American Electric Power Company, Inc. · NASDAQ:AEP
American Electric Power — Non-Deal Roadshow (September 2020)
52 slides from American Electric Power's roadshow presentation, Sep 17, 2020
Slide 1: UBS Roadshow
UBS Roadshow September 17, 2020
Slide 2: Safe Harbor Statement
“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: The Premier Regulated Energy Company
The Premier Regulated Energy Company 221,000 114 Years Miles of Distribution Leading the Way Forward 40,000 Miles of Transmission 5.5M Customers in 11 States $47B Rate Base 26GW Owned Generation $40B Current Market Capitalization 17,400 $76B Employees Total Assets Statistics as of December 31, 2019
Slide 4: AEP Leading the Way Forward
AEP Leading the Way Forward Confidence in Well Steady and Commitment Compelling Positioned Predictable to Growing Portfolio of as a Earnings Dividend Premium Sustainable Growth Rate Consistent Investment Regulated of with Earnings Opportunities Business 5%-7% UBS Roadshow | aep.com 3
Slide 5: Strategic Vision and Priorities
Strategic Vision and Priorities Invest in transmission and distribution networks Invest in regulated and contracted renewables Mitigate generation risk and optimize operations Superior capital allocation Relentless O&M optimization/Future of work Improve customer experience We are focused on executi
Slide 6: Key AEP Themes
KEY AEP THEMES ● 5%-7% Earnings Growth Rate ● Proven Track Record of TSR and EPS Performance ● Strong Dividend Growth ● O&M Optimization ● ESG Focus UBS Roadshow | aep.com 5
Slide 7: Strong Profile for Investors
Strong Profile for Investors Incentive Comp Tied to EPS Investment Pipeline Steady Growth TOTAL SHAREHOLDER RETURN 5%-7% ~3% EPS GROWTH DIVIDEND YIELD 2020 Operating Earnings 5%-7% CAGR Guidance $4.25-$4.45 per share Consistent Dividends Low Risk, Regulated Assets UBS Roadshow | aep.com 6
Slide 8: Proven Track Record of Performance
Proven Track Record of Performance Favorable Total Shareholder Return1 Decade of Meeting or Exceeding Original Guidance 1 Year 3 Year 5 Year 1 Data as of December 31, 2019 UBS Roadshow | aep.com 7
Slide 9: Strong Dividend Growth
Strong Dividend Growth Targeted $3.00 payout ratio 60-70% of $2.80 operating $2.80 earnings $2.71 $2.60 $2.53 $2.40 $2.39 Over 110 $2.20 $2.27 years of $2.15 consecutive $2.00 quarterly $2.03 $1.95 dividends $1.88 $1.80 $1.85 $1.71 $1.60 Targeted $1.40 dividend growth in line $1.20 with earnings 201
Slide 10: O&M Optimization
O&M Optimization Initiatives Actions • Employee based O&M prioritization and optimization effort Achieving Excellence Program • Drive down costs in 2020 and beyond • Program will leverage the experience of EHS Partners • Distribution – Drive enhanced reliability which will lead to reduced O&M cost a
Slide 11: ESG Focus
ESG Focus SO2 NOx • Dramatic reductions in emissions 97% 94% • E 38% reduction in coal capacity since 1999 • Carbon emission reduction goals: 70% by 2030, Hg CO2 80% by 2050, with zero emission aspirations • Emissions reduction strategy tied to long-term 97% 65% incentive compensation • Diversity an
Slide 12: Transforming Our Generation Fleet
Transforming Our Generation Fleet 80% 70% 70% 66% 60% 50% Capacity 44% 40% 37% 28% 30% 28% 25% 22% 20% 19% 17% 10% 8% 7% 6% 7% 4% 4% 1% 1% 3% 3% 0% 1999 2005 2020 Future 1999 2005 2020 Future 1999 2005 2020 Future 1999 2005 2020 Future 1999 2005 2020 Future Coal Natural Gas Nuclear Hydro, Wind, Sola
Slide 13: Retirement Progress and Plans
Retirement Progress and Plans ~24,800 MW ~13,200 MW1 ~12,100 2010 – 2019 Retirements/Sales MW Year Plant Capacity Year Plant Capacity ~9,500 MW 2011 Sporn 5 450 MW 2015 Sporn 1-4 600 MW 2012 Conesville 3 165 MW 2015 Tanners Creek 1-4 995 MW 2014 Beckjord 53 MW 2016 Big Sandy 1 278 MW 2015 Big Sandy
Slide 14: Projected Resource Additions and Progress
Projected Resource Additions and Progress Solar Additions (MW) Wind Additions (MW) Natural Gas Additions (MW) Total Projected Resource 2020- 2023- 2028- 2020- 2023- 2028- Additions (MW) Company Company 2020- 2023- 2028- 2022 2027 2030 2022 2027 2030 Company 2022 2027 2030 Resource 2020-2030 APCo 15
Slide 15: North Central Wind Overview
North Central Wind Overview SWEPCO and PSO Regulated Wind Investment Total Rate Base ~$2 billion (1,485 MW) Investment Name MW Investment In-Service Q1 2021 Sundance 199 $307M North Central Wind (100% PTC) Traverse 999 $1,287M EOY 2021 Maverick 287 $402M (80% PTC) Net Capacity Factor 44.0% Approved
Slide 16: Positioning for the Future Capital Investment Opportunities
POSITIONING FOR THE FUTURE CAPITAL INVESTMENT OPPORTUNITIES UBS Roadshow | aep.com 15
Slide 17: Robust Organic Capital Opportunities
Robust Organic Capital Opportunities Grid modernization, aging infrastructure, physical/cyber Transmission security, reliability, market efficiency and economic development projects Grid modernization, reliability improvement projects Distribution and distribution station refurbishment Regulated ren
Slide 18: 2020-2024 Capital Forecast of $35B and Net Plant
2020 - 2024 Capital Forecast of $35B and Net Plant 2020-2024 Capital Forecast Historical Net Plant Profiles Regulated New Generation Regulated Renewables $0.4 | 1% $2.1 | 6% Contracted Renewables Regulated Environmental $2.1 | 6% Generation $0.9 | 3% Regulated Fossil/Hydro Generation $0.8 | 3% Nucle
Slide 19: Cash Flows and Financial Metrics
Cash Flows and Financial Metrics $ in millions 2020E 2021E 2022E 2023E Cash from Operations $ 4,600 $ 4,800 $ 5,300 $ 5,800 Capital & JV Equity Contributions 1 (5,900) (8,200) (6,500) (6,500) Other Investing Activities (400) (100) (200) (200) Common Dividends 2 (1,400) (1,400) (1,500) (1,500) Excess
Slide 20: 7.9% CAGR in Rate Base Growth
7.9% CAGR in Rate Base Growth Cumulative Change from 2018 Base 2018 Rate Base Proxy $24.2B Vertically Integrated Utilities $24.3B T&D Utilities $10.9B Transcos/Transource $6.8B Total $42.0B $19.7B $7.5 $16.2B $6.0 $12.5B $5.1 $8.5 $4.0 $6.7 $8.9B $5.5 $2.7 $4.3 $4.7B $3.0 $1.4 $8.2 $7.0 $1.5 $5.6 $4
Slide 21: Efficient Cost Recovery Mechanisms
Efficient Cost Recovery Mechanisms Base Rates Historic 31% Trackers 28% Forward Trackers 34% Forward Rates 7% Nearly 70% of 2020-2024 capital plan recovered through reduced lag mechanisms UBS Roadshow | aep.com 20
Slide 22: Transmission Transformation
TRANSMISSION TRANSFORMATION UBS Roadshow | aep.com 21
Slide 23: AEP Transmission Strategy Framework
AEP Transmission Strategy Framework AEP STRATEGIC VISION: INVEST IN TRANSMISSION NETWORK Diverse five-year Delivering significant Disciplined execution: capital investment customer benefits: • Low cost, high portfolio of over • Higher reliability value solutions $15 billion across • Lower energy cos
Slide 24: AEP Transmission Holdco Legal Entity Structure
AEP Transmission Holdco Legal Entity Structure AEP INVESTS TRANSMISSION CAPITAL IN BOTH THE INTEGRATED OPERATING COMPANIES AND IN THE AFFILIATES HELD UNDER AEP TRANSMISSION HOLDING COMPANY AEP PROVIDES A STAND-ALONE EARNINGS FORECAST FOR AEP TRANSMISSION HOLDING COMPANY American Electric Power Compa
Slide 25: Five Year Transmission Capital Plan
Five Year Transmission Capital Plan 2020-2024 INVESTMENT BY RTO ($ MILLIONS)1 2020-2024 TRANSMISSION INVESTMENT BY CATEGORY ($ MILLIONS)1 $282 $1,414 $2,297 $2,158 $3,159 $6,480 $9,772 $4,894 Asset Replacement Local Reliability RTO Driven PJM ERCOT SPP Customer Service Telecommunication 1 Does not i
Slide 26: AEPTHC Target Earnings 2019-2022
AEPTHC Target Earnings 2019-2022 CUMULATIVE CAPITAL INVESTMENT ($ BILLIONS) EPS CONTRIBUTION 1.34-1.37 $/SHARE 1.21-1.24 1.06-1.09 1.05 0.75 $15 0.72 $13 0.54 $12 $10 0.39 $9 $7 $5 $4 2015A 2016A 2017A 2018A 2019A 2020F 2021F 2022F AEPTHC’S 2015 – 2022 EPS GROWTH PROJECTED AT A CAGR OF 19.4% UBS Roa
Slide 27: Stable Cost Recovery Framework
Stable Cost Recovery Framework PJM SPP ERCOT 10.35% (Includes RTO 10.5% (Includes RTO 9.4% (AEP Texas) ROE adder) adder) 9.6% (ETT) Allowed two updates per Forward Looking Rates Yes Yes year STABLE AND CLEAR WHOLESALE COST RECOVERY Equity Structure Capped at 55% No Cap Capped at 42.5% (AEP FOR TRANS
Slide 28: Significant Need For Asset Replacement
Significant Need For Asset Replacement Quantity that will Current Quantity Total Life Exceed Life Percent of AEP Type over Life Replacement Expectancy Expectancy in Next System Total Expectancy Need 10 Years Line Rebuilds 70 5,915 4,931 10,846 27% Transformers 60 223 124 347 28% Circuit Breakers 50
Slide 29: Utility Transformation
UTILITY TRANSFORMATION UBS Roadshow | aep.com 28
Slide 30: Identified Core Business Investments
Identified Core Business Investments Improve Improving Grow and Diversify Maintaining Strong Current State of Distribution Grid Reliability Balance Sheet the Business Balance Sheet • $1.8B of annual investment • $2.7B investment needed to maintain current assets 10-Year Incremental Distribution Capi
Slide 31: Robust Distribution Capital Expenditure Opportunities
Robust Distribution Capital Expenditure Opportunities Quantity that will Total Life Current Quantity Exceed Life Percent of AEP Type Replacement Expectancy over Life Expectancy Expectancy in Next 10 System Total Need Years Transformers 60 903 565 1,468 41% Circuit Breakers 50 1,030 842 1,872 21% ~ 2
Slide 32: Investing in Competitive Business
INVESTING IN COMPETITIVE BUSINESS UBS Roadshow | aep.com 31
Slide 33: Competitive Businesses Presence
Competitive Businesses Presence AEP Competitive Businesses Active in 31 States (7 State overlap with AEP Utilities) As of September 1, 2020 UBS Roadshow | aep.com 32
Slide 34: Development Pipeline and Repower Initiative
Development Pipeline and Repower Initiative Development Pipeline Repower Initiative Progress continues in our development Fowler Ridge 2 ends its PTC life by year- portfolio across three geographically end 2020. Cedar Creek 2 will end its PTC dispersed areas life in mid-2021. Flat Ridge 2 and Mehoop
Slide 35: Financial Information
FINANCIAL INFORMATION UBS Roadshow | aep.com 34
Slide 36: Regulated Returns
Regulated Returns Twelve Months Ended 6/30/2020 Earned ROE’s (non-GAAP operating earnings, not weather normalized) AEP OH1 11.1%2 I&M 10.6% Trans APCo1 PSO 9.8% 9.3% 9.4% SWEPCO 8.3% AEP TX 7.4% KPCo1 5.7% Regulated Operations ROE of 9.1% as of June 30, 2020 1 Base rate cases pending I 2 AEP Ohio RO
Slide 37: Current Rate Case Activity
Current Rate Case Activity AEP Ohio APCo – Virginia KPCo Docket #: 20-0585-EL-AIR Docket #: PUR-2020-00015 Docket #: 2020-00174 Filing Date: 06/01/2020 Filing Date: 03/31/2020 Filing Date: 06/29/2020 Requested Rate Base: $3.1B Requested Rate Base: $2.5B Requested Rate Base: $1.4B Requested ROE: 10.1
Slide 38: 2020 Financial Outlook
2020 Financial Outlook 2020 Earnings Guidance Range $4.25 - $4.45 2020 Guidance Commentary EEI Revised Retail Sales Growth 0.5% (3.4%) • Load forecast on track with Q1 2020 revised estimate • Slight improvement in Q2 2020 YTD 2020 Weather (vs. normal) - ($30M)1 • Favorable weather in July Untracked
Slide 39: Weather Normalized Billed Retail Load Trends
Weather Normalized Billed Retail Load Trends Load figures are provided on a billed basis. Charts reflect connected load and exclude firm wholesale load. Revised forecast assumes a gradual recovery over the remainder of the year. UBS Roadshow | aep.com 38
Slide 40: Bending the O&M Curve
Bending the O&M Curve O&M focuses on bending the O&M curve down O&M actual spend represents adjusted spend throughout each year as needed UBS Roadshow | aep.com 39
Slide 41: Capitalization and Liquidity
Capitalization and Liquidity Total Debt / Total Capitalization Credit Statistics Actual Moody’s GAAP Target Low to Mid FFO to Total Debt 14.1% 13.7% Teens Represents the trailing 12 months as of 6/30/2020 Liquidity Summary (unaudited) 6/30/2020 Actual $ in millions Amount Maturity Revolving Credit F
Slide 42: 2020 Debt Issuance and Maturities Overview
2020 Debt Issuance and Maturities Overview ($ in millions) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 AEG AEP, Inc. AEP Texas APCo I&M KPCo OPCo PSO SWEPCo Transco 2020 Maturities 2020 Expected Issuances UBS Roadshow | aep.com 41
Slide 43: Long-Term Debt Maturity Profile
Long-Term Debt Maturity Profile ($ in millions) Year 2020 2021 2022 2023 2024 2025 AEP, Inc. $ 500.0 $ 400.0 $ 1,105.0 $ - $ 299.0 $ - AEP Generating Company $ 150.0 $ - $ 45.0 $ - $ - $ - 1 AEP Texas $ 60.0 $ - $ 625.0 $ 125.0 $ - $ 300.0 AEP Transmission Company $ - $ 50.0 $ 104.0 $ 60.0 $ 95.0 $
Slide 44: AEP Credit Ratings
AEP Credit Ratings Moody's S&P Company Senior Senior Unsecured Outlook Unsecured Outlook American Electric Power Company Inc. Baa2 S BBB+ S AEP, Inc. Short Term Rating P2 S A2 S AEP Texas Inc. Baa2 S A- S 1 AEP Transmission Company, LLC A2 S A- S 2 Appalachian Power Company Baa1 S A- S 2 Indiana Mic
Slide 45: Environmental, Social & Governance
ENVIRONMENTAL, SOCIAL & GOVERNANCE UBS Roadshow | aep.com 44
Slide 46: Delivering Clean Energy Resources
Delivering Clean Energy Resources AEP's September 1, 2020 Renewable Portfolio (in MW) Hydro, Wind, Solar and Pumped Storage Owned MW PPA MW Total MW AEP Ohio 209 209 Appalachian Power Company 785 575 1,360 Indiana Michigan Power Company 36 450 486 Public Service Company of Oklahoma 1,137 1,137 South
Slide 47: Emission Reduction Goals
Emission Reduction Goals Environmental, Social and Governance (ESG) Reporting: AEP’s Corporate Accountability Report 1 Clean Energy Strategy: American Electric Power: Strategic Vision for a Clean Energy Future EEI ESG Sustainability Strategy to Achieve Reporting: AEP’s 2020 EEI ESG Investmen
Slide 48: Largest Investment in Controls
Largest Investment in Controls UBS Roadshow | aep.com 47
Slide 49: Dramatic Reductions in Emissions
Dramatic Reductions in Emissions 1990-2019 ACTUAL SO2 97% NOx 94% 2001-2019 ACTUAL Hg 97% UBS Roadshow | aep.com 48
Slide 50: Dramatic Reductions in Emissions
Dramatic Reductions in Emissions 2000-2019 Actual CO2 65% UBS Roadshow | aep.com 49
Slide 51: Diversity and Inclusion
Diversity and Inclusion UBS Roadshow | aep.com 50
Slide 52: Board and Leadership Composition
Board and Leadership Composition UBS Roadshow | aep.com 51
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