UBS Natural Gas, Electric Power and MLP Conference Handout. Dallas, TX March 5, 2013

Transcription

1 UBS Natural Gas, Electric Power and MLP Conference Handout Dallas, TX March 5,

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 ofitsregistrant 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 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 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 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, coal, natural gas 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 electricity, natural gas, and other energy-related commodities, changes in utility regulation, including the implementation of ESPs and the transition to market and expected legal separation for generation in Ohio and the allocation ofcostswithin regional transmission organizations, including PJM and SPP, 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 Table of Contents Topic Page Company Overview/Strategy 4 Transmission 11 Competitive Operations 14 Financial 21 3

4 AEP Investment Opportunity Clear regulated business model defines AEP - Stable income and cash flows - Significant investment opportunities in infrastructure upgrades to improve reliability and operations - Diversified across 11 jurisdictions - Critical mass in Transmission for future growth Creating a path for a successful Competitive business Stable dividend with an attractive yield, supported by earnings from regulated operations Strong balance sheet Anticipated equity needs met through dividend reinvestment program, securitization and bonus depreciation Expected earnings growth rate of 4 6% off 2013 base 4

5 Delivered Strong Utility Operations Results Twelve Months Ended 12/31/12 Pro-forma* Earned ROEs * pro-forma adjusts GAAP results by eliminating any material nonrecurring items and is not weather normalized Utility Operations ROE of 10.6% as of December 31,

6 Expected EPS Growth Rate Expected EPS growth rate of 4 6% off of 2013 operating earnings guidance range Expected Operating Earnings Per Share Growth Rate 3.55 Supported by rate base growth of regulated operations $ $3.25 6% $ $ Capital investment of $3.6B in 2013 and $3.8B in 2014 and % - Priority allocation of capital to transmission investment E 2014E - Authorized ROE range of 9.96% (AEP Texas) to 12.8% (Prairie Wind) Expected Operating Earnings Per Share Growth Rate of 4-6% 6

7 Regulated Business Growth Forecast $ in billions Cumulative Change in Regulated Net Property, Plant & Equipment (PP&E) $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $ Net Regulated PP&E = $33.9B 6.9% CAGR in Net Regulated PP&E $2.4 $0.7 $0.4 $1.3 $4.8 $1.4 $0.6 $2.8 $7.5 $2.1 $1.0 $ E 2014E 2015E Note: 2013 annual regulated depreciation is $1.3B; Transmission JV investments, other than Transource, are not reflected above as the ventures are not consolidated on AEP s financial statements AEP Transmission Holdco (excluding unconsolidated JVs) Transcos: Rate recovery via FERC formula rates ROEs 11.49% (PJM) / 11.20% (SPP) Wires Companies TX Wires and Ohio Power Wires Rate recovery via trackers (OH) or TCOS (TX) ROEs range from 9.96% to 11.49% Vertically Integrated Utilities D and G rate adjustments via base rate cases with certain tracker mechanisms for nuclear, environmental and reliability investments T Rate recovery via trackers in TN, VA, MI. Others in base rates ROEs range from 10.0% to 10.9% Growth in regulated PP&E supports overall earnings growth of 4-6% 7 7

8 Fleet Transformation 65% of our current fleet capacity comes from coal generation Anticipated coal capacity of 50% of the fleet by 2020 Environmental Transition Capital Plan $ in billions Estimated capital spend of $4 - $5 billion between now and 2020 to make these remaining coal plants compliant with current and proposed EPA regulations, including MATS, coal combustion residuals and 316(b) and effluent guidelines $6-8 $5-7 $4 5 Diligence in finding the lowest cost and low risk compliance options have resulted in more retirements, lower cost retrofits and reduced capital expenditures Generation fleet will move to a more balanced portfolio while controlling costs, complying with environmental rules and benefitting our customers 8

9 Repositioned Cost Profile Organizational and process optimization evaluation, including five deep dive areas of focus - Finance & Accounting - Information Technology - Procurement/Supply Chain - Generation - Organizational Effectiveness Aligned AEP s employee benefits with other companies in the sector $ in millions $4,000 $3,500 $3,000 $2,500 $2,000 Utility O&M Trend $553 $607 $636 $754 Items with Earnings Offsets Study reinforced resource allocations throughout the company to provide better customer service $1,500 $1,000 $500 $2,874 $2,937 $2,675 $2,631 Base Utility O&M Repositioned cost profile will sustainably absorb new operations and other expense increases $0 2010A 2011A 2012A 2013E Utility Operations O&M well controlled 9

10 Dividend Policy Dividend statistics - Current yield: 4.0% - Current quarterly payment: $0.47/share - Current payout ratio: 59.7% - Growth of 3.8% per annum since Paid 411 consecutive quarters Dividend History Since 2004 $/share $1.71 $1.84 $1.88 Targeted payout ratio 60 70% of consolidated earnings 1.60 $1.50 $1.58 $1.64 $1.64 Dividend level supported by earnings from regulated operations $1.40 $1.42 Dividend expected to grow in line with earnings from regulated operations Targeted payout ratio 60-70% 10

11 Transmission Outlook Earnings Forecast Based on Approved Projects Major Infrastructure Improvements PJM SPP ERCOT Total New / Enhanced Stations * Transformation Capacity 17,900 MVA 2,500 MVA 1,300 MVA 21,700 MVA New Transmission Lines 260 miles 175 miles 1,350 miles 1,785 miles Rebuilt Transmission Lines 2,675 miles 425 miles 775 miles 3,875 miles Communication and Control Rebuild or replace obsolete communication circuits and pilot wire protection, expand SCADA and add new equipment condition Post 2015 Investment Opportunities Drive Additional Future Earnings Growth Largest transmission construction program in the country 11

12 Transmission ROEs and Incentives Actual Project ROEs are a Function of the Base ROE PLUS Applicable Project Incentives Transco & Operating Company ROEs are in the middle of the current range of ROEs in PJM and SPP Range of ROEs in PJM* AEP East OPCO & Transco ROEs Project/Joint Venture Requested Incentives (ROE adder) Incentives Granted 10.5% 11.49% 12.4% Transource Missouri 100 bps for Sibley-Nebraska City 0 bps for Iatan-Nashua project 50 bps RTO adder for all projects 100 bps for Sibley-Nebraska City 0 bps for Iatan-Nashua project 50 bps RTO adder for all projects Range of ROEs in SPP* AEP West OPCO & Transco ROEs RITELine Overall risk adder of 200 bps 50 bps RTO adder 100 bps Risk Adder Prairie Wind 150 bps Risk Adder 50 bps RTO adder 150 bps Risk Adder 50 bps RTO adder Pioneer 150 bps Risk Adder 50 bps RTO adder 150 bps Risk Adder 50 bps RTO adder 10.77% 11.20% 12.8% *includes 50 bps RTO adder AEP has a track record of prudently requesting and receiving incentives that are commensurate with the risk of each project 12

13 Transmission Holdco Business Growth Cumulative Transmission Holdco Net Property, Plant & Equipment 2010 Net PP&E = $50M 124% CAGR in Net Transmission Holdco PP&E $1.4 $2.2 $2.8 AEP Transmission Holdco (excluding unconsolidated JVs) Transcos and Transource Regulated by FERC Revenue requirement reset annually based on prior year s activity plus the current year s projected plant-in-service balances, reducing regulatory lag $0.3 $0.7 Transcos: ROEs 11.49% (PJM) 11.20% (SPP) Transource: 86% ownership; capital investment begins in 2014 Note: 2013 annual depreciation is $9M; Transmission JV investments, other than Transource, are not reflected in PP&E above as the ventures are not consolidated on AEP s financial statements; EPS represents AEPTHC, which includes all transcos and JVs Expected growth in EPS contribution closely tied to growing capital investment 13 13

14 Building a Competitive Platform Corporate Operational Metrics Power Generation Integrated Business Retail Wholesale Trading & Marketing Financial, Risk, Credit Objectives Achieve corporate separation in Ohio by January 1, 2014 Integrate competitive generation with retail and wholesale businesses Conservative capitalization; maintain investment grade credit metrics Mitigate risk and volatility through hedging activity Capital investments financed with internally generated funds Integrating competitive generation with existing retail and wholesale trading businesses is the objective in

15 AEP Generation Resources Footprint Capacity Profile (MW) Geographic Profile 8,876 MW Fuel Profile (2015) AEP Generation Resources has the competitive advantage of fuel and operational diversity 15 15

16 Dispatch Costs; Expected Generation Generation from fleet expected to be in the range of million MWh Note: post-retirement view of generation stack; includes fuel, emissions and consumables costs Fleet is well-positioned from a cost and operational perspective to participate in the competitive market 16

17 Business As Usual (BAU) -Transition - Market Jan-May 2015 June-Dec 2016 Capacity FRR Capacity revenue per ESP FRR Capacity revenue per ESP FRR Capacity revenue per ESP PJM RPM Market PJM RPM Market SSO Load 10% slice of system auction (Q3 13-May 14) 60% slice of system auction (Jun-Dec) 100% slice of system auction No SSO obligation No SSO obligation Fuel Clause BAU Per ESP Per ESP Recovered through market sales Recovered through market sales Off-system Energy BAU Excess energy sold in retail and wholesale markets All energy sold in retail and wholesale markets All energy sold in retail and wholesale markets All energy sold in retail and wholesale markets Red According to ESP order from PUCO Blue represents market exposure 17 17

18 2014 Sales Opportunity; AEP Energy 2014 Energy Sales Opportunity AEP Energy 2012 Performance Short Term Financial Instruments Wholesale Customers (Muni, Co-op, Utility Auction) 15-20% 20-35% IL 27% PA 7% NJ 4% MD/DE/DC 1% Acquired BlueStar Energy 168,000 retail customers Served 7.5 TWh of load Seven states, focus on Ohio Profitable in first year OH 61% Retail sales hedged with market purchases Electric service only Unswitched AEP Ohio Retail Customers Competitive Retail Customers 25-30% 25-30% AEP Energy Plan Focus on margin opportunity Provide hedging opportunities for AEP Generation Resources Customer growth in the traditional footprint Add to the customer relationship AEP Energy will complement the sales opportunity for the competitive generation fleet 18 18

19 Capital Expenditures Environmental Control Profile Gavin Cardinal Conesville 5&6 Muskingum River 5 Conesville 4 Zimmer Stuart OVEC NO x SCR SCR No SCR planned SCR SCR SCR SCR SCR SO 2 FGD FGD FGD Refuel with NG by 2017 FGD FGD FGD FGD Mercury/ Particulate SCR, FGD & ESP SCR, FGD & ESP ACI 2015 Refuel with NG by 2017 SCR, FGD & ESP SCR, FGD & ESP SCR, FGD & ESP SCR, FGD & ESP Environmental Spend Complete Under review for minor modifications Environmental Capital Spend Planned SCR Selective Catalytic Reduction FGD Flue Gas Desulphurization ESP Electrostatic Precipitator ACI Activated Carbon Injection Capital requirements for environmental controls mostly invested over the past decade; on-going capital requirements will be funded by internally generated cash flow in the period 19

20 Financing AEP Generation Resources Closed on 27-month $1B bank loan to fund Ohio Power maturities this year Expect AEP Generation Resources to be capitalized conservatively; company will look investment grade but will not be rated initially Initial debt financing will be an inter-company loan from the parent; permanent financing will take place in the 2014/15 timeframe Liquidity backstop provided through $3.5B in AEP core credit facilities; recently extended expiration dates into 2016/17 timeframe Expected Initial Capitalization Debt 35% - 40% Equity 60% - 65% Total $3.1B AEP Generation Resources will be conservatively financed 20

21 2013 Operating Earnings Guidance 2012A 2013E 2013 Operating Earnings Guidance Range: $ $3.25 per share 21

22 Detailed Operating Earnings Guidance American Electric Power 2012A: $ E: $ $3.25 Financial Results for 2012 Actual Vs 2013 Guidance Performance Driver 2012 Actual 2013 Guidance ($ millions) Performance Driver ($ millions) UTILITY OPERATIONS: Gross Margin: 1 East Regulated Integrated Utilities 65,819 GWh 2,991 66,842 GWh 3,116 2 Ohio Companies 50,294 GWh 2,456 48,481 GWh 2,207 3 West Regulated Integrated Utilities 42,234 GWh 1,396 42,473 GWh 1,539 4 Texas Wires 29,039 GWh ,785 GWh Off-System Sales Transmission Revenue - 3rd Party Other Operating Revenue Utility Gross Margin 8,815 8,979 9 Operations & Maintenance (3,311) (3,385) 10 Depreciation & Amortization (1,734) (1,694) 11 Taxes Other than Income Taxes (827) (855) 12 Interest Expense (882) (906) 13 Other Income & Deductions Income Taxes (683) (787) 15 Utility Operations Operating Earnings 1,517 1, Transmission Operations Operating Earnings NON-UTILITY OPERATIONS: 17 AEP River Operations Generation & Marketing Parent & Other Operating Earnings (86) (5) 20 OPERATING EARNINGS 1,497 1,535 22

23 Normalized Retail Load Trends 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 10% AEP Total Normalized GWh Sales %Change vs. Prior Year 5% 0.6% 0.5% 0% -0.4% -1.2% -0.8% -2.0% -5% 1Q12 2Q12 3Q12 4Q A 2013E Note: Charts reflect connected load and exclude firm wholesale load & Buckeye Power backup load. Modest load growth forecasted for

24 Identified Load Increases 2013 Expansions Jurisdiction Industry Monthly GWh Impact Date of Expansion Ohio Power Gas Transmission 7.7 Mar-13 Coating Services 9.0 Mar-13 Gas Transmission 10.3 May-13 Gas Transmission 15.3 Jul-13 Gas Transmission 15.3 Sep-13 Gas Transmission 7.7 Oct-13 Wheeling Power Gas Transmission 31.0 Mar-13 Coal Mining 5.5 Apr-13 Gas Transmission 3.0 Apr-13 Gas Transmission 9.3 Jul-13 Coal Mining 8.0 Jul-13 Gas Transmission 3.0 Aug-13 TCC Steel 4.3 Jul-13 PSO Gas Transmission 11.2 Oct-13 Gas Transmission 8.5 Oct-13 Expected Monthly Addition Shale gas expansion is a fundamental positive for the AEP territory 24

25 2012 and 2013 Capital & Equity Contributions 2012A: $3.1B Excluding AFUDC 2013E: $3.6B Excluding AFUDC $ in millions Transco/JV spend increasing 48% Nuclear spend increasing 42% $ in millions New Generation spend decreasing 88% Environmental spend increasing 126% Incremental capital allocated to transmission and regulated utility investment opportunities 25

26 2013 Capital by Operating Company Note: Ohio Power includes $136M related to Amos 3 and Mitchell plants to be transferred from Ohio Power to APCo and KPCo 26

27 2013 Key Assumptions & Sensitivities Sensitivities OSS Assumptions, net of sharing Sensitivity EPS Retail Sales 0.5% +/ Customer Switching in Ohio (net of capacity deferral) 4.0% +/ Wholesale Market Prices $1 MWh +/ ,715 GWH 33,600 GWH O&M Expense (excludes O&M w ith offsets) 1.0% +/ Effective Tax 35.8% 1.0% +/ Note: A $7.5M change in pre-tax earnings equals $0.01/share. AD Hub ATC Price - $32.50 Henry Hub NG Price - $

28 MATS Environmental Investments & Retirements Potential Environmental Investments Operating Company Plant MW Potential Type of retrofit AEP Ohio (1) Conesville 5 & ACI Muskingum River 5 (2) 578 Refuel with Natural Gas Gavin 1 & 2 2,640 ACI APCO Clinch River 1 (3) 242 Refuel with Natural Gas Clinch River 2 (3) 242 Refuel with Natural Gas I&M Tanners Creek 4 (4) 482 Refuel with Natural Gas Rockport (5) 2,620 DSI, SCR KPCO Big Sandy 1 (6) 278 Refuel with Natural Gas PSO Oklaunion 101 FGD upgrade, ACI Northeastern 3 (5) 470 ACI, DSI, Baghouse SWEPCO Welsh ACI, DSI, Baghouse Welsh ACI, DSI, Baghouse Pirkey 580 ACI Dolet Hills 262 ACI, Baghouse Flint Creek (5) 264 FGD, ACI TNC Oklaunion 377 FGD upgrade, ACI Grand Total MW 10,992 (1) Assumes investment is able to clear the market (2) Existing Coal Plant 585MW Projected Plant Retirements through 2016 Operating Company Plant MW Expected Retirement APCO Glen Lyn Glen Lyn Clinch River Sporn Sporn Kanawha River Kanawha River Total MW 1,270 I&M Tanners Creek Tanners Creek Tanners Creek Total MW 495 AEP Ohio Muskingum River Picway Sporn Kammer Beckjord Total MW 1,923 KPCo Big Sandy Total MW 800 SWEPCO Welsh Total MW 528 (3) Existing Coal Plant 235MW (4) Existing Coal Plant 500MW (5) Subject to regulatory and other approvals (6) Pending outcome of RFP process ACI Activated Carbon Injection DSI Dry Sorbent Injection FGD Flue Gas Desulfurization SCR Selective Catalytic Reduction PSO Northeastern Total MW 460 Total Retirements = 5,476MW 28

29 Pension & OPEB Liabilities Well Managed In addition to balance sheet deleveraging, significant funds were committed to improve the funded status of pension liabilities Discount rate for 2013 is 3.95% for both pension and OPEB; assumed rate of return on assets is 6.50% for pension and 7.00% for OPEB 100% 90% 80% 70% Qualified Pension Liability Funding 92% 88% 82% 75% 74% Contributions (in millions) $ - $ - $500 $450 $200 Modified post employment medical benefits for current employees, resulting in a reduction in the OPEB liability of $460M, or 21% $2,500 $2,000 OPEB Assets and Liabilities OPEBs Funded Status at December 31, 2012 is 90.8% Expect combined pension and OPEB costs (O&M and capital) to decrease by about $60M pre-tax from 2012 to 2013 $1,500 $1,000 OPEB Assets OPEB Liability Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Pension and OPEB funding and expense requirements significantly reduced 29

30 Forecasted Cash Flows and Financial Metrics $ in millions Cash from Operations - Excluding Bonus Depreciation Impact 3,038 3,580 3,500 Bonus Depreciation Impact Cash from Securitization Capital & JV Equity Contributions (3,600) (3,800) (3,800) Other Investing Activities (180) (280) (215) Common $1.88/share (916) (921) (926) Excess (Required) Capital (124) (811) (1,441) A: B: A: Cash inflows finance capital investment: Bonus Depreciation $ 952M Financing ($ in millions) Excess (Required) Capital (124) (811) (1,441) Debt Maturities (Senior Notes, PCRBs) (1,649) (995) (1,155) B: Securitization OH distribution assets ($320M) WV ENEC ($422M) OH deferred fuel ($450M) $1,192M Securitzation Amortizations (280) (350) (330) Interim Credit Facility 1, C: DRP/401k $ 300M Equity (DRP/401k) Debt Capital Market Needs (New) (953) (2,056) (2,826) C: 3-Year Total $2,444M Financial Metrics Debt to Capitalization Target FFO/Total Debt Target Mid 50s Mid -to- upper teens Cash needs are met through debt capital, securitization, bonus depreciation and the Dividend Reinvestment Plan 30

31 AEP s Financial Strength $ in millions $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $ Liquidity Summary New Year of Facility Expiration FFO to Interest Coverage FFO to Debt Credit Metrics 12/31/ x 18.7% 12/31/ x 19.9% Debt to Capitalization 55.3% 55.2% Previous Renewed (as of 2/13/13) Ohio Transition Facility On February 13, 2013, AEP: Repriced, upsized by $250 million and extended by one year the previous $1.5 billion core credit facility due June 23, 2015 Repriced and extended by one year the previous $1.75 billion core credit facility due July 26, 2016 Obtained a 27-month $1 billion unsecured delayed draw term loan facility for Ohio Power / AEP Generation Resources transition Liquidity increased and extended AEP Corporate Credit Ratings S&P Moody's Fitch BBB (Stable) Baa2 (Stable) BBB (Negative) Balance sheet remains stable at mid-50% debt to capitalization ratio 31

32 Long-term Debt Maturity Profile ($ in millions) Year AEP, Inc $550 AEP Generating Company - $ Appalachian Power $470 $204 $500 $65 $250 Indiana Michigan Power $98 $308 $265 $182 - Kentucky Power $325 Ohio Power $856 $404 $86 $350 - Public Service of Oklahoma - $34 - $150 - Southwestern Electric Power - - $304 - $250 Texas Central Company * $143 - $250 $192 $349 Texas North Company $ Total $1,792 $995 $1,405 $939 $1,724 * Includes $892 million of amortizing Texas Securitization Bonds based upon scheduled final payment date Includes mandatory tenders (put bonds) Data as of December 31,

33 Credit Metrics Trailing Twelve Months 12/31/2012 FFO Interest Coverage FFO to Debt GAAP Debt to Capitalization Senior Unsecured Credit Ratings* American Electric Power Company % 55.2% Baa2/BBB-/BBB Appalachian Power Company % 55.9% Baa2/BBB/BBB Indiana Michigan Power Company % 53.4% Baa2/BBB/BBB Kentucky Power Company % 54.0% Baa2/BBB/BBB Ohio Power Company % 46.0% Baa1/BBB/A- Public Service Company of Oklahoma % 50.9% Baa1/BBB/BBB+ Southwestern Electric Power Company % 50.3% Baa3/BBB/BBB AEP Texas Central Company % 82.1%** Baa2/BBB/A- AEP Texas North Company % 55.6% Baa2/BBB/A- * Moody s/s&p/fitch ** Includes securitization debt 33

34 Diversification Supports System Results Jurisdiction Authorized Rate Base Authorized ROE 12/31/12 Pro-forma Earned ROE AEP Ohio - Distribution $1,912MM 10.20% AEP Ohio - Transmission $952MM 11.49% 11.12% * APCo-Virginia $2,172MM 10.90% APCo-West Virginia $2,428MM 10.00% 9.38% KPCo-Kentucky $995MM 10.50% 11.08% I&M-Indiana $2,399MM 10.20% I&M-Michigan $663MM 10.20% 7.03% PSO-Oklahoma $1,706MM 10.15% 12.76% SWEPCO-Louisiana $649MM 10.57% SWEPCO-Arkansas $612MM 10.25% SWEPCO-Texas $665MM 10.33% 11.28% TCC-Texas $1,566MM 9.96% 14.47% TNC-Texas $530MM 9.96% 9.49% Note: Pro-forma Earned ROEs adjust GAAP results by eliminating any material nonrecurring items, represent a 12-month rolling calculation and are not weather normalized * - AEP Ohio ROE represents G, T, and D operations 34