strong Regulated Results Twelve Months Ended 12/31/2013 Pro forma Earned ROEs * pro forma adjusts GAAP results by eliminating any material nonrecurring items and is not weather normalized 5

6 4Q13 and Full Year Performance Fourth Quarter December YTD EPS Operating Earnings ($ in millions) EPS Refer to appendix for explanation of variances Operating Earnings ($ in millions) 2012 $0.50 $242 $3.09 $1,497 Ohio Transition Items (0.02) (0.26) Effective Tax Rate (0.08) (0.17) AFUDC (0.02) (0.10) O&M, net of offsets (0.04) (0.05) Off System Sales (0.01) (0.05) Regulated Normalized Retail Load (0.02) (0.02) AEP River Operations 0.04 (0.01) Weather Interest Income 0.07 Transmission Holdco Parent Company Rate Changes Other (0.04) $0.60 $296 $3.23 $1,573 6

7 Normalized Load Trends 5% AEP Residential Normalized GWh Sales %Change vs. Prior Year 5% AEP Commercial Normalized GWh Sales %Change vs. Prior Year 0% -5% 1.3% -0.1% -1.8% 0.9% 0.0% -0.9% 0% -5% 0.5% -2.2% 1.2% 0.2% -0.1% -0.2% -10% 1Q13 2Q13 3Q13 4Q13 YTD E -10% 1Q13 2Q13 3Q13 4Q13 YTD E 5% 0% -5% -10% -3.6% -3.0% -6.0% -5.2% AEP Industrial GWh Sales %Change vs. Prior Year -1.2% -3.8% 1.6% -3.2% -1.6% -4.5% 1.2% -2.2% Note: Line represents Industrial excluding Ormet 1Q13 2Q13 3Q13 4Q13 YTD E 5% 0% -5% -10% -0.6% -1.9% AEP Total Normalized GWh Sales %Change vs. Prior Year -0.7% -1.5% -2.7% -1.5% 0.9% -0.8% -0.6% 0.1% -1.6% -1.1% Note: Line represents Retail excluding Ormet 1Q13 2Q13 3Q13 4Q13 YTD E Note: Charts reflect connected load and exclude firm wholesale load & Buckeye Power backup load. Earnings impact unfavorable $0.02 for quarter and YTD 7

8 Industrial Sales Volumes 8

9 Capitalization & Liquidity Total Debt / Total Capitalization Credit Statistics Actual Target FFO Interest Coverage 4.7 >3.6x FFO to Total Debt 18.8% 15% 20% Note: Credit statistics represent the trailing 12 months as of 12/31/2013 (unaudited) Liquidity Summary 12/31/2013 Actual ($ in millions) Amount Maturity Revolving Credit Facility $1,750 Jul 17 Revolving Credit Facility $1,750 Jun 16 Term Loan Facility $1,000 May 15 Qualified Pension Funding Total Credit Facilities $4,500 Plus Letter of Credit Facility $85 Oct 14 Cash & Cash Equivalents $118 Less Commercial Paper Outstanding (57) Amount drawn on term credit facility (1,000) Letters of credit issued (170) Net Available Liquidity $3,476 Strong balance sheet, solid credit metrics and adequate liquidity 9

10 2014 Key Guidance Assumptions & Sensitivities 5% 0% -5% -10% 1.5% 0.7% Sensitivities -0.5% -0.6% Sensitivity EPS Retail Sales 0.5% +/ 0.04 Wholesale Market Prices Regulated $1 MWh +/ 0.01 Wholesale Market Prices Competitive $1 MWh +/ 0.02 O&M Expense (excludes O&M with offsets) 1.0% +/ Effective Income Tax 35.5% 1.0% +/ 0.05 Note: A $7.5M change in pre tax earnings equals $0.01/share. AEP Total Normalized GWh Sales % Change vs. Prior Year 0.1% -0.8% -1.6% -1.1% Note: Line represents Retail excluding Ormet 2011A 2012A 2013A 2014E Rate Changes: $175M 2014 Regulated Connected Load: Residential: 58,023 GWh Commercial: 49,335 GWh Industrial: 55,631 GWh Regulated OSS: 22,108 GWh AEP Ohio Customer Switching 71% by year end 2014 Regulated OSS Gross Margins (after sharing): $150M Transmission Holdco: $141M Assumptions O&M, net of earnings offsets and excluding River Operations: $2.8B AD Hub ATC Price: $33.24 Henry Hub NG Price: $3.83 No. of Shares O/S: 487M 2014 Operating Earnings Guidance Range of $3.20 $3.40/sh 10

11 Sustainable Pre Tax Earnings Improvements by 2016 Regulated Investment, sustainable cost savings and O&M discipline support earnings growth Generation (including nuclear) (largely related to competitive generation) $70 100M Transmission $10 25M Distribution $20 40M Corporate $10 25M Supply Chain/Procurement $10 15M Utilize transition period to execute continuous improvement plan 11

12 Appendix 12

13 4Q13 Performance Fourth Quarter Reconciliation EPS Operating Earnings ($ in millions) 2012 $0.50 $242 Effective Tax Rate (0.08) O&M, net of offsets (0.04) Other (0.04) Regulated Normalized Retail Load (0.02) Ohio Transition Items (0.02) AFUDC (0.02) Off System Sales (0.01) Transmission Holdco 0.02 AEP River Operations 0.04 Weather 0.05 Rate Changes 0.11 Parent Company $0.60 $296 4Q13 Performance Drivers Effective tax rate of 33.9% in 4Q2013 vs. 21.6% in 4Q2012 O&M expense, net of offsets, increased $30M primarily due to employee related expenses Other unfavorable primarily due to increased other taxes Regulated normalized retail load down $11M Ohio transition items include reduced CRES capacity reimbursements AFUDC unfavorable $14M primarily due to Turk plant in service December 2012 Transmission Holdco favorable $14M due to increased capital investment AEP River Operations favorable due to strong grain harvest in 2013 Weather was favorable by $40M vs. prior year, favorable $31M vs. normal Rate Changes, net of offsets, of $82M from multiple jurisdictions Parent favorable due to prior period make whole premium on retirement of debt 13

14 Full Year 2013 Performance Full Year Reconciliation EPS Operating Earnings ($ in millions) 2012 $3.09 $1,497 Ohio Transition Items (0.26) Effective Tax Rate (0.17) AFUDC (0.10) O&M, net of offsets (0.05) Off System Sales (0.05) Regulated Normalized Retail Load (0.02) AEP River Operations (0.01) Other 0.02 Weather 0.04 Interest Income 0.07 Transmission Holdco 0.07 Parent Company 0.15 Rate Changes $3.23 $1,573 Full Year 2013 Performance Drivers Ohio transition items include reduced CRES capacity reimbursements, prior year reversal of a fuel provision, prior year reversal of a regulatory obligation and customer switching and capacity deferral. As of December 2013, 65% of total Ohio load switched Effective tax rate of 35.6% in 2013 vs. 31.0% in 2012 AFUDC unfavorable $71M primarily due to Turk plant in service December 2012 O&M expense, net of offsets, increased $41M primarily due to incremental plant outages Regulated normalized retail load down $22M Other favorable primarily due to decreased interest expense Weather was favorable by $30M vs. prior year, favorable $48M vs. normal Transmission Holdco favorable $36M due to increased capital investment Favorable interest income $50M Rate Changes net of offsets of $340M from multiple operating jurisdictions 14

15 4 th Quarter Reconciliation of GAAP to Operating Earnings 4 th Qtr $ millions Earnings Per Share 4 th Qtr Reported Earnings (GAAP) $21 $346 $325 $0.05 $0.71 $0.66 Special Items: Adjustment to Prior Period Impairments Amos Unit 3 Regulatory Disallowance Turk Plant Impairment (79) (79) (0.17) (0.17) Restructuring Program 22 (22) 0.04 (0.04) Ohio Plant Impairments 184 (184) 0.38 (0.38) UK Windfall Taxes 15 (15) 0.03 (0.03) AEP Operating Earnings $242 $296 $54 $0.50 $0.60 $0.10 Change 4 th Qtr th Qtr Change 15

16 YTD Reconciliation of GAAP to Operating Earnings YTD Dec $ millions Earnings Per Share YTD Dec Change YTD Dec YTD Dec Reported Earnings (GAAP) $1,259 $1,480 $221 $2.60 $3.04 $0.44 Special Items: Amos Unit 3 Regulatory Disallowance Reversal of Storm Deferral Virginia Adjustment to Prior Period Impairments Big Sandy FGD Impairment Muskingum River Plant Unit 5 Impairment Ohio Plant Impairments 184 (184) 0.38 (0.38) Turk Plant Impairment 9 (9) 0.02 (0.02) Restructuring Program 30 5 (25) (0.05) UK Windfall Taxes 15 (80) (95) 0.03 (0.16) (0.19) AEP Operating Earnings $1,497 $1,573 $76 $3.09 $3.23 $0.14 Change 16

17 Quarterly Performance Comparison American Electric Power Financial Results for 4th Quarter 2013 Actual vs 4th Quarter 2012 Actual 2012 GAAP 2012 Operating 2013 GAAP 2013 Operating 2012 Volumes Earnings Adjustments Earnings 2013 Volumes Earnings Adjustments Earnings (GWh) ($ millions) ($ millions) ($ millions) (GWh) ($ millions) ($ millions) ($ millions) UTILITY OPERATIONS: Gross Margin: 1 East Regulated Integrated Utilities 16, , Ohio Companies 11, , West Regulated Integrated Utilities 9, , Texas Wires 6, , Off-System Sales Transmission Revenue - 3rd Party Other Operating Revenue Utility Gross Margin 2,099-2,099 2,191-2,191 9 Operations & Maintenance (968) 30 (938) (1,012) 6 (1,006) 10 Depreciation & Amortization (416) - (416) (418) - (418) 11 Taxes Other than Income Taxes (196) 1 (195) (211) - (211) 12 Interest Exp & Preferred Dividend (220) - (220) (213) - (213) 13 Other Income & Deductions (256) (72) Income Taxes 36 (114) (78) (141) 16 (125) 15 Utility Operations Earnings (50) Transmission HoldCo NON-UTILITY OPERATIONS: 17 AEP River Operations Generation & Marketing PARENT & OTHER: 19 Parent & Other Earnings (77) 16 (61) EARNINGS (50) 296 Weighted average no. of shares outstanding: EPS EPS EPS EPS 2012: 485 million : 487 million 17

18 YTD Performance Comparison American Electric Power Financial Results for YTD December 2013 Actual vs YTD December 2012 Actual 2012 GAAP 2012 Operating 2013 GAAP 2013 Operating 2012 Volumes Earnings Adjustments Earnings 2013 Volumes Earnings Adjustments Earnings (GWh) ($ millions) ($ millions) ($ millions) (GWh) ($ millions) ($ millions) ($ millions) UTILITY OPERATIONS: Gross Margin: 1 East Regulated Integrated Utilities 65,819 2,991-2,991 65,991 3,130-3,130 2 Ohio Companies 50,294 2,456-2,456 46,083 2,417-2,417 3 West Regulated Integrated Utilities 42,235 1,396-1,396 42,124 1,506-1,506 4 Texas Wires 29, , Off-System Sales Transmission Revenue - 3rd Party Other Operating Revenue Utility Gross Margin 8,815-8,815 9,030-9,030 9 Operations & Maintenance (3,354) 43 (3,311) (3,507) 43 (3,464) 10 Depreciation & Amortization (1,734) - (1,734) (1,686) - (1,686) 11 Taxes Other than Income Taxes (828) 1 (827) (855) - (855) 12 Interest Exp & Preferred Dividend (882) - (882) (877) - (877) 13 Other Income & Deductions (161) (132) Income Taxes (560) (123) (683) (702) (96) (798) 15 Utility Operations Earnings 1, ,517 1, , Transmission HoldCo NON-UTILITY OPERATIONS: 17 AEP River Operations Generation & Marketing PARENT & OTHER: 19 Parent & Other Earnings (102) 16 (86) 101 (80) EARNINGS 1, ,497 1, ,573 Weighted average no. of shares outstanding: EPS EPS EPS EPS 2012: 485 million : 487 million 18

19 Retail Rate Performance Rate Changes, net of trackers (in millions) Rate Changes, net of trackers (in millions) 4Q13 vs. 4Q12 YTD13 vs. YTD12 East Regulated Integrated Utilities $22 East Regulated Integrated Utilities $92 Ohio Companies $10 Ohio Companies $94 West Regulated Integrated Utilities $51 West Regulated Integrated Utilities $155 Texas Wires $0 Texas Wires $0 AEP System Total $82 AEP System Total $340 Impact on EPS $0.11 Impact on EPS $0.45 May not foot due to rounding 19

20 Retail Load Performance Retail Load* Retail Load* (weather normalized) (weather normalized) 4Q13 vs. 4Q12 YTD13 vs. YTD12 East Regulated Integrated Utilities (1.5%) East Regulated Integrated Utilities (1.0%) Ohio Companies (5.6%) Ohio Companies (4.8%) West Regulated Integrated Utilities 4.3% West Regulated Integrated Utilities 0.1% Texas Wires 2.6% Texas Wires 0.0% Impact on EPS $0.02 Impact on EPS $0.02 *Excludes Firm Wholesale Load 20

21 Weather Impact Weather Impact Weather Impact (in millions) (in millions) 4Q13 vs. 4Q12 YTD13 vs. YTD12 East Regulated Integrated Utilities $16 East Regulated Integrated Utilities $43 Ohio Companies $11 Ohio Companies $2 West Regulated Integrated Utilities $5 West Regulated Integrated Utilities ($14) Texas Wires $7 Texas Wires ($1) Impact on EPS $0.05 Impact on EPS $

22 Off System Sales Gross Margin Detail Fourth Quarter GWh ($millions) GWh ($millions) OSS Physical Sales 8,262 $ 48 7,620 $ 39 Capacity Payments CRES/RPM $ 5 $ 17 Marketing/Trading - $ 9 - $ 9 Pre-Sharing Gross Margin 8,262 $ 62 7,620 $ 65 Margin Shared $ (12) $ (11) Net OSS $ 49 $ 54 Physical off system sales margins decreased from last year by $9M CRES/RPM capacity payments increased from last year by $12M AEP/Dayton Hub pricing: 3% increase in liquidation prices * CRES Payments of $3M in 4Q2012 and $15M in 4Q2013 included in Ohio Transition items on pages 6, 13 & 14 Full Year GWh ($millions) GWh ($millions) OSS Physical Sales 26,723 $ ,065 $ 193 Capacity Payments CRES/RPM* $ 130 $ 54 Marketing/Trading $ 68 $ 49 Pre-Sharing Gross Margin $ 398 $ 296 Margin Shared $ (74) $ (66) Net OSS $ 324 $ 231 * CRES Payments of $99M in 2012 and $47M in 2013 included in Ohio Transition items on pages 6, 13 & 14 Physical off system sales margins decreased from last year by $7M CRES/RPM capacity payments decreased from last year by $76M AEP/Dayton Hub pricing: 12% increase in liquidation prices Lower Trading & Marketing results by $19M Margins reduced by $19M due to a true up of prior period PJM expenses 22

23 Financial Reporting Changes in K reported using new segments end of February 2014 Vertically Integrated Utilities Transmission & Distribution Utilities AEP Transmission Holdco Generation & Marketing AEP River Operations 1Q14 and beyond earnings releases reported using new segments AEP Generation Resources FERC Form 3Q available in May 2014 AEP Generation Resources audited financial statements available on AEP.com in June

24 Segment Roadmap Current Guidance Format: UTILITY OPERATIONS: East Regulated Integrated Utilities AppalachianPower IndianaMichigan Power Kentucky Power AEP Generating (including LawrenceburgPlant) WheelingPower Kingsport Power Ohio Companies Ohio Power (including generation assets) West Regulated Integrated Utilities PublicService Co of OK Southwestern Electric Power Texas Wires Texas North Texas Central TRANSMISSION OPERATIONS: Transcos Joint Ventures GENERATION AND MARKETING: AEP Retail AEP Energy Partners Parent & Other RIVER OPERATIONS NEW SEGMENTS Vertically Integrated Utilities Appalachian Power Kentucky Power IndianaMichigan Power Southwestern Electric Power PublicService Co of OK WheelingPower Kingsport Power AEP Generating Transmission and Distribution Utilities Ohio Power Texas North Texas Central AEP River Operations Regulated Operations Competitive Operations AEP Transmission Holdco Transcos Joint Ventures Generation and Marketing AEP Generation Resources (includinglawrenceburg Plant) AEP Energy AEP Energy Partners Corporate & Other 24