Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power Second Quarter 2018 Earnings Call. At this time, all participants are in listen-only mode. Later, there'll be opportunity for your questions and instructions will be given at that time. As a reminder, this conference is being recorded. Now I will turn the conference over to Ms. Bette Jo Rozsa. Please go ahead.

Thank you, Paul. Good morning, everyone, and welcome to the second quarter 2018 earnings call for American Electric Power. Thank you for taking the time to join us today. Our earnings release, presentation slides and related financial information are available on our website at aep.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Our presentation also includes references to non-GAAP financial information. Please refer to the reconciliation of the applicable GAAP measures provided in the appendix of today's presentation. Joining me this morning for opening remarks are Nick Akins, our Chairman, President and Chief Executive Officer; and Brian Tierney, our Chief Financial Officer. We will take your questions following their remarks. I will now turn the call over to Nick.

Thanks, Bette Jo. Good morning, everyone, and welcome again to AEP's second quarter 2018 earnings call. We just completed a very healthy second quarter financially primarily due to weather that continued strong economy in the regions of the country that we serve and further resolution of rate making activities. And, of course, while not complete yet, further approvals occurring – have occurred regarding Wind Catcher that I'll cover later. The weather has been a significant story for the quarter. In a nutshell, second quarter was bipolar with no spring. As further proof that we did not have a spring this year, get this, it's almost like a brainteaser, the second quarter 2018 was the fourth coldest second quarter and the second warmest second quarter in the AEP system in nearly 50 years, because winter went well into April and summer came early in May. So, we benefited from that from both angles. Additionally, regarding the economy in the service territory, the AEP service territory economy and load performance continues to be as strong as it has been in years. Brian will be covering the weather and economic information in more detail later. With that said, we are reaffirming our guidance for the year of $3.75 per share to $3.95 per share and our 5% to 7% growth rate, and as we have said previously, this base plan does not include Wind Catcher. We are also today giving our first signal of 2021 capital budgets assuming no Wind Catcher to reinforce that our investment thesis as a foundational benchmark is and has been our continued guidance that reflects a long-term 5% to 7% growth rate. Getting to the financials for the quarter, we had strong earnings for the second quarter 2018 with a $1.07 per share GAAP and a $1.01 per…

Thank you, Nick, and good morning, everyone. I'll take us through the second quarter and year-to-date financial results, provide some insight on load in the economy, review our balance sheet and liquidity, and provide detail on our 2021 base case capital expenditures and equity needs. Let's begin on slide 6 which shows that operating earnings for the second quarter were $1.01 per share or $498 million compared to $0.75 per share or $370 million in 2017. Most of this year-over-year growth came from weather and the recovery of incremental investment to serve our customers. Looking at the drivers by segment, earnings for the Vertically Integrated Utilities were $0.56 per share, up $0.31. Weather was a large driver in this quarter with most of the $0.12 increase driven by warmer than normal temperatures in the late spring. Rate changes were also favorable due to the recovery of incremental investment across multiple jurisdictions and formula rate true-ups. The box for this segment was other smaller impacts. The Transmission & Distribution Utility segment earned $0.23 per share comparable to last year. As anticipated, AEP Transmission Holdco segment was unfavorable to the second quarter last year due to the minimal formula rate true up this year compared to the larger one in the second quarter of 2017. This was expected due to the change in methodology to fully forward-looking test years. This impact was partially offset by increased investment which has grown by $1.7 billion since last June. Generation & Marketing produced earnings of $0.05 per share, up $0.01 from last year, and Corporate and Other was down $0.01 due to higher interest. Let's turn to slide 7 and review our year-to-date results. Operating earnings through June were $1.97 per share or $972 million, compared to $1.72 per share or $845 million in 2017.…

Our first question is from the line of Julien Dumoulin. Please go ahead.

Good morning, Julien.

Hi. Good morning. This is Claire (24:13) for Julien.

Hello, Claire (24:14).

Hey, good morning. Good morning, team. Thanks for taking my question. My first question is recognizing that you guys will continue to work on regulatory approvals for Wind Catcher. Can you give a little more color for what other configuration or what other projects you could replace it with that would still take advantage of the one PTC (24:34) and the other PPA contracting structures as well. Just curious about any options there? Thank you.

Yeah. So, Claire (24:43), we continue to look at other opportunities where we have the renewables projects in Ohio, for example. We obviously continue that process. There will be other opportunities, but tax reform is certainly – has certainly changed some of the economics of some of these projects, particularly with lower capacity factors. So, we'll continue to look for opportunities to replace it. But remember, Wind Catcher was incremental to our base plan. So – and our base plan obviously supports the 5% to 7% growth rate in the investment in transmission and other areas in our regulated companies. So, with Wind Catcher, obviously, we'll continue to look at not only options. If Wind Catcher were not to happen, there'll still be opportunities for those kinds of resources to be applied through our resource plans in those particular states, so – but obviously, don't want to miss the opportunity for Wind Catcher because it's a great way to deal with the resource plans in all of those states at one time rather than independently with perhaps less efficient projects. So, we'll continue to take a look at it.

Great. That's really helpful.

Yeah.

And my second question is – this is a little early, I think. For your CapEx update, can you give a little more color as to why you're doing it before November and potentially any color around more than just the 75% of wires, how you're increasing above your 2020 run rate?

Yeah. So, let me answer the first one, Claire (26:29). We keep getting questions about how solid our go-forward plan is and what's the ability to keep investing it organically in our own businesses and we wanted to provide some clarity to that to show that we have plenty of runway to invest organically in our own system, primarily in the wires side of the business with some regulated and contracted renewables as well. So, people are asking, how long can you keep doing that for? And we wanted to provide some clarity. It's out there and we have plenty of runway to keep doing that and felt that the disclosure at this time might be helpful to people as they think about our stock.

There seem to be some confusion about whether Wind Catcher was required for us to continue with our 5% to 7% long-term growth rate. The answer to that is no, it's not required to do that. Our base plan is built around 5% to 7% and Wind Catcher was incremental. We just wanted to make sure that that was abundantly clear and that people weren't looking across the cliff and expecting something different regardless of the outcome. Now, if we get it, that's great. But if we don't, well, okay, we'll move forward with our plan.

Got it. That's helpful. I will drop out of the queue. Thanks so much.

Thanks.

We have a question from Ali Agha. Please go ahead.

Good morning, Ali.

Thank you, good morning. Good morning. First up, on Wind Catcher, Nick, to be clear, if either Texas or Oklahoma does not approve, can the project still go forward or do you need both of those approvals for this project to happen?

Yeah. My going-in assumption is we need both of those approvals, because these are regulated jurisdictions and that's where the needs are. And so, our – certainly, our strong preferences for that project is sized based upon the wind farm that's in existence with the transmission line and to do something different than that would be suboptimal so, we're really focused on making sure that all of the jurisdictions approve it.

Okay. And then, secondly, we've seen it now a few times. The sort of, what I would call, the drop dead date keeps getting shifted back. Now, you're telling us its end of August. So, in reality, when you look at the physical aspect of having it all built by the end of 2020, when exactly do you need to have this started? And, I guess, related to that, I'm sure you've been observing your stock has been under a fair amount of pressure while this uncertainty is out there. So, at what point do you make the call that – the base plan is so strong that we are maybe better off getting this uncertainty off the table and walk away here?

Yeah, Ali. Already – we've already started with right of way. We've also done other construction-related activities because we don't have time. And so, your question is a very fair question, though, from an investor standpoint. We cannot afford to continue to allow this thing to languish given construction has started, the company is incurring expenses associated with it, our supply contracts. And I think it's probably known now that the target dates for ordering long lead time equipment and that kind of thing through these major contracts was around that August 6 timeframe, and we were able to negotiate and look at the project plans and do a deep dive in terms of what we could possibly do. And that's where the end of August came from. So – and in deference to the commissions – and both commissions, certainly, it appeared Chairman Murphy wanted to take more time, and Chairman Walker wanted to take more time, wished they had more time. Well, we tried to accommodate that by the additional time necessary to get past – I know there's a lot going on with election season and all kinds of things occurring. So, we're saying the end of August and that's where we're at. And for us to go beyond that is going to be extremely difficult with major commitments of these large capital items and that's just not going to happen without the approvals necessary. So – and it's not because we're trying to be – just trying to make sure the commissions are pushed in a very hard fashion. That's not what we're trying to do; it's that we're getting pushed. And it's unfortunate that we didn't have several years to evaluate this project, but the PTC is the 100% value. The PTC, we're trying to…

Yes. No, I really appreciate that. Brian, one quick one for you. Can you just remind us of the rate increases that you had budgeted for 2018 in your guidance, how much are now locked in for you?

So, we were calling for a little bit over $300 million and we're about 80-or-so percent locked in.

Got it. Thank you.

Thank you.

Thanks.

We have a question from Steve Fleishman. Please go ahead.

Hey, Steve.

Hi, good morning. Couple of questions. Hi, Nick. So I guess, first just to clarify, the 5% to 7% growth rate – I think officially you've only given after 2019 but should we interpret that with this capital plan, it would extend through this 2021?

Yeah. So, we've given that – we've given the detail around it through 2020. Now, we're giving an incremental year, but we see that 5% to 7% growth rate as far as we can see.

Great. Okay. And then, secondly, on Wind Catcher. So, one -there's a reasonable chance that one outcome could be approval with conditions. So, that then leads to another process of do conditions work or not? So, when you're giving this kind of end of August deadline, is that, you just need to make a go/no-go call by then or...

Yeah. That's right. That's right, Steve.

Okay.

And it also means – and you're exactly right on that the deal parameters. We saw the sense of urgency. So, when we sent the letter into the commission, it was really responsive because really the discussion had been around 103% on the cost gap, while SPS was 102.5%, so we changed it to a 102.5%. I mean – and it's those things that Chairman Walker was bringing up. Okay, we said, we were going to match up the SPS, then we had the hold harmless provisions. It went even beyond. And I think that – and that was really responsive to her and her concerns and there are other commissioners' as well, and of course, the Oklahoma Commissioner's too. So, we put our best foot forward to say, this is the parameters of what a deal would look like. And I would say that – and I had mentioned this earlier in my comments, and I guess it was on purpose – but there is – you can play around with the edges, but the main parameters of the deal have been discussed for, really, for a year now. And with multiple parties and those provisions are pretty well-defined. So, for us to take on more risk beyond those parameters is not likely to happen either. So, I guess, I'm just saying, we sort of cut to the chase. And we cut to the chase based on the responses of the – what the commissioners were telling us and we put our best foot forward. So, it's – so our best foot forward is there from a parameter perspective. Our best foot forward is there from a timing perspective. And what I've said all along, we need an answer. And back to Ali's question of, we've had pressure on our stock. Well, because no one knows exactly where we're taking this and I'm just – guess I'm just reinforcing to you that we're about to take this to a closing, one way or another. Because we've got to get on with other decisions to be made relative to enhancing our shareholders value and that's what we're going to do.

Okay. And then, I guess one other question in that light. So, if you go back about, I think, 6, 12 months, you had talked about concern about the Oklahoma regulatory environment and I don't think you were that happy with the rate order. Early this year and then we'll see what happens with Wind Catcher, but just is that still kind of an issue that's in play based on the outcome here?

I think, actually – I think we've made a lot of progress from an Oklahoma standpoint just because of the dialogue that we've been having relative to the Wind Catcher case. And the dialogue that we've had post-rate case environments and pre-rate case environments. I think the issues are becoming more known from an Oklahoma perspective. And I think we've done a really good job of trying to do the best we possibly can for Oklahoma customers. And I think that's starting to get recognized and I really believe that we have the real potential of being on an upward trajectory as it relates to PSO because of – and I can tell you that there has been a lot of discussion post-rate cases and that kind of thing, but the kind of discussions we've had relative to Wind Catcher and really the stretch that we've put in here to try to do the best we can for Oklahoma customers is not going unrecognized. And so – and as I mentioned earlier, there will be another rate case filing in the third quarter in Texas and in Oklahoma. And that will be – I think that will be sort of a new beginning and one where we can really look at the issues in Oklahoma. I think there's a better understanding of the issues and I think we have some great commissioners there that really understand what the issues are. So, we're hopeful that we can make progress there.

Okay. Thank you.

We have a question from Paul Patterson. Please go ahead.

Hey Paul.

Hi. How are you doing?

Just right.

Just procedurally, what should we expect, I guess – what procedurally is expected to happen on Thursday in Texas? I know you guys are – have lengthened the period for decision making, but I'm just wondering what – is it possible to get a decision on Thursday?

Yeah, I don't know the answer to that. I think there's probably, in my mind, a couple of options. One is that the commission does decide to vote on the arrangement based on the input that we provided. The other option, probably could be more likely, would be that – Chairman Walker had talked about coming up with a list of questions and we responded to the ones we knew of. There may be other questions. So, there could be questions answered and then there's two weeks, I think, two weeks from then, is another commission hearing. So, whether we're on the docket or not, I don't know, but there is opportunities now that we've given to the end of August for that kind of thing to occur. So, that's up to the commission. But that's sort of the way that – the two alternatives that I see. I'd rather have them approve it at (41:25) Thursday. That'd be great.

Yeah, get some closure here. But...

Yeah.

And then, also – and just to clarify on the Ali Agha's question. There is really, I guess, no sort of Wind Catcher light or – I mean, basically, it's kind of you guys might do other things, obviously, you're always looking for things and other opportunities, but it sounds like, essentially, it's kind of – this deal is kind of – it's kind of a pretty much not really given to any significant modification, if this doesn't have – if there's a rejection or something like that, we shouldn't think of there being a sort of Wind Catcher light opportunity per se with respect to this project, is that correct?

That's correct. I think you could see, I mean, obviously, with the integrated resource plans that we followed, you may see smaller projects develop in some fashion but they could be renewables, may not be renewables. So, you really – but you won't see another Wind Catcher-like project because that one has – that one's very unique in its scope and scale and the benefits provided. And so, it's – you're probably moving to either less efficient type of opportunities and there certainly will continue to develop those kinds of options. But keep in mind, you should look at AEP as a 5% to 7% foundational growth stock with all these little incremental opportunities.

Awesome. Thanks so much.

Yes.

We have a question from Angie Storozynski. Please go ahead.

Hey, Angie. How are you? Angie Storozynski - Macquarie Capital (USA), Inc.: Hi. How are you?

Good. Angie Storozynski - Macquarie Capital (USA), Inc.: So, I have a bigger picture question. So, I mean, the utilities – electricity utilities (43:26) industry is clearly evolving and I'm trying to have some lessons learned from what have happened in Europe.

Yes. Angie Storozynski - Macquarie Capital (USA), Inc.: And I'm asking this because about 50% of your CapEx plan is transmission spending through 2021 and yet we have seen it in Europe, that transmission CapEx or transmission investments have been falling because utilities are choosing instead to go with distributed generation, sometimes backed by batteries.

Right. Angie Storozynski - Macquarie Capital (USA), Inc.: And we're hearing the same types of ideas now coming up from Midwestern utilities. And so, my question is, one, do you think that you need to somehow diversify your growth plan? And two, was the Wind Catcher basically an attempt to become less dependent on the – on transmission spending or was it some somewhat completely independent? Angie Storozynski - Macquarie Capital (USA), Inc.: It's a big question.

Angie, you should be involved with our strategy sessions because there's no question that this industry is changing dramatically and we recognize that at some point in time transmission will essentially saturate in some fashion, but that horizon is really a decade out. Because in the U.S., which is – I really talk a lot to the people at RWE Energy, Ineo, (44:53) other areas of Europe as well. And they're much more compartmentalized, but they're also, from a renewables perspective, the renewables are starting to slow down somewhat, at least large scale renewables. But in the U.S., that's still developing. And what we have to think about, though – and you're exactly right – as you bridge from the transmission-related investment, we see the incoming growth strategy around the innovation on the Distribution side. So, in the past, if you think about the way we've been investing, a huge amount of what we invested 5, 10 years ago was generation-related, then it became transmission-related. Now, you're seeing the continued development of transmission. And then, eventually, that will saturate but the growing part of it now is the distribution investment at the operating companies focused on bringing about the – effectuating the new technologies and development associated with either distributor resources, Big Data analytics, all the optimization activities going on. Those are clearly opportunities for us in the future. And that's why we're so focused on the customer and focused on making sure that that we are able to deliver those types of technologies where we're part of – we're the only U.S. utility that's part of an international consortium that does, essentially, a shark tank around the world. And I just got back from California where there were 2,000 start-ups that were evaluated, and it was called down to a list of 15. We're doing pilots with four of them, at least, at this point, and that's where the future is starting to develop. So, you're exactly right. And the way we see it is bending the O&M curve is a big part of what we're doing, because, obviously, with optimization, efficiencies, digital experiences, all those types of things in order (47:04) to that benefit, but the capitalization will continue to be transmissioned and then you'll see an emerging distribution component of it as well. So, as far as the eye can see, we're in a great shape from an investment standpoint because of that transition. Angie Storozynski - Macquarie Capital (USA), Inc.: Okay. That's all I have. Thank you.

Thank you.

We have a question from Praful Mehta. Please go ahead.

Thanks so much.

Hey, Praful.

Hi guys.

How are you doing?

Good. So, thanks for all the color on Wind Catcher. I guess – and you're reiterating the 5% to 7% growth. I guess, my question is, if Wind Catcher does go through, is the right way to think about it is that Wind Catcher will be all incremental growth to the 5% to 7% or will there be some capital allocation limitation when you say the 5% to 7% doesn't all add up with incremental Wind Catcher, but it's somewhere in between? How should we think about that kind of mix if you did get Wind Catcher?

So, think of it as incremental. What we've announced to-date, some of that could be pushed out in time, but still within the 5% to 7% growth rate. Does that make sense?

Okay. But there is a little bit of room of something getting pushed out just to kind of fit the Wind Catcher CapEx in there, is that right?

Absolutely.

Got you. All right. And then, given the strong quarter and the weather help I guess in Q2, is there any reason why kind of guidance is maintained right now at the same level?

Yeah. So, you know what a big swing for us the third quarter is and there are big items that will be ins and outs. I think Nick talked about some of the expenses that we're having with Wind Catcher as we go forward in time. It doesn't make sense for us to change the guidance at this point. The way we see it, we're still inside that range that we've identified, and if there's any change to that, we'd likely be making that after the third quarter.

And there are things that, that we – we usually use weather as an opportunity to move O&M. So, you could see some O&M move that was in 2019 to 2018 (49:13) or that kind of thing, we typically do that on a regular basis, because we do want to show that certainty and consistency around 5% to 7% in our earnings guidance. Now, you can only do that to a certain extent, right? So, if you do wind up with the rest of the year or like the first part of the year, then who knows how much you can absolutely – that you can do? But our view is really that credibility around the guidance that we put out in making sure that we can deliver on that regardless of what's going on with weather as we demonstrated last year, and then continue that as we go forward. So, we'll – and as Brian said, typically, we wait for third quarter to determine what the future holds in terms of guidance.

Got you. That's super helpful color. And then, finally, just now that you'll soon have some form of decision on Wind Catcher and tax reform kind of is done and – or at least mostly known in terms of what to play out the scenarios are, is there any strategic review that we should be thinking about that you guys are looking at in terms of your business mix or just anything that needs to be cleaned up internally? Or do you think, currently, the kind of combination of businesses or utilities you have is the right fit and there's nothing really to be done on the strategic side?

Yeah. We've already done it. We already done sort of a major housecleaning. So, we're a pretty pristine stock and when you – now, that being said, we're always looking at ways to optimize our portfolio and – but you also have to look at the uses, right? So, we have a lot of sources, we have a lot of uses. And so – and certainly our balance sheet is strong, so we can do a lot of things. But obviously, they're all centered upon ensuring that we are able to deliver on the guidance and the growth rates that we've laid out, and that's why we show – you can – and this sort of comes and goes. I mean, you can have a jurisdiction or a state jurisdiction that says, okay, it's suffering and maybe we should do something. Well, it takes a little time to really figure out, is that a – just a systemic problem or do we need to do something about it? But that's really the way we look at it. I mean, it is portfolio management, but its smart portfolio management around the delivery expectations around our growth rate and our guidance.

Got you. Thanks so much. Super helpful.

Yes.

And operator, we can – we have time for one more question.

Okay. We'll go to the line of Anthony Crowdell. Please go ahead.

Good morning, Anthony.

Hey. Good morning.

Morning.

Hey, Nick, I'll direct it to you to give Brian a little break from doing all the talking. But just quickly, any agreement that you reach or the detail that you reached in Texas or Oklahoma, but is there a most favored nation that hold harmless guarantee will apply to the other two jurisdictions?

Yeah. So, all of the jurisdictions have a hold harmless provision, so – and that's really the key part of it. I mean, every adjustment we make is not just an adjustment in that jurisdiction, it's adjustment across the board. So, that's why we have to be particularly careful from a risk perspective and that's why we've laid out in the letter what our expectation is. And then, FERC customers are obviously treated differently because of their own arrangements, but that's really the way it works.

Is that the biggest hurdle, you believe, for the Oklahoma and Texas commissions? Is this hold harmless or are there other details that are what's delaying it in those two states?

Well, I think, certainly, election season in Oklahoma is pretty distracting. And also, you have some parties in the states, like the Attorney General in Oklahoma, that they did a settlement – they call it a settlement deal, I don't know what it is. But with the staff that had provisions that were – they were way off base. So, a lot of discussion about that. And I think there's just a lot of confusion out there and sometimes you focus so much on the margins of what could happen to this and could happen to that, it's almost like finishing up a contract versus looking at the amazing benefits across the board that are out there. So, you're getting hung up in a lot of that kind of dialogue. And then, in Texas, you've got the industrials and others that now, the – (54:38) at least the attorney for the industrials that – using different gas forecast and all that kind of stuff and it sort of confuses the parties that are listening. So, when you get past all of that, and you get just to the facts, then I think we'll be in much better shape.

Great.

(55:00)

Too bad your family wasn't selling Chevys in other parts of SWEPCO. It was probably one of the easier states to Louisiana.

Yeah. My dad used to be a used car salesman and sold Chevys in Louisiana, so...

Maybe you should have rethought about Texas or Oklahoma, but thanks for taking my question.

Yeah. Yeah, thanks.

Okay. Well, thank you everyone, for joining us on today's call. As always, the IR team will be available to answer any additional questions you may have. Paul, would you please give the replay information?

Ladies and gentlemen, this conference will be available for replay after 11:15 AM Eastern time today through midnight Eastern time on August 2, 2018. You may access the AT&T TeleConference Replay System at any time by dialing 1-800-475-6701 and entering access code 451306. International participants dial 320-365-3844. Those numbers, again, are 1-800-475-6701 and 320-365-3844, access code 451306. And that does conclude our conference for today. Thank you for your participation and for using AT&T teleconferencing service. You may now disconnect.