Bank of America Merrill Lynch Power & Gas Leaders Conference. September 16, 2014 Boston, MA

Transcription

1 Bank of America Merrill Lynch Power & Gas Leaders Conference September 16, 2014 Boston, MA

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 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 forwardlooking 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 Contact Bette Jo Rozsa Managing Director bjrozsa@aep.com 2

3 Table of Contents AEP Overview p 4 Capital Spending/Rate Base Growth p 6 Earnings Guidance, Dividends and Financing Plan p 8 Rate Cases, Earned ROEs, Load p 15 AEP Transmission Holdco p 19 Competitive Business p 22 3

4 American Electric Power Company Overview $58B TOTAL ASSETS 5.3M CUSTOMERS IN 11 STATES $26B CURRENT MARKET CAPITALIZATION 38GW OWNED GENERATION 40,000+ LINE MILES OF TRANSMISSION Note: Statistics as of June 30, 2014, except market capitalization which is as of September 5,

5 Management Focus 2014 Focus 5

6 Capital Spending Forecast Capital & Equity Contributions $ in millions, excluding AFUDC $4.2B: 2014 $3.8B: 2015 & 2016 Regulated Generation Investment - $2.8B Regulated Distribution Investment - $3.3B Competitive Operations: $536 4% AEP Transmission Holdco: $2,634 22% Regulated Environmental Generation: $1,402 12% Transmission: $2,196 19% Distribution: $3,341 28% Corporate: $315 3% Regulated Transmission Investment - $4.8B Nuclear Generation: $686, 6% Regulated Fossil/Hydro Generation: $698 6% 96% of capital allocated to regulated businesses; 69% allocated to wires 6

7 Regulated Rate Base Growth Cumulative change from 2012 base TRANSCOS/TRANSOURCE WIRES COMPANIES VERTICALLY INTEGRATED UTILITIES 2012 Net Regulated Plant = $33.2B 7.4% CAGR in Net Regulated Plant 7

8 Forecasted Growth in Operating Earnings Per Share 4 6% Forecasted Annual Earnings Growth Rate 2014E: $3.35 $ E: $3.30 $ E: $3.45 $3.85 Earnings growth achieved through capital investment and rate recovery, identified sustainable cost savings and O&M spending discipline EPS Growth + Dividend Yield = 8 10% Annual Return Opportunity 8

9 * Subject to approval by Board of Directors Dividend Targeted payout ratio of 60-70% of consolidated earnings Supported by earnings from regulated operations Paid 417 consecutive quarters 9

10 Financing Plan & Credit Metrics $ in millions 2014E 2015E 2016E Cash from Operations - (adjusted for items listed below) 4,098 4,471 4,599 Impact of Bonus Depreciation Federal Cash Taxes Paid (396) (698) (830) Cash from Securitization* Anticipated Cash Flows Cover Planned Capital Investment While Maintaining Solid Credit Metrics: Capital & Equity Contributions (3,800) (3,800) (3,800) Other Investing Activities (267) (273) (179) Common $2.00/share ** (979) (983) (988) Excess (Required) Capital (641) (1,133) (1,198) Financing ($ in millions) 2014E 2015E 2016E Excess (Required) Capital (641) (1,133) (1,198) Debt Maturities (Senior Notes, PCRBs) (1,090) (1,323) (715) Securitization Amortizations (316) (371) (380) Interim Credit Facility*** - (1,000) - Equity Issuances (DRP/401K) Debt Capital Market Needs (New) (1,947) (3,727) (2,193) Financial Metrics Debt to Capitalization Target Mid 50s FFO/Total Debt Target**** Mid -to- Upper teens Bonus Depreciation $459M Securitization $394M* DRP $300M 3-year total = $1,153M *Comprised of the following securitizations: $394MM OH deferred fuel (subject to regulatory approval) **Assumes current quarterly dividend of $0.50 per share; dividend evaluated by board of directors each quarter; stated target payout ratio range is 60-70% ***Interim credit facility matures May 2015; all or a portion of the facility may be repaid prior to maturity date ****Excludes securitization debt 10

11 Capitalization & Liquidity Total Debt / Total Capitalization Credit Statistics Actual Target FFO Interest Coverage 5.0 >3.6x FFO to Total Debt 20.3% 15%-20% Note: Credit statistics represent the trailing 12 months as of 06/30/2014 Liquidity Summary 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 Strong balance sheet, solid credit metrics and adequate liquidity 11

12 AEP & Subsidiaries Credit Ratings Current Ratings for AEP, Inc. & Subsidiaries Moody's S&P Senior Senior Company Unsecured Outlook Unsecured Outlook American Electric Power Company Inc. Baa1 S BBB- S AEP, Inc. Short Term Rating P2 S A2 S AEP Texas Central Company Baa1 S BBB S AEP Texas North Company Baa1 S BBB S Appalachian Power Company Baa1 S BBB S Indiana Michigan Power Company Baa1 S BBB S Kentucky Power Company Baa2 S BBB S Ohio Power Company Baa1 S BBB S Public Service Company of Oklahoma A3 S BBB S Southwestern Electric Power Company Baa2 S BBB S Ratings current as of June 30,

13 Long-term Debt Maturity Profile ($ in millions) Year AEP, Inc $550 - AEP Generating Company $45 - Appalachian Power $100 $386 $170 $375 - Indiana Michigan Power $5 $301 $118 - $100 Kentucky Power - $200 - $390 - Ohio Power* - - $350 $165 $350 Public Service of Oklahoma - - $ Southwestern Electric Power - $304 - $250 $382 Texas Central Company** - $136 $252 $229 $437 Texas North Company - - $75 - $30 AEP Generation Resources $89 $579 $ Total $194 $1,906 $1,365 $2,004 $1,299 * Includes $165 million of amortizing Ohio Securitization Bonds based upon scheduled final payment date ** Includes $913 million of amortizing Texas Securitization Bonds based upon scheduled final payment date Includes mandatory tenders (put bonds) Data as of June 30,

14 Capital Forecast by Subsidiary ($ in millions - excluding AFUDC) 2014E 2015E 2016E Total Appalachian Power $527 $539 $550 $1,616 Wheeling Power $14 $11 $18 $43 Indiana Michigan Power $469 $453 $483 $1,405 Kentucky Power $105 $112 $96 $313 Ohio Power $444 $403 $393 $1,240 Public Service Co of OK $347 $342 $307 $996 Southwestern Electric Power $488 $542 $378 $1,408 Texas Central $394 $356 $311 $1,061 Texas North $112 $125 $127 $364 AEP Generating $53 $48 $58 $159 AEP Transmission Holdco $995 $734 $904 $2,633 Competitive Operations $191 $158 $187 $536 Other $11 $13 $11 $35 Total Capital & Equity Contributions $4,150 $3,836 $3,823 $11,809 14

15 2014 Announced Rate Cases Oklahoma Settlement filed June 17, 2014 Rate increase related to AMI Rider - $7M in 2014; $17M in 2015; $27M in 2016 ROE for AFUDC purposes of 9.85% Order expected early October Rates effective Nov. 1, 2014 Virginia Biennial review filed March 31, 2014 Two-year earnings test period ended Dec. 31, 2013 No rate increase requested; Earned ROE of 10.8% for two year period; within allowed earnings band Staff testimony argues APCo achieved a 12.85% ROE thereby supporting a refund to customers of $22.5M; the recommended prospective ROE is 9.3% (range of 8.8% to 9.8%) Hearings commenced Sept. 16, 2014 Rates effective Feb. 2015, if any change occurs West Virginia Base rate case filed June 30, 2014 Requested increase of $226M with an ROE of 10.62% Intervenor and Staff testimony due Dec. 8, 2014 Hearing commences Jan. 15, 2015 Order due Apr. 26, 2015 Kentucky Base rate case due to be filed no later than December 2014 Rates can be implemented subject to refund six months after filing of case 15

16 Earned ROEs 12 Months Ended 06/30/2014 ROEs are based on operating earnings (GAAP excluding special items) and are not adjusted for the impacts of weather 16

17 Normalized Load Trends AEP Residential Normalized GWh Sales %Change vs. Prior Year AEP Commercial Normalized GWh Sales %Change vs. Prior Year 5% 0% -0.1% 0.9% 4.4% -1.5% 1.8% 5% 0% 1.2% 0.2% 2.9% 0.4% 1.6% -5% -1.8% -5% -2.2% -10% 2Q13 3Q13 4Q13 1Q14 2Q14 YTD14-10% 2Q13 3Q13 4Q13 1Q14 2Q14 YTD14 5% 0% -5% -10% -3.0% -1.2% -5.2% AEP Industrial GWh Sales %Change vs. Prior Year 1.6% -3.8% -3.2% -2.9% 2.2% 4.5% -0.5% Note: Line represents Industrial excluding Ormet 3.4% -1.6% 2Q13 3Q13 4Q13 1Q14 2Q14 YTD14 5% 0% -5% -10% -1.9% AEP Total Normalized GWh Sales %Change vs. Prior Year -0.7% 0.9% 3.2% -2.7% -1.5% -0.8% 1.5% 1.3% -0.5% 2.3% 0.6% Note: Line represents Retail excluding Ormet 2Q13 3Q13 4Q13 1Q14 2Q14 YTD14 Note: Charts reflect connected load and exclude firm wholesale load & Buckeye Power backup load. 17

18 GWh Growth vs PY GWh Growth vs PY Industrial Class Data 50% 40% 30% 20% 10% 0% -10% 9% AEP Industrial Sales Growth Shale Counties * Non-Shale Counties 17% -3.5% -3.8% 28% 30% 39% -0.7% -1.7% -1.6% Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 * Excluding Ormet AEP Shale Gas Counties 60% 50% 40% 30% 20% 10% 0% -10% -20% Industrial Sales Growth in Shale Regions Eagle Ford (TX) Marcellus (WV) Permian (TX) Utica (OH) Woodford (OK) Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Shale Counties in AEP service territory Non-Shale Counties in AEP service territory Shale gas development drives industrial load growth 18

19 AEP Transmission Holdco Organizational Structure $8 Net Plant* ($ in millions) $25 Equity Investment in PWT* ($ in millions) $73 Net Plant* ($ in millions) $2,240 Net Plant* ($ in millions) $347 Net Plant* ($ in millions) $1,116 Net Plant* ($ in millions) $377 Net Plant* ($ in millions) $141 Net Plant* ($ in millions) Note: Private placement financing has occurred at Electric Transmission Texas, LLC and AEP Transmission Company, LLC * As of 6/30/

20 AEP Transmission Holdco Cumulative Base Case Capital Investment High Case Incremental Capital Investment 4 types of projects: Regional projects for retirements, renewables, economic and market efficiencies Local reliability plans Aging infrastructure Customer-driven projects $0.51 $0.67 $0.80 $0.67 $0.39 $0.57 EPS Base Case Contribution $/share $0.38 $0.45 EPS High Case Contribution $/share $0.16 $0.30 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 20

21 Electric Transmission Texas, LLC ETT is a rate-regulated transmission-only electric utility that builds, owns and operates transmission assets solely within the Electric Reliability Council of Texas under the regulation of the Public Utility Commission of Texas ETT is owned 50% by a subsidiary of AEP and 50% by Berkshire Hathaway Energy Corp. ETT s authorized return on equity is 9.96% with a 60/40 debt to equity capital structure ETT has over $2 billion of in-service transmission facilities and is currently forecasted to add almost $1 billion in new in-service transmission assets over the next ten years On May 12, 2014, Moody s assigned ETT a new Baa1 rating with a stable rating outlook. Moody s states the rating reflects the low business risk nature of a transmission company operating within a transparent and constructive regulatory environment with supportive strategic sponsors. On June 27, 2014, ETT began paying a dividend to its owners 21

22 Competitive Business Organizational Structure AEP Co, Inc. AEP Energy Supply AEP Resources AEP Generation Resources (AGR) PJM Generation AEP Energy Partners Wholesale, Trading & Marketing AEP Energy Retail AEP River Operations AEP Energy Supply integrates the competitive generation, wholesale and retail businesses 22

23 AEP Energy Supply Timeline Optimize Revenues/Reduce Costs 2013 Corporate Separation completed December 31, February 25 AEP Ohio load auction: 10% March WV filing to address Wheeling Power capacity/energy needs May RPM 2017/18 Auction 2015 May 31 - ESP II transition ends June - Retire 2,523MW Obtain permanent financing Rationalize Capacity 2016 Fully Competitive Operations May 6 AEP Ohio load auction: 25% September 9 AEP Ohio load auction: 25% November 18 AEP Ohio load auction: 40% Fleet is well-positioned from a cost and operational perspective to participate in the competitive market 23

24 AEP Generation Resources: PJM Fleet Profile Transfer Fuel Profile Retire Retain Gas, CT 5.8% Hydro 0.6% Gas, CC 23.4% Coal, Controlled 70.2% Fixed Resource Requirement RPM AGR has the competitive advantage of fuel and operational diversity 24

25 $ per MWh, Dispatch Cost AEP Generation Resources: Expected Generation $ Dispatch Stack Darby Peak $40 $30 ATC Off Peak Zimmer* Mitchell Waterford Lawrenceburg Conesville Generation from fleet expected to be in the range of million MWh Stuart* Gavin Cardinal $ Installed Capacity (MW) Note: post-retirement view of generation stack; includes estimated fuel, emissions and consumables costs * Non-AEP operated JV plants reflect AEP estimate of fuel and other variable costs Fleet is well-positioned from a cost and operational perspective to participate in the competitive market 25

26 Energy Sales Opportunities 2014 Energy Sales Opportunity AEP Energy (Retail) Profile Short Term 15-20% Financial Instruments Wholesale Customers (Muni, Co-op, Utility Auction) 15-30% OH 69% MD 1% PA 5% 2Q14 Delivered Load NJ 4% IL 21% Residential, 18% C&I, 82% Unswitched AEP Ohio Retail Customers 25-35% Competitive Retail Customers 25-30% Currently serving 234,000 customers Served 2.7 TWh of load in 2Q14 Provide hedging opportunities for AGR Customer growth in western PJM 80% of expected Gross Margin in 2014 is secured by Ohio Electric Security Plan and energy hedges; AEP Energy will complement the sales opportunity for the competitive generation fleet 26

27 AEP Energy Supply: Earnings & Cost Management Estimated ($ in millions) Range 2016 Range Energy/Capacity Gross Margin $1,100 $825 - $925 $600 -$725 Costs EBITDA $675 $435 - $535 $245 - $370 Capital Expenditures Net Cash Flow* $495 $290 - $390 $65 -$190 * Excludes income taxes, interest and changes in working capital $490 Cost Trend ($ in millions) $425 $60 $40 $355 $5 $430 $385 $ Average Ongoing Disposition Units 27