American Electric Power Company, Inc. · NASDAQ:AEP
American Electric Power — Morgan Stanley Utilities Conference 2013
34 slides from American Electric Power's conference presentation, Mar 7, 2013
Slide 1: Morgan Stanley Utilities Conference Handout
Morgan Stanley Utilities Conference Handout New York, NY March 7, 2013 1
Slide 2: Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
“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
Slide 3: Table of Contents
Table of Contents Topic Page Company Overview/Strategy 4 Transmission 11 Competitive Operations 14 Financial 21 3
Slide 4: AEP Investment Opportunity
AEP Investment Opportunity Clear regulated business model Stable dividend with an attractive defines AEP yield, supported by earnings from - Stable income and cash flows regulated operations - Significant investment opportunities in infrastructure upgrades to improve Strong balance sheet relia
Slide 5: Delivered Strong Utility Operations Results
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, 2012 5
Slide 6: Expected EPS Growth Rate
Expected EPS Growth Rate Expected EPS growth rate of 4 – 6% off of 2013 operating Expected Operating Earnings Per Share Growth Rate earnings guidance range 3.55 $3.15 - $3.45 Supported by rate base 3.45 growth of regulated 6% operations 3.35 $3.05 - $3.25 3.25 - Capital investment of $3.6B in 20
Slide 7: Regulated Business Growth Forecast
Regulated Business Growth Forecast Cumulative Change in Regulated Net Property, Plant & Equipment (PP&E) $10.0 2012 Net Regulated PP&E = $33.9B 6.9% CAGR in Net Regulated PP&E AEP Transmission Holdco $9.0 (excluding unconsolidated JVs) Transcos: Rate recovery via FERC formula rates $8.0 $7.5 ROEs 11
Slide 8: Fleet Transformation
Fleet Transformation 65% of our current fleet capacity comes from coal generation Environmental Transition Capital Plan 2012-2020 Anticipated coal capacity of 50% of the fleet by 2020 $ in billions $6 - 8 Estimated capital spend of $4 - $5 billion $5 - 7 between now and 2020 to make these rema
Slide 9: Repositioned Cost Profile
Repositioned Cost Profile Organizational and process optimization evaluation, including Utility O&M Trend five ‘deep dive’ areas of focus - Finance & Accounting $4,000 - Information Technology - Procurement/Supply Chain $3,500 - Generation $553 $607 - Organizational Effectiveness $3,000 $636 $754
Slide 10: Dividend Policy
Dividend Policy Dividend History Since 2004 Dividend statistics $/share - Current yield: 4.2% 2.00 - Current quarterly payment: $0.47/share $1.88 - Current payout ratio: 59.7% $1.84 - Growth of 3.8% per annum since 2004 1.80 - Paid 410 consecutive quarters $1.71 $1.64 $1.64 Targeted payout ratio
Slide 11: Transmission Outlook
Transmission Outlook 2013 – 2015 Earnings Forecast Based on Approved Projects Major Infrastructure Improvements PJM SPP ERCOT Total New / Enhanced Stations 340 71 68 479 * 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 m
Slide 12: Transmission ROEs and Incentives
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 Requested Incentive
Slide 13: Transmission Holdco Business Growth
Transmission Holdco Business Growth Cumulative Transmission Holdco Net Property, Plant & Equipment 2010 Net PP&E = $50M AEP Transmission Holdco 124% CAGR in Net Transmission Holdco PP&E (excluding unconsolidated JVs) $2.8 Transcos and Transource Regulated by FERC $2.2 Revenue requirement reset a
Slide 14: Building a Competitive Platform
Building a Competitive Platform Achieve corporate separation in Ohio by Corporate January 1, 2014 Operational Metrics Integrate competitive generation with retail and wholesale businesses Power Retail Generation Conservative capitalization; maintain Integrated investment grade credit metrics B
Slide 15: AEP Generation Resources Footprint
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
Slide 16: Dispatch Costs; Expected Generation
Dispatch Costs; Expected Generation Generation from fleet expected to be in the range of 40-45 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
Slide 17: Business As Usual (BAU) - Transition - Market
Business As Usual (BAU) -Transition - Market 2015 2013 2014 2016 Jan-May June-Dec FRR FRR FRR Capacity PJM PJM Capacity Capacity Capacity revenue per revenue per revenue per RPM RPM ESP Market Market ESP ESP 60% slice of 10% slice of 100% slice No SSO No SSO system SSO Load system auction auction of
Slide 18: 2014 Sales Opportunity; AEP Energy
2014 Sales Opportunity; AEP Energy 2014 Energy Sales AEP Energy – 2012 Performance Opportunity MD/DE/DC NJ PA 4% 1% Acquired BlueStar Energy 7% 168,000 retail customers Short Term 15 - 20% Served 7.5 TWh of load Seven states, focus on Ohio IL Profitable in first year Financial Instruments
Slide 19: Capital Expenditures
Capital Expenditures Environmental Control Profile Conesville Muskingum Gavin Cardinal Conesville 4 Zimmer Stuart OVEC 5&6 River 5 No SCR NOx SCR SCR SCR SCR SCR SCR SCR planned Refuel SO2 FGD FGD FGD with NG by FGD FGD FGD FGD 2017 Refuel Mercury/ SCR, FGD SCR, FGD SCR, FGD SCR, FGD SCR, FGD SCR, F
Slide 20: Financing AEP Generation Resources
Financing AEP Generation Resources Closed on 27-month $1B bank loan to fund Ohio Power maturities this year Expected Initial Capitalization Expect AEP Generation Resources to be capitalized conservatively; company will look investment grade but will not be rated initially Debt 35% - 40% Initia
Slide 21: 2013 Operating Earnings Guidance
2013 Operating Earnings Guidance 2012A 2013E 2013 Operating Earnings Guidance Range: $3.05 - $3.25 per share 21
Slide 22: Detailed Operating Earnings Guidance
Detailed Operating Earnings Guidance American Electric Power 2012A: $3.09 2013E: $3.05 - $3.25 Financial Results for 2012 Actual Vs 2013 Guidance 2012 Actual 2013 Guidance Performance Driver ($ millions) Performance Driver ($ millions) UTILITY OPERATIONS: Gross Margin: 1 East Regulated Integrated Ut
Slide 23: Normalized Retail Load Trends
Normalized Retail Load Trends AEP Residential Normalized GWh Sales AEP Commercial Normalized GWh Sales %Change vs. Prior Year %Change vs. Prior Year AEP Industrial Normalized GWh Sales AEP Total Normalized GWh Sales %Change vs. Prior Year %Change vs. Prior Year 10% 5% 0.6% 0.5% 0% -0.4% -0.8% -1.2%
Slide 24: Identified Load Increases
Identified Load Increases 2013 Expansions Monthly GWh Date of Jurisdiction Industry Impact 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 Ga
Slide 25: 2012 and 2013 Capital & Equity Contributions
2012 and 2013 Capital & Equity Contributions 2012A: $3.1B 2013E: $3.6B Excluding AFUDC Excluding AFUDC $ in millions $ in millions Transco/JV spend increasing 48% New Generation spend decreasing 88% Nuclear spend increasing 42% Environmental spend increasing 126% Incremental capital allocate
Slide 26: 2013 Capital by Operating Company
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
Slide 27: 2013 Key Assumptions & Sensitivities
2013 Key Assumptions & Sensitivities Sensitivities OSS Assumptions, net of sharing Sensitivity EPS Retail Sales 0.5% +/- 0.04 Customer Switching in Ohio (net of capacity deferral) 4.0% +/- 0.03 26,715 33,600 GWH GWH Wholesale Market Prices $1 MWh +/- 0.03 O&M Expense (excludes O&M w ith offsets) 1.0
Slide 28: MATS Environmental Investments & Retirements
MATS Environmental Investments & Retirements Potential Environmental Investments Projected Plant Retirements through 2016 Operating Potential Type of Operating Expected Company Plant MW retrofit Company Plant MW Retirement AEP Ohio(1) Conesville 5 & 6 800 ACI APCO Glen Lyn 5 95 2015 Muskingum River
Slide 29: Pension & OPEB Liabilities Well Managed
Pension & OPEB Liabilities Well Managed In addition to balance sheet deleveraging, Qualified Pension Liability Funding significant funds were committed to 100% improve the funded status of pension 92% liabilities 88% 90% 82% Discount rate for 2013 is 3.95% for both 80% pension and OPEB; assumed
Slide 30: Forecasted Cash Flows and Financial Metrics
Forecasted Cash Flows and Financial Metrics $ in millions 2013 2014 2015 Cash from Operations - Excluding Bonus Depreciation Impact 3,038 3,580 3,500 Bonus Depreciation Impact A: 792 160 - Cash from Securitization 742 450 - B: Capital & JV Equity Contributions (3,600) (3,800) (3,800) Cash inflows Ot
Slide 31: AEP's Financial Strength
AEP’s Financial Strength Liquidity Summary Credit Metrics $2,000 $1,750 12/31/2011 12/31/2012 $1,500 FFO to Interest $ in millions $1,250 New Coverage 4.5x 4.6x $1,000 $750 $500 FFO to Debt 18.7% 19.9% $250 $‐ Debt to 2015 2016 2017 Capitalization 55.3% 55.2% Year of Facility Expiration Previous Ren
Slide 32: Long-term Debt Maturity Profile
Long-term Debt Maturity Profile ($ in millions) Year 2013 2014 2015 2016 2017 AEP, Inc. - - - - $550 AEP Generating Company - $45 - - - 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
Slide 33: Credit Metrics
Credit Metrics Trailing Twelve Months 12/31/2012 Senior Unsecured FFO Interest GAAP Debt to Credit Coverage FFO to Debt Capitalization Ratings* American Electric Power Company 4.56 19.9% 55.2% Baa2/BBB-/BBB Appalachian Power Company 4.34 17.0% 55.9% Baa2/BBB/BBB Indiana Michigan Power Company 4.53 2
Slide 34: Diversification Supports System Results
Diversification Supports System Results Jurisdiction Rate Base Approved ROE Approved Debt/Equity Effective Date AEP Ohio - Distribution $1,912MM 10.20% 47/53 1/1/2012 AEP Ohio - Transmission $952MM 11.49% 47/53 7/1/2012 APCo-Virginia $2,172MM* 10.90% 57/43 2/1/2012 APCo-West Virginia $2,428MM 10.00%
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