1q13 earnings release presentation - american electric power€¦ · this presentation contains...
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1Q13 Earnings Release Presentation
April 26, 2013
2
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Investor Relations Contacts
Bette Jo RozsaManaging DirectorInvestor Relations
Julie SherwoodDirector
Investor Relations614-716-2663
Sara MaciochAnalyst
Investor Relations614-716-2835
This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of itsRegistrant Subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actualoutcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are: the economic climate and growth in, or contraction within, our service territory and changes in market demand and demographic patterns in ourservice territory, inflationary or deflationary interest rate trends, volatility in the financial markets, particularly developments affecting the availability of capital onreasonable terms and developments impairing our ability to finance new capital projects and refinance existing debt at attractive rates, the availability and cost of funds tofinance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material, electricload, customer growth and the impact of retail competition, particularly in Ohio, weather conditions, including storms and drought conditions, and our ability to recoversignificant storm restoration costs through applicable rate mechanisms, available sources and costs of, and transportation for, fuels and the creditworthiness andperformance of fuel suppliers and transporters, availability of necessary generating capacity and the performance of our generating plants, our ability to recoverincreases in fuel and other energy costs through regulated or competitive electric rates, our ability to build or acquire generating capacity, and transmission line facilities(including our ability to obtain any necessary regulatory approvals and permits) when needed at acceptable prices and terms and to recover those costs (including thecosts of projects that are cancelled) through applicable rate cases or competitive rates, new legislation, litigation and government regulation including oversight of nucleargeneration, energy commodity trading and new or heightened requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter andother substances or additional regulation of fly ash and similar combustion products that could impact the continued operation and cost recovery of our plants and relatedassets, evolving public perception of the risks associated with fuels used before, during and after the generation of electricity, including nuclear fuel, a reduction in thefederal 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 environmentalcompliance, resolution of litigation, our ability to constrain operation and maintenance costs, our ability to develop and execute a strategy based on a view regardingprices of electricity, coal, natural gas 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 or alternative sources of generation, our ability to recover through rates or market prices any remaining unrecoveredinvestment in generating units that may be retired before the end of their previously projected useful lives, volatility and changes in markets for electricity, natural gas, andother energy-related commodities, changes in utility regulation, including the implementation of ESPs and the transition to market and expected legal separation forgeneration in Ohio and the allocation of costs within regional transmission organizations, including PJM and SPP, our ability to successfully manage negotiations withstakeholders and obtain regulatory approval to terminate the Interconnection Agreement, changes in the creditworthiness of the counterparties with whom we havecontractual arrangements, including participants in the energy trading market, actions of rating agencies, including changes in the ratings of our debt, the impact ofvolatility in the capital markets on the value of the investments held by our pension, other postretirement benefit plans, captive insurance entity and nucleardecommissioning trust and the impact on future funding requirements, accounting pronouncements periodically issued by accounting standard-setting bodies and otherrisks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes, cyber security threats and other catastrophic events.
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First Quarter 2013 Highlights
Refer to appendix for reconciliation between GAAP and Operating EPS
1st Quarter
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
1Q13 1Q12
$0.75$0.80$0.80 $0.80
GAAP EPS
OPERATINGEPS
1Q13 Non-operating items
Storm Deferral Reversal (VA) ($0.04)
Restructuring Program ($0.01)
Company Update
Dividend Increase• Board declared $0.49/share• Increase of $0.02/share, or 4.3%
Transmission• Earnings on track• Pioneer IURC Approval • Transource/Missouri
Regulatory Update• Ohio• Corporate Separation• Indiana Legislation
EPA Update• Water Rules
Repositioning Study• Culture
Twelve Months Ended 03/31/13 Pro-forma* Earned ROEs
* pro-forma adjusts GAAP results by eliminating any material nonrecurring items and is not weather normalized
Delivered Strong Utility Operations Results
4Utility Operations ROE 10.5% as of March 31, 2013
5
1Q13 Performance DriversFirst Quarter Reconciliation
1Q13 Performance
Prior year reversal of regulatory obligation
Off-System sales unfavorable $30M primarily due to decreased CRES reimbursements
Ohio Customer Switching and Capacity unfavorable $24M from prior year. As of March 2013, 53% of total Ohio load switched
AFUDC unfavorable $20M primarily due to Turk plant in service December 2012
O&M expense, net of offsets, increased$14M primarily due to scheduled plant maintenance outages and storms
Rate Changes, net of offsets, of $51M from multiple jurisdictions
Weather was favorable by $78M vs. prior year, favorable $10M vs. normal
Rate changes and weather offset Ohio and other items
Operating Earnings
EPS ($ in millions)1Q12 0.80$ $389Ohio Reserve Reversal (0.05)$ Off-System Sales (0.04)$ Customer Switching and Capacity (0.03)$ AFUDC (0.03)$ O&M, net of offsets (0.02)$ Rate Changes 0.07$ Weather 0.10$ 1Q13 0.80$ $387EPS Based on 486MM shares in 1Q13, 484MM in 1Q12
6Higher Residential and Commercial offset by Industrial challenges
-2.8%-1.9%
-0.5% -1.1%
1.3%
-0.4%
-5%
0%
5%
1Q12 2Q12 3Q12 4Q12 1Q13 2013E
Normalized Load Trends
-0.4%
1.6%0.1%
-0.4%
0.5%
-0.1%
-5%
0%
5%
1Q12 2Q12 3Q12 4Q12 1Q13 2013E
2.2% 1.8%
-3.1%-4.2%
-6.0%
1.8%
-10%
-5%
0%
5%
1Q12 2Q12 3Q12 4Q12 1Q13 2013E
-0.4%
0.6%
-1.2%-2.0% -1.5%
0.5%
-5%
0%
5%
1Q12 2Q12 3Q12 4Q12 1Q13 2013E
AEP Residential Normalized GWh Sales%Change vs. Prior Year
AEP Commercial Normalized GWh Sales%Change vs. Prior Year
AEP Industrial Normalized GWh Sales%Change vs. Prior Year
AEP Total Normalized GWh Sales%Change vs. Prior Year
Note: Charts reflect connected load and exclude firm wholesale load & Buckeye Power backup load.
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Industrial Sales Volumes
Industry 1Q13 vs. 1Q12Primary Metals -16.9%Chemical Mfg. -4.4%Petroleum & Coal Products -3.0%Mining (except Oil & Gas) -2.9% Paper Mfg. 0.2%
Industrial sales trend negative
8
Gas to Coal Switching
Gas to coal switching occurred in 1Q13
Overall generation from natural gas has decreased over 30 percent year-to-date
Overall generation from coal has increased 9 percent year-to-date
43 days system average coal inventory at March 31, 2013
Coal approximately 97% hedged for 2013 and 74% hedged for 2014
WestEast
1st Quarter 2012 vs. 2013 Capacity Factor
9
AEP East Fleet Dispatch Stack
$10
$20
$30
$40
$50
$60
$70
$80
- 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000
$ pe
r MW
h, D
ispa
tch
Cos
t
Capacity (MW)
1Q 2012 vs. 1Q 20132013 Q1 Dispatch Stack
2012 Q1 Dispatch Stack
2013 Q1 AEP Gen = $32.65 /MWh ATC
2012 Q1 AEP Gen = $28.65 /MWh ATC
B A
Q1 Comparison
(A - B) = (19,550 - 15,750)
= 3,800 MW
Eastern Fleet is competitive even at low prices
10
Financing Activities Completed: $1 billion 27-month term loan closed
Amendment of core revolving lines of credit including $250MM increase in capacity and 1-year extensions
TNC $200MM senior unsecured notes issued
I&M $250MM senior unsecured notes issued
Upcoming Financing Activities: Issuance of securitization bonds
Ohio Power ~$275MM APCo ~$380MM
Other opportunities as dictated by market conditions
2013 Financing Activities
Utilizing strong balance sheet to access low cost debt capital
11
Capitalization & Liquidity
Liquidity Summary (03/31/2013)
Credit Statistics
Note: Credit statistics represent the trailing 12 months as of 03/31/2013
Strong balance sheet, solid credit metrics and adequate liquidity
Total Debt / Total Capitalization
74%
82%
88%92% 94%
70%
80%
90%
100%
2009 2010 2011 2012 1Q13
Qualified Pension Liability Funding
Actual TargetFFO Interest Coverage 4.6 >3.6xFFO To Total Debt 19.7% 15%- 20%
Liquidity Summary(unaudited) Actual($ in millions) Amount MaturityRevolving Credit Facility 1,750$ Jul-17Revolving Credit Facility 1,750 Jun-16Interim Credit Facility 1,000 May-15Total Credit Facilities 4,500
PlusCash & Cash Equivalents 179
LessCommercial Paper Outstanding (661) Amount drawn on bank loans (200) Letters of credit issued (115)
Net available Liquidity 3,703$
12
Summary
On track to deliver results outlined at February 15 Analyst Day
O&M Discipline
Transmission Growth
Load
Power & Gas Prices
Regulatory Plans
Pension Funding
13
Questions
14
Reconciliation of GAAP to Operating Earnings
1st Qtr 1st Qtr 1st Qtr 1st Qtr2012 2013 Change 2012 2013 Change
Reported Earnings (GAAP) 389$ 363$ (26)$ 0.80$ 0.75$ (0.05)$
Special Items:Restructuring Program - 5 5 - 0.01 0.01 Reversal of Storm Deferral - Virginia - 19 19 - 0.04 0.04 AEP Operating Earnings 389 387 (2) 0.80 0.80 -
$ millions Earnings Per Share
15
Quarterly Performance Comparison
2012 GAAP 2012 Operating 2013 GAAP 2013 Operating 2012 Volumes Earnings Adjustments Earnings 2013 Volumes Earnings Adjustments Earnings
(GWh) ($ millions) ($ millions) ($ millions) (GWh) ($ millions) ($ millions) ($ millions)
UTILITY OPERATIONS:Gross Margin:
1 East Regulated Integrated Utilities 17,018 763 - 763 18,030 856 - 856 2 Ohio Companies 12,863 618 - 618 12,084 618 - 618 3 West Regulated Integrated Utilities 9,657 288 - 288 9,540 309 - 309 4 Texas Wires 6,157 145 - 145 6,066 148 - 148 5 Off-System Sales 84 - 84 54 - 54 6 Transmission Revenue - 3rd Party 115 - 115 136 - 136 7 Other Operating Revenue 103 - 103 119 - 119
8 Utility Gross Margin 2,116 - 2,116 2,240 - 2,240
9 Operations & Maintenance (757) - (757) (879) 37 (842) 10 Depreciation & Amortization (412) - (412) (406) - (406) 11 Taxes Other than Income Taxes (211) - (211) (209) - (209) 12 Interest Exp & Preferred Dividend (217) - (217) (226) - (226) 13 Other Income & Deductions 43 - 43 16 - 16 14 Income Taxes (179) - (179) (188) (13) (201) 15 Utility Operations Earnings 383 - 383 348 24 372
16 Transmission Operations 9 - 9 13 - 13
NON-UTILITY OPERATIONS:17 AEP River Operations 9 - 9 (2) - (2) 18 Generation & Marketing (1) - (1) 7 - 7
PARENT & OTHER:19 Parent & Other Earnings (11) - (11) (3) - (3)
20 EARNINGS 389 - 389 363 24 387
Weighted average no. of shares outstanding: EPS EPS EPS EPS 2012: 484 million 0.80 0.80 0.75 0.80
2013: 486 million
American Electric PowerFinancial Results for 1st Quarter 2013 Actual vs 1st Quarter 2012 Actual
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Retail Rate Performance
Rate Changes, net of trackers (in millions)
1Q13 vs. 1Q12
East Regulated Integrated Utilities $10
Ohio Companies $19
West Regulated Integrated Utilities $22
Texas Wires $0
AEP System Total $51
Impact on EPS $0.07
May not foot due to rounding
17
1Q13 Retail Performance
Retail Load*(weather normalized)
Weather Impact(in millions)
1Q13 vs. 1Q12 1Q13 vs. 1Q12
East Regulated Integrated Utilities 0.1% East Regulated
Integrated Utilities $53
Ohio Companies (4.1%) Ohio Companies $21
West Regulated Integrated Utilities (1.4%) West Regulated
Integrated Utilities $5
Texas Wires (0.6%) Texas Wires ($1)
Impact on EPS$0.00
Impact on EPS $0.10
*Excludes firm wholesale load & Buckeye Power backup load
18
Off System Sales Gross Margin Detail
Physical off-system sales margins increased from last year by $15M
AEP/Dayton Hub pricing: 16% increase in liquidation prices
Lower Trading & Marketing results by $7M
First Quarter
* May not foot due to rounding
2012 2013GWh ($millions) GWh ($millions)
OSS Physical Sales 4,667 31$ 7,882 46$ Capacity Payments CRES/RPM - 47$ - 10$ Marketing/Trading - 22$ - 15$ Pre-Sharing Gross Margin 4,667 100$ 7,882 71$ Margin Shared (16)$ (17)$ Net OSS 84$ 54$