American Electric Power : AEP Reports 16 Percent Increase in 2014 Second-Quarter GAAP Earnings Per Share; 10 Percent Increase in 2014 Second-Quarter Operating Earnings Per Share

• Second-quarter 2014 GAAP and operating earnings $0.80 per share
• AEP continues successful execution of regulated earnings growth strategy, adding another $100 million to its transmission business investment in 2014
• Company reaffirms 2014 operating earnings guidance range of $3.35 to $3.55 per share

Preliminary, unaudited results

COLUMBUS, Ohio, July 25, 2014 - American Electric Power (NYSE: AEP) today reported second-quarter 2014 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $390 million or $0.80 per share, compared with $0.69 per share or $338 million in second-quarter 2013, an increase of 16 percent in earnings per share.

Operating earnings (GAAP earnings excluding special items) for second-quarter 2014 were the same as GAAP earnings of $390 million or $0.80 per share, compared with second-quarter 2013 operating earnings of $0.73 per share or $357 million, a 10 percent earnings-per-share increase.

A full reconciliation of 2014 and 2013 GAAP earnings with operating earnings for the quarter and year-to-date is included in tables at the end of this news release.

"We continue to see the positive effects of executing our regulated earnings growth strategy," said Nicholas K. Akins, AEP chairman, president and chief executive officer. "Our solid financial performance in the second quarter was supported by the rate base growth we've achieved through investments in infrastructure and system improvements for the benefit of our customers. Our focus on transmission also is boosting earnings. AEP Transmission Holding Co., including equity earnings from joint ventures, contributed 10 cents per share to earnings in second-quarter 2014, 6 cents higher than the earnings contribution in second-quarter 2013. Between June 2013 and June 2014, we grew Transmission Holding Co.'s net plant assets by 92 percent, to nearly $2.1 billion.

"Economic improvement in the states where we operate is encouraging, particularly in areas with shale gas development. Excluding the 2013 closure of our largest industrial customer, overall industrial sales increased 4.5 percent for the quarter, and in counties with significant shale gas development, our industrial sales increased by 39 percent. Industrial sales increased in nine of our top 10 industrial sectors in the first half of 2014. Commercial sales also increased for the fourth consecutive quarter. While residential usage declined slightly this quarter, we expect it to be slightly higher year over year," Akins said.

"We've maintained our focus on cost controls and process improvements. Although we are advancing spending into 2014 from future years, we remain well-positioned within our 2014 earnings guidance range. Based on our positive earnings performance and balance sheet strength, we are increasing capital investment in our transmission business by another $100 million. The additional $300 million that we've allocated to our transmission business in 2014 brings our total transmission capital investment to approximately $1.9 billion, which will support future earnings growth," Akins said.

Management reaffirmed its 2014 operating earnings guidance range of $3.35 to $3.55 per share. In providing operating earnings guidance, there could be differences between operating earnings and GAAP earnings for matters such as, but not limited to, impairments or changes in accounting principles. AEP management is not able to estimate the impact, if any, on GAAP earnings of these items. Therefore, AEP is not able to provide a corresponding GAAP equivalent for earnings guidance.

$ in millions

Operating earnings from Vertically Integrated Utilities for second-quarter 2014 increased $2 million compared with the same period in 2013. This reflects the impact of continued successful rate proceedings as well as favorable off-system sales because of higher market prices, offset by increased operations and maintenance expenses in transmission and generation.

Operating earnings from Transmission & Distribution Utilities for second-quarter 2014 increased $15 million compared with the same period in 2013, primarily due to increased transmission investment.

Operating earnings from AEP Transmission Holdco for second-quarter 2014 increased $29 million compared with the same period in 2013, largely from increased transmission investment.

Operating earnings from Generation & Marketing for second-quarter 2014 increased $8 million compared with the same period in 2013, primarily due to favorable power prices.

Operating earnings from AEP River Operations for second-quarter 2014 increased $12 million compared with the same period in 2013, mainly driven by improvements in barge freight demand.

Operating earnings from All Other for second-quarter 2014 decreased $33 million compared with the same period in 2013, primarily due to prior year interest income associated with a favorable court decision related to United Kingdom windfall profit taxes.

$ in millions

Retail and FERC Margins - Retail and FERC margins for second-quarter 2014 were $61 million higher than for the same period in 2013, largely from the continuing impact of favorable rate decisions.

Off-System Sales - Margins from off-system sales increased $21 million in second-quarter 2014 compared with second-quarter 2013, mainly driven by higher market prices for power.

Transmission Revenue - Transmission revenues were $6 million higher in second- quarter 2014 compared with the same period in the prior year, primarily due to increased investment in the PJM region.

$ in millions

Retail and FERC Margins - Retail and FERC margins for second-quarter 2014 were $72 million higher than for the same period in 2013, mainly driven by the continuing impact of favorable rate decisions.

Transmission Revenue - Transmission revenues were $33 million higher in second-quarter 2014 compared with the same period in the prior year, primarily due to increased transmission revenues from Ohio customers who switched to alternative Competitive Retail Electric Service providers and increased transmission investment.

$ in millions

Generation & Marketing - Generation & Marketing margins increased $9 million in second-quarter 2014 compared with the same period in the prior year due to favorable power prices.

The following expense categories within the Vertically Integrated Utilities segment had significant fluctuations in 2014 compared with 2013 (dollars in millions):

Operations and Maintenance expenses in second-quarter 2014 for the Vertically Integrated Utilities segment were $67 million higher compared with the same period in 2013, mainly driven by increases in transmission expenses, generation maintenance expenses and employee-related expenses.

Depreciation and Amortization expenses for the second-quarter 2014 for the Vertically Integrated Utilities segment increased by $17 million compared with the same period in 2013, primarily because of increases in the depreciable base.

The following expense categories within the Transmission & Distribution Utilities segment had significant fluctuations in 2014 compared with 2013 (dollars in millions):

Operations and Maintenance expenses in second-quarter 2014 for the Transmission & Distribution Utilities segment were $78 million higher compared with the same period in 2013, primarily due to increases in transmission expenses recovered dollar-for-dollar in rate recovery riders/trackers, storm-related expenses in Ohio and employee-related expenses.

Depreciation and Amortization expenses for the second-quarter 2014 for the Transmission & Distribution Utilities segment increased by $5 million compared with the same period in 2013, mainly from increases in amortization related to Ohio and Texas securitizations as well as increases in the depreciable base.

Taxes Other Than Income Taxes increased in second-quarter 2014 for the Transmission & Distribution Utilities segment by $3 million when compared with the same period in 2013, largely from increased property taxes.

American Electric Power's quarterly conference call with financial analysts and investors will be broadcast live over the Internet at 9 a.m. EDT today at http://www.aep.com/webcasts. The webcast will include audio of the conference call and visuals of charts and graphics referred to by AEP management during the call. The charts and graphics will be available for download at http://www.aep.com/webcasts.

The call will be archived on http://www.aep.com/webcasts for those unable to listen during the live webcast. Archived calls also are available as podcasts.

American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. AEP ranks among the nation's largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation's largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP's transmission system directly or indirectly serves about 10 percent of the electricity demand in the Eastern Interconnection, the interconnected transmission system that covers 38 eastern and central U.S. states and eastern Canada, and approximately 11 percent of the electricity demand in ERCOT, the transmission system that covers much of Texas. AEP's utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP's headquarters are in Columbus, Ohio.

AEP's earnings are prepared in accordance with accounting principles generally accepted in the United States and represent the company's earnings as reported to the Securities and Exchange Commission. The company's operating earnings, or GAAP earnings adjusted for certain items as described in the news release and charts, provide another representation of the company's performance. AEP uses operating earnings as the primary performance measurement when communicating with analysts and investors regarding its earnings outlook and results. The company also uses operating earnings data internally to measure performance against budget and to report to AEP's board of directors.

• Full news release and supplemental tables
• Investors Presentation
• Supplemental PDFs

This report made by American Electric Power and its Registrant Subsidiaries 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 AEP's 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 AEP's 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, particularly in Ohio; weather conditions, including storms and drought conditions, and AEP's 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 generating capacity and the performance of AEP's generating plants; AEP's ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; AEP's ability to build or acquire generating capacity and transmission lines and facilities (including the 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 AEP's 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 that 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; AEP's ability to constrain operation and maintenance costs; AEP's 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 AEP generates and sells at wholesale; changes in technology, particularly with respect to new, developing or alternative sources of generation; AEP's ability to recover through rates or market prices any remaining unrecovered investment in generating 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 PJM and SPP; the transition to market for generation in Ohio, including the implementation of ESPs; AEP's ability to successfully and profitably manage its separate competitive generation assets; changes in the creditworthiness of the counterparties with whom AEP has contractual arrangements, including participants in the energy trading market; actions of rating agencies, including changes in the ratings of AEP debt; the impact of volatility in the capital markets on the value of the investments held by AEP's 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.