april 28, 2016 1 - aep.com...twelve months ended 03/31/2016 earned roes (operating earnings*)...
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1st Quarter 2016 Earnings Release Presentation April 28, 2016
“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 based on reasonable assumptions, any such statements may be influenced by factors that could cause actual
outcomes 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, growth or contraction within and changes in market demand and demographic patterns in our service territory, inflationary
or deflationary interest rate trends, volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments
impairing our ability to finance new capital projects and refinance existing debt at attractive rates, the availability and cost of funds to finance working capital and capital
needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material, electric load, customer growth and the
impact of retail competition, weather conditions, including storms and drought conditions, and our ability to recover significant storm restoration costs, available sources
and costs of, and transportation for, fuels and the creditworthiness and performance of fuel suppliers and transporters, availability of necessary generation capacity and
the performance of our generation plants, our ability to recover increases in fuel and other energy costs through regulated or competitive electric rates, our ability to build
or acquire generation capacity and transmission lines and facilities (including our ability to obtain any necessary regulatory approvals and permits) when needed at
acceptable prices and terms and to recover those costs, new legislation, litigation and government regulation, including oversight of nuclear generation, energy
commodity trading and new or heightened requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances or
additional regulation of fly ash and similar combustion products that could impact the continued operation, cost recovery and/or profitability of our generation plants and
related assets, evolving public perception of the risks associated with fuels used before, during and after the generation of electricity, including nuclear fuel, a reduction in
the federal 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 environmental
compliance, resolution of litigation, our ability to constrain operation and maintenance costs, our ability to develop and execute a strategy based on a view regarding
prices of electricity 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, alternative or distributed sources of generation, our ability to recover through rates or market prices any remaining unrecovered investment in
generation units that may be retired before the end of their previously projected useful lives, volatility and changes in markets for capacity and electricity, coal, and other
energy-related commodities, particularly changes in the price of natural gas, changes in utility regulation and the allocation of costs within regional transmission
organizations, including ERCOT, PJM and SPP, the transition to market for generation in Ohio, including the implementation of ESPs, our ability to successfully and
profitably manage our separate competitive generation assets, changes in the creditworthiness of the counterparties with whom we have contractual arrangements,
including participants in the energy trading market, actions of rating agencies, including changes in the ratings of our debt, the impact of volatility in the capital markets on
the value of the investments held by our pension, other postretirement benefit plans, captive insurance entity and nuclear decommissioning trust and the impact of such
volatility on future funding requirements, accounting pronouncements periodically issued by accounting standard-setting bodies and other risks and unforeseen events,
including wars, the effects of terrorism (including increased security costs), embargoes, cyber security threats and other catastrophic events.
Investor
Relations
Contacts
Bette Jo Rozsa Managing Director Investor Relations
614-716-2840 bjrozsa@aep.com
Brad Funk Director
Investor Relations 614-716-3162
bmfunk@aep.com 2
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First Quarter 2016 Highlights
First Quarter Company Update
Refer to appendix for reconciliation between GAAP and Operating EPS
Earnings Update
Delivered GAAP and operating earnings of $1.02 per share
Reaffirm guidance range of $3.60 - $3.80
Reaffirm 4%-6% growth rate
Regulatory & Strategic Update
• PUCO Approval of Ohio PPA
• FERC PPA Waiver Challenge
• Ohio Supreme Court orders
• Strategic Review of Competitive Generation
4
OPCo 11.9%
APCo 8.8%
KPCo 5.5%
I&M 10.2%
PSO 8.6% SWEPCO
7.9%
AEP TX 8.5%
Trans 10.9%
* operating adjusts GAAP results by eliminating any material non operating items and is not weather normalized
Regulated Returns Twelve Months Ended 03/31/2016 Earned ROEs (Operating Earnings*)
Regulated Operations ROE of 9.4% as of March 31, 2016
5
First Quarter Operating Earnings Segment Detail
Refer to appendix for additional explanation of variances by segment
$0.02 ($0.07)
$0.06
$0.03
$0.03
2016 Actual EPS $0.57 $0.22 $0.09 $0.14 $0.00 $1.02
Rate Changes 0.04$
Reg Prov - Va 0.03$
O&M 0.03$
OSS (0.09)$
PJM Chrgs 0.04$
Normal Load (0.04)$
Other 0.03$
Rate Changes 0.01$
Normal Load 0.01$
O&M (0.01)$
Other (0.01)$
AGR 0.01$
Trading & Mrkt 0.04$
Oklaunion PPA (0.01)$
Other 0.01$
6
Normalized Load Trends
Note: Charts reflect connected load and exclude firm wholesale load & Buckeye Power backup load.
7
Economic Data
8
Regional Industrial Sales Trends
AEP Industrial Sales Map
Shale gas development drives industrial load growth
9
(unaudited) 3/31/2016 Actual
($ in millions) Amount Maturity
Revolving Credit Facility $1,750 Jul-18
Revolving Credit Facility $1,750 Jun-17
Total Credit Facilities $3,500
Plus
Cash & Cash Equivalents $190
Less
Commercial Paper Outstanding (502)
Letters of Credit Issued (2)
Net Available Liquidity $3,186
Actual Target
FFO Interest Coverage 5.45x >3.6x
FFO to Total Debt 20.0% 15%-20%
Capitalization & Liquidity
Liquidity Summary
Credit Statistics
Note: Credit statistics represent the trailing 12 months as of 03/31/2016
Total Debt / Total Capitalization
Strong balance sheet, credit metrics, and liquidity
Qualified Pension Funding
10
Summary
Q1 in line with expectation
Reaffirming 2016 Operating Earnings Guidance of $3.60 to $3.80/share and 4% to 6% growth rate
Continue strategic review of
competitive generation
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Appendix
12
1st Quarter Reconciliation of GAAP to Operating Earnings
$ millions Earnings Per Share
Q1-15 Q1-16 Change Q1-15 Q1-16 Change
Reported (GAAP) Earnings $629 $501 $(128) $1.29 $1.02 $(0.27)
Non Operating Items:
Mark-to-Market Impact of Commodity Hedging Activities
(4) - 4 (0.01) - 0.01
AEP Operating Earnings $625 $501 $(124) $1.28 $1.02 $(0.26)
Weighted average no. of shares outstanding: 490M Q1-15; 491M Q1-16
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Vertically Integrated Utilities
Q1-15 Q1-16
$ millions (except EPS)
Operating Revenues $2,505 $2,246
Operating Expenses:
Energy Costs (983) (742)
Operations & Maintenance (576) (630)
Depreciation & Amortization (272) (267)
Taxes Other Than Income Taxes (97) (98)
Operating Income 577 509
Net Interest/AFUDC (114) (109)
Income Taxes (164) (122)
Operating & GAAP Earnings $299 $278
EPS from Operating Earnings $0.61 $0.57
First Quarter Summary Key Drivers: Q1-16 vs. Q1-15
Rate changes: $44M from various jurisdictions
VA regulatory provision: $23M unfavorable due to prior year reversal
Weather: $83M unfavorable vs. prior year; $21M unfavorable vs. normal
Off-System Sales: $17M unfavorable vs. prior year due
to lower market prices and reduced sales volume
Retail load: $28M favorable vs. prior year due to favorable price variances, partially offset by decreased residential sales
O&M net of offsets: $28M unfavorable vs. prior year primarily due to increased employee related expenses
Income Taxes: effective tax rate of 30.4% Q1-16 vs. 35.3% Q1-15
14
Transmission & Distribution Utilities
Q1-15 Q1-16
$ millions (except EPS)
Operating Revenues $1,270 $1,097
Operating Expenses:
Energy Costs (452) (273)
Operations & Maintenance (319) (325)
Depreciation & Amortization (168) (156)
Taxes Other Than Income Taxes (122) (123)
Operating Income 209 220
Net Interest/AFUDC (58) (59)
Income Taxes (54) (53)
Operating & GAAP Earnings $97 $108
EPS from Operating Earnings $0.20 $0.22
First Quarter Summary Key Drivers: Q1-16 vs. Q1-15
Rate changes: $6M from Ohio DIR Weather: $11M unfavorable vs. prior year; $3M
unfavorable vs. normal
O&M net of offsets: $7M favorable primarily due to a prior year donation to the Ohio Growth Fund
Income Taxes: effective tax rate of 33.0% Q1-16 vs. 35.7% Q1-15
15
AEP Transmission Holdco
Q1-15 Q1-16
$ millions (except EPS)
Operating Revenues $58 $89
Operating Expenses:
Operations & Maintenance (8) (12)
Depreciation & Amortization (9) (16)
Taxes Other Than Income Taxes (16) (21)
Operating Income 25 40
Net Interest/AFUDC 4 1
Income Taxes (14) (20)
Equity Earnings 22 24
Other (1) (1)
Operating & GAAP Earnings $36 $44
EPS from Operating Earnings $0.07 $0.09
First Quarter Summary Key Drivers: 1Q-16 vs. 1Q-15
$15M favorable operating income due to increased capital investment in the wholly-owned Transcos, offset by higher depreciation, O&M and taxes from increase in projects placed in service
16
Generation & Marketing
Q1-15 Q1-16
$ millions (except EPS)
Operating Revenues $1,163 $748
Operating Expenses:
Energy Costs (716) (479)
Operations & Maintenance (100) (94)
Depreciation & Amortization (50) (49)
Taxes Other Than Income Taxes (9) (10)
Operating Income 288 116
Net Interest/AFUDC (10) (8)
Income Taxes (95) (37)
Operating Earnings 183 71
Proforma Adjustments, Net of Tax 4 -
GAAP Earnings $187 $71
EPS from Operating Earnings $0.38 $0.14
First Quarter Summary
See slide 12 for items excluded from Net Income to reconcile to Operating Earnings
Key Drivers: Q1-16 vs. Q1-15
Capacity revenues decreased $97M in Q1-16 vs Q1-15, due to plant retirements and transition of Ohio to full market pricing
AEP Dayton ATC liquidation pricing down 32%: $25.68/MWh in Q1-16 vs. $38.02/MWh in Q1-15
Generation decreased 4,710 GWh (34%) Q1-16 vs. Q1-15, when retirement units were in service
$22M decrease in trading and marketing activity vs. prior year
O&M : $6M favorable vs. prior year primarily due to gain on sale of land and lower employee related expenses
Income Taxes: effective tax rate of 34.3% Q1-16 vs. 34.2% Q1-15
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Rate Changes, net of offsets (in millions)
Q1-16 vs. Q1-15
APCo/WPCo $22
I&M $8
KPCo $7
PSO $1
SWEPCO $6
Kingsport -
TOTAL $44
Impact on EPS
Retail Rate Performance
$0.06
Rate Changes, net of offsets (in millions)
Q1-16 vs. Q1-15
Ohio Power $6
Texas Central -
Texas North -
TOTAL $6
Impact on EPS $0.01
Transmission & Distribution Utilities Vertically Integrated Utilities
18
Retail Load*
(weather
normalized)
Q1-16 vs. Q1-15
Ohio Power -1.9%
Texas Central 6.0%
Texas North -1.1%
TOTAL 0.5%
Impact on EPS -
Retail Load*
(weather
normalized)
Q1-16 vs. Q1-15
APCo/WPCo -0.9%
I&M 2.6%
KPCo -4.7%
PSO 2.1%
SWEPCO -3.8%
Kingsport -5.8%
TOTAL -0.6%
Impact on EPS
Retail Load Performance
*Excludes Firm Wholesale Load
Transmission & Distribution Utilities Vertically Integrated Utilities
$0.04
19
Weather Impact
(in millions)
Q1-16 vs. Q1-15
APCo/WPCo ($34)
I&M ($19)
KPCo ($9)
PSO ($6)
SWEPCO ($14)
Kingsport ($1)
TOTAL ($83)
Impact on EPS
Weather Impact
Weather Impact
(in millions)
Q1-16 vs. Q1-15
Ohio Power -
Texas Central ($8)
Texas North ($3)
TOTAL ($11)
Impact on EPS
Transmission & Distribution Utilities Vertically Integrated Utilities
$0.11
$0.01
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