American Electric Power Company, Inc. · NASDAQ:AEP
American Electric Power — Investor Day (November 2016)
52 slides from American Electric Power's investor day presentation, Nov 1, 2016
Slide 1: Analyst & Investor Meeting
ANALYST & INVESTOR MEETING New York, NY | November 1, 2016
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: Meet the team
Meet the team Nick Akins CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER Robert Powers Brian Tierney EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT AND AND CHIEF OPERATING OFFICER CHIEF FINANCIAL OFFICER Charles Zebula Lisa Barton EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT ENERGY SUPPLY TR
Slide 4: The Premier Regulated Energy Company
THE PREMIER REGULATED ENERGY COMPANY Analyst & Investor Meeting | aep.com 3
Slide 5: Doing What We Said
DOING WHAT WE SAID Completed strategic Reinvesting Growing review of proceeds regulated competitive wisely businesses assets Analyst & Investor Meeting | aep.com 4
Slide 6: AEP Going Forward
AEP GOING FORWARD Well positioned Growing Earnings as a regulated dividend growth rate business consistent 5-7% with earnings Analyst & Investor Meeting | aep.com 5
Slide 7: Before & After
BEFORE & AFTER Investor focus on competitive Resolved competitive generating assets asset concerns Questions about Increased investment in use of proceeds transmission and renewables Regulated and unregulated Regulated business model business mix Predictable earnings and higher Earnings volatility g
Slide 8: Organic Investment Opportunity Equals Increased Growth
ORGANIC INVESTMENT OPPORTUNITY EQUALS INCREASED GROWTH 2017 RESET OF BASE: $4.50 2016 Original Guidance for Regulated $3.30 4%-6% Growth Rate 0.17 2017 Regulated Earnings $3.47 Earnings from remaining G&M business 0.09 $4.25 Earnings from assets sold through Q1 2017 0.09 Midpoint of 2017 guidance $3
Slide 9: Strong, Consistent Dividend Growth
STRONG, CONSISTENT DIVIDEND GROWTH $2.50 $2.36 $2.27 $2.00 $2.15 $2.03 $1.95 $1.50 $1.00 $0.50 $0.00 2013 2014 2015 2016 2017* * Subject to Board approval Analyst & Investor Meeting | aep.com 8
Slide 10: The Premier Regulated Energy Company
THE PREMIER REGULATED ENERGY COMPANY HIGHER HIGHER growth dividends MORE MORE regulated certainty Analyst & Investor Meeting | aep.com 9
Slide 11: Positioning for the Future
POSITIONING FOR THE FUTURE EXECUTIVE VICE PRESIDENT AND Brian Tierney CHIEF FINANCIAL OFFICER Analyst & Investor Meeting | aep.com 10
Slide 12: Asset Impairment Impact
ASSET IMPAIRMENT IMPACT Assets: Ohio (Cardinal, Conesville 4-6, Stuart, Zimmer) and others Pre-tax impairment of $2.3 Billion After-tax impairment of $1.5 Billion GAAP EPS impact of $2.98 per share Remaining net book value of $50 Million Analyst & Investor Meeting | aep.com 11
Slide 13: Third Quarter Results
THIRD QUARTER RESULTS THIRD QUARTER DRIVERS $1.30 $1.06 $1.06 Q3 2016 GAAP results driven by asset impairment 2015 2015 2016 Operating earnings results: 2016 Favorable weather added 7 cents per share Rate changes contributed incremental earnings of 9 cents per share O&M was favorable by 9 cents per
Slide 14: Year-to-Date Results
YEAR-TO-DATE RESULTS Raising and narrowing 2016 operating earnings guidance range to $3.75 - $3.85 YEAR-TO-DATE DRIVERS $3.22 $3.21 $3.27 YTD 2016 GAAP results driven by asset impairment Operating earnings: Rate changes and decreased O&M added 18 cents and 9 cents per share, respectively, partially
Slide 15: Asset Sale Details
ASSET SALE DETAILS Assets: Gavin, Lawrenceburg, Waterford, Darby [5,200 MW] Sales Price $2.2 Billion AGR debt - 0.3 Lawrenceburg debt - 0.2 @ 55% debt leverage Taxes - 0.5 Net Proceeds $1.2 Billion $2.2 Billion After-tax gain: Approximately $150 Million to be recorded at close Transaction expected t
Slide 16: Use of Sales Proceeds
USE OF SALES PROCEEDS WISELY INVESTING IN TRANSMISSION & RENEWABLES Use of $2.2 Billion Levered Sales Proceeds Regulated Transmission Regulated $9.0B Transmission $7.4B Regulated Distribution Regulated $3.8B Distribution $3.8B Regulated Regulated Generation Generation $2.7B $2.6B Corporate Corporate
Slide 17: Capital Forecast
CAPITAL FORECAST $17.3B Cap-ex from 2017-2019 Contracted Renewables $1.0B | 6% Regulated Renewables $0.5B | 3% Regulated Environmental Generation 100% $1.0B | 6% Regulated AEP Transmission Fossil & Hydro Generation $0.9B | 5% Holdco $4.7B | 27% of capital allocated to Nuclear Generation regulated bu
Slide 18: Solid Credit Metrics
SOLID CREDIT METRICS AEP Consolidated Cash Flows and Financial Metrics $ in millions 2016E 2017E 2018E 2019E Cash from Operations 4,500 4,400 4,800 5,000 Capital & JV Equity Contributions (5,000) (5,700) (6,000) (5,600) Other Investing Activities * (300) 1,800 (200) (200) Common Dividends ** (1,100)
Slide 19: Solid Credit Metrics
SOLID CREDIT METRICS AEP Consolidated Cash Flows and Financial Metrics $ in millions 2016E 2017E 2018E 2019E Cash from Operations 4,500 4,400 4,800 5,000 No planned equity issuance Capital & JV Equity Contributions Other Investing Activities * (5,200) (100) (5,700) 1,800 (6,000) (200) (5,700) (100
Slide 20: 7.7% CAGR in Rate Base
7.7% CAGR IN RATE BASE CUMULATIVE CHANGE FROM 2015 BASE 2015 Rate Base Proxy Vertically Integrated Utilities $21.9B $11.4B T&D Utilities $7.8B Transcos/Transource $3.1B Total $32.8B $8.3B $4.8 $3.4 $5.1B $3.4 $2.2 $2.4 $2.3B $0.9 $1.5 $3.2 $0.5 $2.5 $0.9 $1.4 2016E 2017E 2018E 2019E Vertically Integ
Slide 21: 2017 Operating Earnings Guidance Range of $3.55 - $3.75/Share
2017 OPERATING EARNINGS GUIDANCE RANGE OF $3.55 - $3.75/SHARE Transcos $0.07 Rate Changes $0.17 JV’s ($0.03) OSS $0.03 O&M $0.04 Rate Changes $0.08 O&M $0.02 Renewables $0.01 Other $0.01 Normal Load $0.01 Weather ($0.01) Gen Res/Sale ($0.31) Depreciation ($0.06) Reg Prov ($0.03) of Plants Int/AFUDC
Slide 22: Normalized Load Trends
NORMALIZED LOAD TRENDS AEP TOTAL NORMALIZED GWH SALES % Change vs. Prior Year 3.0% 1.0% 1.0% 0.6% 0.2% -1.0% -0.8% -1.6% -3.0% 2013A 2014A 2015A 2016E* 2017E *2016 includes 9 months weather normalized actual results plus 3 months forecasted values. Analyst & Investor Meeting | aep.com 21
Slide 23: Normalized Load Trends
NORMALIZED LOAD TRENDS AEP Residential GWH Sales AEP Commercial GWH Sales % Change vs Prior Year % Change vs Prior Year AEP Industrial GWH Sales AEP Total GWH Sales % Change vs Prior Year % Change vs Prior Year *2016 includes 9 months weather normalized actual results plus 3 months forecasted values
Slide 24: Continuous Improvement Enables O&M Discipline
CONTINUOUS IMPROVEMENT ENABLES O&M DISCIPLINE $ Billions $3.5 $3.0 $3.0B $3.1B $3.0B $3.0B $3.0B $2.5 $2.8B $2.8B $2.0 $1.5 $1.0 $0.5 $0.0 2011A 2012A 2013A 2014A 2015A 2016E 2017E Excluding items recovered in riders/trackers Analyst & Investor Meeting | aep.com 23
Slide 25: Investing in Transmission
INVESTING IN TRANSMISSION EXECUTIVE VICE PRESIDENT Lisa Barton AEP TRANSMISSION Analyst & Investor Meeting | aep.com 24
Slide 26: AEP Transmission Manages the Largest Diverse Transmission Portfolio
AEP TRANSMISSION MANAGES ATHE DIVERSE LARGEST PORTFOLIO TRANSMISSION NETWORK IN NORTH AMERICA AEP Transmission Business Joint Operating Transcos Ventures Companies OH Transco ETT APCo $2,070M $2,828M $2,328M WV Transco Transource I&M $621M $299M $1,057M IM Transco Pioneer OPCo $1,087M $66M $1,533M O
Slide 27: AEPTHC Capital and EPS Forecast for 2016-2019
AEPTHC CAPITAL AND EPS FORECAST FOR 2016-2019 12 $0.89 - $0.92 0.95 Cumulative capital investment of $0.76 - $0.79 0.85 10 nearly $10 billion to grow EPS at a CAGR of 39% through 2019 $9.9B 0.75 $0.56 - $0.59 0.65 8 $0.51 - $0.55 $8.3B 0.55 6 $0.39 $6.7B 0.45 $0.31 $5.2B 0.35 4 $4.0B 0.25 $0.16 $0.0
Slide 28: $3 Billion Annual Transmission Investment
$3 BILLION ANNUAL TRANSMISSION INVESTMENT Improving reliability by replacing aging infrastructure Enhancing resiliency to combat extreme weather and increasing physical security Integrating renewables and supporting environmental mandates Relieving congestion to support an efficient generation marke
Slide 29: Significant Pipeline of Investment Driven by Aging Infrastructure
SIGNIFICANT PIPELINE OF INVESTMENT DRIVEN BY AGING INFRASTRUCTURE $2.5B investment per year is required to maintain the current asset age profile AEP T- LINE AGE PROFILE AEP TRANSFORMER AGE PROFILE Life Avg Age Life Avg Age Expectancy Expectancy Life Expectancy Average Age Life Expectancy Average Ag
Slide 30: Significant Organic Investment Runway
SIGNIFICANT ORGANIC INVESTMENT RUNWAY Quantity that will Current quantity Total Renewal Life exceed over Opportunity Expectancy Life Expectancy Life Expectancy over ten years in next ten years Line Miles 70 7,145 5,575 12,720 Transformers 60 1,396 739 2,135 Circuit Breakers 50 2,001 2,461 4,462 Anal
Slide 31: Aging Infrastructure Projects
AGING INFRASTRUCTURE PROJECTS Coalwood Station Berwind Station Retirement of 1910s vintage 88kV system serving McDowell County, West Virginia and Tazewell County, Virginia Rebuilt as 138kV with 35 miles of new lines and station upgrades $143 million project cost Corrects thermal overloads and low vo
Slide 32: Regional Reliability Project
REGIONAL RELIABILITY PROJECT Cloverdale Station New 28-acre substation and new lines to support regional reliability driven by large-scale generation retirements $235 million project cost Corrects thermal overloads, voltage problems and improves congestion Analyst & Investor Meeting | aep.com 31
Slide 33: Local Reliability Project
LOCAL RELIABILITY PROJECT Marcellus area improvements New 138kV loop and two new 138/12kV stations $40 million project cost Improves reliability in the Marcellus area and addresses low voltage issues Supports economic and shale gas development Analyst & Investor Meeting | aep.com 32
Slide 34: Customer Load Growth Project
CUSTOMER LOAD GROWTH PROJECT Lower Rio Grande Valley Project New 156-mile 345kV line from Laredo to North Edinburg, Texas $330 million project cost Provides a third source to the Rio Grande Valley – one of the fastest growing areas in the U.S. – and connects multiple wind farms in the area Analyst &
Slide 35: Recent FERC Filing
RECENT FERC FILING 206 complaint against AEP east companies filed AEP plans to file a 205 application for a modified formula rate that seeks to mitigate regulatory lag Seeking formula rates consistent with other transmission owners in PJM Transmission investment strategy unchanged Analyst & Investor
Slide 36: AEPTHC Investment Initiatives for Business Growth
AEPTHC INVESTMENT INITIATIVES FOR BUSINESS GROWTH Strong Partnerships Industry Solutions Asset Health Center Infrastructure Investments Analyst & Investor Meeting | aep.com 35
Slide 37: Well-Positioned Regulated Business
WELL-POSITIONED REGULATED BUSINESS EXECUTIVE VICE PRESIDENT AND Bob Powers CHIEF OPERATING OFFICER Analyst & Investor Meeting | aep.com 36
Slide 38: Regulated Operations
REGULATED OPERATIONS Regulated Operations ROE of 10.5% as of September 30, 2016 OPCo 13.2% AEPTHC 12.2%* I&M 11.2% APCo AEP TX 10.1% 10.3% PSO 9.1% KPCo 7.2% SWEPCO 7.2% Regulated Totals 2014-2016 Avg: 9.8% 2017 Forecast: 9.9% 2017-2019 Avg: 10.0% Sphere size based on each company’s relative equity
Slide 39: Investing in a Greener Future
INVESTING IN A GREENER FUTURE Total MW 3,400 5,400 3,000 Source: Current internal Integrated Resource Plans, which largely do not reflect ITC/PTC extension or Bonus Depreciation. Wind and solar represent nameplate MW capacity. Analyst & Investor Meeting | aep.com 38
Slide 40: AEP's Generating Resource Portfolio Past and Future
AEP'S GENERATING RESOURCE PORTFOLIO PAST AND FUTURE 80% 71% 68% 70% 60% 50% 47% 42% 40% 30% 30% 27% 23% 20% 20% 13% 14% 10% 7% 6% 7% 7% 6% 7% 2% 3% 0% 0% 0% 1999 2005 2017 Future 1999 2005 2017 Future 1999 2005 2017 Future 1999 2005 2017 Future 1999 2005 2017 Future Coal Natural Gas Nuclear Hydro, W
Slide 41: Dramatic Reductions in Emissions
DRAMATIC REDUCTIONS IN EMISSIONS 1990-2015 1990-2017* 1990-Future ACTUAL ACTUAL ESTIMATED SO2 88% 94% 94% NOx 87% 89% 93% 2001-2015 2001-2017* 2001-Future ACTUAL ESTIMATED ESTIMATED Hg 73% 87% 89% * Reflects impact of sale of Lawrenceburg, Waterford, Darby and Gavin plants Future excludes Cardinal,
Slide 42: Dramatic Reductions in Emissions
DRAMATIC REDUCTIONS IN EMISSIONS 2000-2015 2000-2017* 2000-future CO2 actual estimated estimated 39% 46% 58% * Reflects impact of sale of Lawrenceburg, Waterford, Darby and Gavin plants Future excludes Cardinal, Conesville, Stuart and Zimmer plants Analyst & Investor Meeting | aep.com 41
Slide 43: Focusing on Wires: A Tale of Two Decades
FOCUSING ON WIRES A TALE OF TWO DECADES 2006 2016 2006 CAPITAL 2017-2019 CAPITAL FORECAST Generation Distribution 23% Distribution 18% 24% Transmission 13% 64% Generation 58% Transmission Focus on environmental retrofits Focus on wires Transmission expansion just beginning $9 billion on transmission
Slide 44: Turning the Ship: A Tale of Two Decades
TURNING THE SHIP A TALE OF TWO DECADES 2006 2016 NET PLANT PROFILE NET PLANT PROFILE 34% 32% 35% Distribution Generation Distribution 45% Generation 20% 34% Transmission Transmission Analyst & Investor Meeting | aep.com 43
Slide 45: Investing in Contracted Renewables
INVESTING IN CONTRACTED RENEWABLES EXECUTIVE VICE PRESIDENT Chuck Zebula ENERGY SUPPLY Analyst & Investor Meeting | aep.com 44
Slide 46: Contracted Renewables
CONTRACTED RENEWABLES $1B CAPITAL ALLOCATED 2017-2019 Renewable Generation Asset Owner “Behind-the-Meter” Energy Assets Universal Scale Energy Assets Schools, Cities, Hospitals and Utilities, Municipalities, Key Customers Commercial / Industrial Corporations and Cooperative Accounts Accounts Solar,
Slide 47: Contracted Renewables 2016 Accomplishments
CONTRACTED RENEWABLES 2016 ACCOMPLISHMENTS City of Clyde, Ohio | 3.6MW Pavant Solar III Utah | 20MW 20MW solar project in Utah Multiple projects in 8 different states Output fully contracted with PacifiCorp 4MW of solar projects in operation under 20 year PPA 31MW of solar projects under constructio
Slide 48: Contracted Renewables Outlook
CONTRACTED RENEWABLES OUTLOOK STRONG PIPELINE OF ADDITIONAL OPPORTUNITIES DEVELOPMENT PROJECTS DISCIPLINED INVESTMENT Fully contracted assets Specific return requirements Strong credit counterparties Detailed technical reviews Long-term predictable cash Measured approach to flows and earnings projec
Slide 49: Preferred Project Partner
PREFERRED PROJECT PARTNER Strong balance sheet Customer relationship Ability to invest Incremental sales channel Tax appetite AEP IS A WELCOMED STRATEGIC PARTNER Analyst & Investor Meeting | aep.com 48
Slide 50: Executing the Strategy, Realizing the Results
EXECUTING THE STRATEGY REALIZING THE RESULTS CHAIRMAN, PRESIDENT AND Nick Akins CHIEF EXECUTIVE OFFICER Analyst & Investor Meeting | aep.com 49
Slide 51: Predictable Earnings, Higher Growth Rate
PREDICTABLE EARNINGS HIGHER GROWTH RATE BEFORE: AFTER: HYBRID MIX REGULATED BUSINESS MODEL Generation & Marketing Vertically Integrated Vertically Integrated Generation & Utilities Utilities Marketing AEP Transmission 3% Holdco 21% 16% AEP Transmission Holdco 9% 79 % Regulated 43% 97 % Regulated 51%
Slide 52: The Premier Regulated Energy Company
THE PREMIER REGULATED ENERGY COMPANY HIGHER HIGHER growth dividends MORE MORE regulated certainty Analyst & Investor Meeting | aep.com 51
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