1

                            

American Electric Power Company

Transmission Formula RateAEP Appalachian Transmission Co., Inc.

AEP Indiana Michigan Transmission Co., Inc.

AEP Kentucky Transmission Co., Inc.

AEP Ohio Transmission Co., Inc.

AEP West Virginia Transmission Co., Inc.

Annual Formula Rate Update

June 2012

2

True-up Process

• Annual update for the Rate Year beginning July 1, 2012 through June 30, 2013

• True-up – Rates effective July 1, 2010 (billed January – June 2011) --

$0.41/MW Day

– Rates effective July 1, 2011 (billed July – December 2011) -- $1.36/MW Day

– Trued-up to Actual 2011 Cost Data with Average ending Ratebase Balances (2010-2011) -- $0.68/MW Day

3

Regulatory Changes

• July 2011 FERC issued an order approving the internal corporate reorganization consummated on December 31, 2011 under which Columbus Southern Power Company (“CSP”) merged into Ohio Power Company (“Reorganization Transaction”).

• March 2012 AEP submitted for filing amendments to Attachment H-20 of the PJM Interconnection L.L.C. (“PJM”) Open Access Transmission Tariff (“PJM Tariff”) to incorporate proposed revisions to incorporate changes necessitated by the internal corporate reorganization.

4

Status of State Regulatory Process

• West Virginia Transco: Issued an order on June 5, 2012--W Va Commission would approve with certain modifications – current evaluation in process.

• Appalachian Transco: Va Transco has been approved to enter into limited service agreements with AEPSC and APCo.

• Kentucky Transco: Awaiting final order by the KPSC.

5

Annual Update 2012

• http://www.aep.com/about/codeofconduct/OASIS/TariffFilings/

Docket No. ER10-355-000, AEPTCo FERC Formula Rate Filing

• Annual Update 2012 - AEPTCo PJM

• Notice of Annual Filing (PDF)

• Formula Rate Update AEP Transmission Companies Summary (DOC)

• ATRR Summary of AEP Transmission Companies (XLS)

• Appalachian Transmission Company (XLS)

• Indiana Michigan Transmission Company (XLS)

• Kentucky Transmission Company (XLS)

• Ohio Transmission Company (XLS)

• West Virginia Transmission Company (XLS)

• TransCo NITS Attachment C (XLS)

• FERC Exclusion of State Formation Costs (XLS)

• ADIT TransCo Detail (XLS)

6

Summary of Rates

Charge July 1, 20122011 FERC Form 1

(projected plant 2012)

July 1, 20112010 FERC Form 1

(projected plant 2011)

Change

Point-to Point Rate $/MW Month

$90.92 $36.75 $54.17

Schedule 12 $2,199,548 N/A $2,199,548

AEP East Zone

Network Service Peak Load

24,530.8 MW 23,492.3 MW 1,038.5MW

7

Primary Drivers Change in Rate

• Increased capital spend in Ohio

• 4% increase in the East Zone Network Service Peak Load

8

Revenue Requirement used to calculate the Existing Zonal ATRR for PJM OATT

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

Calendar Year

Virginia $153,300 $111,736

I&M $1,222,638 $2,787,822

KPCo $117,182 $146,026

OPCo $10,020,532 $27,235,255

West Virginia $183,347 $123,356

East Transco's $11,696,999 $30,404,195

2011 Projected 2012 Projected

TransCo's Revenue Requirement

9

Gross Plant Investment – 2011 Projected vs.

2011 Actual Average Balance Gross Plant Investment

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

Calendar Year

Virginia $0 $0

I&M $7,632,533 $4,029,966

KPCo $0 $0

OPCo $77,934,167 $38,518,862

West Virginia $0 $0

East Transco's $85,566,700 $42,548,828

2011 Projected 2011 True-Up

Gross Plant Investment InvestmentRequirement

10

2012 Projected Capital Spend

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000

Calendar Year

APTCo $7,500,000 $0 $0

IMTCo $3,720,000 $3,128,014 $18,325,850

KTCo $0 $0 $0

OHTCo $12,959,861 $74,770,454 $170,448,460

WTCo $5,635,000 $0 $0

TOTAL $29,814,861 $77,898,468 $188,774,310

2010 Projected 2011 Projected 2012 Projected

TransCo's Projected Plant Growth

11

Revenue Requirement For PJM Socialized ‘Schedule 12’ Investment

Company/Project Investment

$

In-Service RTEP Revenue Requirement

$

I&M/

Jefferson 765kv line

5,231,516

2012 655,786

OPC/

Lima Sterling6,809,19

62012 747,660

OPC/

Wapakoneta-West Moulton

3,359,043

2011 386,386

12

Summary Comparison

2011 Projected – 2011 True-up

Line 1 REVENUE REQUIREMENT Virginia I&M KPCo OPCo West Virginia East Transco's2 2011 Projected $153,300 $1,222,638 $117,182 $10,020,532 $183,347 $11,696,9993 2011 True-Up $111,993 $804,737 $138,961 $5,047,043 $121,707 $6,224,4414 True-Up Inc/(Dec) ($41,307) ($417,901) $21,779 ($4,973,489) ($61,640) ($5,472,558)5 Percentage Inc/(Dec) -26.95% -34.18% 18.59% -49.63% -33.62% -46.79%

6 GROSS INVESTMENT Virginia I&M KPCo OPCo West Virginia East Transco's7 2011 Projected $0 $7,632,533 $0 $77,934,167 $0 $85,566,7008 2011 True-Up $0 $4,029,966 $0 $38,518,862 $0 $42,548,8289 True-Up Inc/(Dec) $0 ($3,602,567) $0 ($39,415,305) $0 ($43,017,872)

10 Percentage Inc/(Dec) 0.00% -47.20% 0.00% -50.58% 0.00% -50.27%

11 NET INVESTMENT Virginia I&M KPCo OPCo West Virginia East Transco's12 2011 Projected $0 $7,591,647 $0 $77,646,358 $0 $85,238,00513 2011 True-Up $0 $4,014,917 $0 $38,413,947 $0 $42,428,86414 True-Up Inc/(Dec) $0 ($3,576,730) $0 ($39,232,411) $0 ($42,809,141)15 Percentage Inc/(Dec) 0.00% -47.11% 0.00% -50.53% 0.00% -50.22%

16 WORKING CAPITAL Virginia I&M KPCo OPCo West Virginia East Transco's17 2011 Projected $607 $1,857 $451 $1,424 $1,063 $5,40218 2011 True-Up $43 $16,278 $73 $33,778 $39 $50,21119 True-Up Inc/(Dec) ($564) $14,421 ($378) $32,354 ($1,024) $44,80920 Percentage Inc/(Dec) -92.92% 776.58% -83.81% 2272.05% -96.33% 829.49%

21 RATE BASE Virginia I&M KPCo OPCo West Virginia East Transco's22 2011 Projected $136,951 $7,570,943 ($28,732) $80,351,996 $98,343 $88,129,50123 2011 True-Up $76,511 $3,307,550 ($25,977) $29,062,757 $53,038 $32,473,87924 True-Up Inc/(Dec) ($60,440) ($4,263,393) $2,755 ($51,289,239) ($45,305) ($55,655,622)25 Percentage Inc/(Dec) -44.13% -56.31% -9.59% -63.83% -46.07% -63.15%

RATE BASE

13

Summary Comparison2011 Projected – 2011 True-up (cont.)

Line 1 O&M EXPENSE Virginia I&M KPCo OPCo West Virginia East Transco's2 2011 Projected $109,685 $216,036 $93,556 $187,276 $144,210 $750,7633 2011 True-Up $82,995 $289,312 $121,867 $1,277,242 $95,590 $1,867,0064 True-Up Inc/(Dec) ($26,690) $73,276 $28,311 $1,089,966 ($48,620) $1,116,2435 Percentage Inc/(Dec) -24.33% 33.92% 30.26% 582.01% -33.71% 148.68%

Line 6 DEPRECIATION Virginia I&M KPCo OPCo West Virginia East Transco's7 2011 Projected $26,809 $67,866 $26,802 $314,593 $26,769 $462,8398 2011 True-Up $20,106 $72,806 $20,101 $264,172 $20,076 $397,2619 True-Up Inc/(Dec) ($6,703) $4,940 ($6,701) ($50,421) ($6,693) ($65,578)

10 Percentage Inc/(Dec) -25.00% 7.28% -25.00% -16.03% -25.00% -14.17%

Line 11 TAXES OTHER THAN INCOME Virginia I&M KPCo OPCo West Virginia East Transco's12 2011 Projected $0 $0 $350 $0 $50 $40013 2011 True-Up $0 $64,669 $0 $195,659 $0 $260,32814 True-Up Inc/(Dec) $0 $64,669 ($350) $195,659 ($50) $259,92815 Percentage Inc/(Dec) 0.00% -100.00% -100.00% 64982.00%

Line 16 INCOME TAXES Virginia I&M KPCo OPCo West Virginia East Transco's17 2011 Projected $4,961 $283,921 ($1,041) $2,568,975 $3,813 $2,860,62918 2011 True-Up $2,471 $100,404 ($827) $871,229 $1,590 $974,86719 True-Up Inc/(Dec) ($2,490) ($183,517) $214 ($1,697,746) ($2,223) ($1,885,762)20 Percentage Inc/(Dec) -50.19% -64.64% -20.56% -66.09% -58.30% -65.92%

EXPENSES

14

Summary Comparison2011 Projected – 2011 True-up (cont.)

Line 1 RETURN ON RATE BASE Virginia I&M KPCo OPCo West Virginia East Transco's2 2011 Projected $11,845 $654,815 ($2,485) $6,949,689 $8,506 $7,622,3703 2011 True-Up $6,420 $277,546 ($2,180) $2,438,742 $4,451 $2,724,9794 True-Up Inc/(Dec) ($5,425) ($377,269) $305 ($4,510,947) ($4,055) ($4,897,391)5 Percentage Inc/(Dec) -45.80% -57.61% -12.27% -64.91% -47.67% -64.25%

6 WACC ON RATE BASE Virginia I&M KPCo OPCo West Virginia East Transco's7 2011 Projected 8.65% 8.65% 8.65% 8.65% 8.65% 8.65%8 2011 True-Up 8.39% 8.39% 8.39% 8.39% 8.39% 8.39%9 True-Up Inc/(Dec) -0.26% -0.26% -0.26% -0.26% -0.26% -0.26%

10 Percentage Inc/(Dec) -2.98% -2.98% -2.97% -2.98% -2.97% -2.98%

RETURN ON RATE BASE

15

NITS True-UpFERC Case No. ER10-355PJM AEP Formula RateInterest Calculation on True-Up of NITS Revenue Requirement

AEP Zone MW Billing

Determinant Days in MonthProjected MW

Day Rate Revenues as BilledTrue-Up MW Day

RateRevenues @

True-Rate(A) (B) (C) (D)=(A)*(B)*(C ) (E) (F)=(A)*(B)*(E) (G)=(D)-(F) (H)=Quaterly Total (I)=Quarterly Average (J)=Prior Quarter (N) (K)=(I)+(J) (L) (M)=(K)*(L) (N)=(H)+(J)+(M)

January-11 23,492.30 31 0.41 296,839 0.68 495,582 (198,743) February-11 23,492.30 28 0.41 268,113 0.68 447,622 (179,509)

March-11 23,492.30 31 0.41 296,839 0.68 495,582 (198,743) (576,994) (192,331) - (192,331) 3.25% (1,563) (578,557) April-11 23,492.30 30 0.41 287,264 0.68 479,595 (192,331) May-11 23,492.30 31 0.41 296,839 0.68 495,582 (198,743) June-11 23,492.30 30 0.41 287,264 0.68 479,595 (192,331) (583,405) (194,468) (578,557) (773,026) 3.25% (6,281) (1,168,244) July-11 23,492.30 31 1.36 993,421 0.68 495,582 497,839

August-11 23,492.30 31 1.36 993,421 0.68 495,582 497,839 September-11 23,492.30 30 1.36 961,375 0.68 479,595 481,780 1,477,459 492,486 (1,168,244) (675,757) 3.25% (5,491) 303,724

October-11 23,492.30 31 1.36 993,421 0.68 495,582 497,839 November-11 23,492.30 30 1.36 961,375 0.68 479,595 481,780 December-11 23,492.30 31 1.36 993,421 0.68 495,582 497,839 1,477,459 492,486 303,724 796,210 3.25% 6,469 1,787,652

365 0.68 1,794,518 (6,866) 1,787,652 7,629,594 5,835,076

Interest Accrual From End of True-up Calendar Year Until Beginning Of Rate Year

Accrual Balance @ 12/31/2011 1,787,652 First Quarter Rate 3.25%

Accrual For First Quarter 14,525

Accrual Balance @ 3/31/2012 1,802,177 Second Quarter Rate 3.25%

Accrual For Second Quarter 14,643

Refund (Surcharge) Balance @ 6/30/2012 1,816,820

Interest To Accrue During Rate Year Starting 7/1/2012 (See Note 2) 32,142

Note 1: The Quarterly Average reflects in the calculation of interest the delay in recepit of cash due to timing of invoicing. Total to be Refunded (Surcharged) During Rate Year, Including Interest 1,848,962

One Twelfth of Refund (Surcharge) Amount During Rate Year 156,806

Refund Interest Rate per Part 18 FRC Sec

35.19aCumulative Excess (Under) Collection

Note 2: Calculation of rate year interest assumes refund will be made ratably over rate year at the interest rate pursuant to 18 C.F.R. 35.19a in effect during quarter preceding the Rate Year.

Basis of Interest Accrual

Prior Quarter Cumulative Refund

(Surcharge)Quarterly Interest

Cumulative Refund

(Surcharge)Year by Month

Ended:

Excess (Under) Collections at Quarter End

Average of Excess (Under) Collections

During Quarter (Note 1)

16

Questions

?