Good morning, everyone, and welcome to today's Analyst Day. AEP really thought about the approach that we'll be taking during this Analyst Day, and it really is focused on the future. As you've probably seen from the two press releases this morning, those press releases are very much focused on, not only our Third Quarter Results, but also focused on the future in terms of where we plan on taking this company, so very happy to be able to focus on that further today. Obviously, our story's around growth and innovation, focused on infrastructure development, and the customer experience, which we’ve talked about previously, but also very much so consistency and quality of our earnings. And I think you're going to see, in the process, we really focused this company on the firm foundation, a firm financial foundation, which continues to exist, and also being able to invest in the right things, as you see from the capital plan, that's going to be extremely important for us in the future to deliver consistency and quality of earnings to our shareholders. Some I'm going to do the clicker here, and everyone's familiar with the safe harbor statements, so you could read that at your leisure if you like. But also, as we look at the program today, we wanted to take a look at several areas, and we have some executives here today that focus on specific areas of growth and expectations of the company going forward. We'll have those leaders here today to answer questions that you may have about the future in terms of their parts of the business, but obviously it's a change for AEP to be able to address these types of issues as opposed to focusing on some of the concerns that we’ve had to deal…

Thank you, Nick and good morning, everyone. I’m going to focus a little bit on the past and then I’m going to try and catch up with my CEO and talk about the future a little bit as well, but I need to clear some things out of the way before we can get there. Let’s start with the asset impairment that we announced today. This morning AEP announced a third quarter pretax impairment of $2.3 billion. This is $1.5 billion after-tax, and on a per share basis, it’s $2.98. Fortunately, AEPs strong balance sheet can withstand this type of impairment. This moves our debt to total cap to 55% and doesn’t come close to bringing in the question any covenants or credit events. The vast majority of this impairment is associated with generating units, some of which serve regulated customers in Ohio for more than 4 decades. We were required to conduct the asset impairment test due to the reduced likelihood of cost recovery in Ohio that Nick mentioned earlier, declining prices for capacity and energy and the market intelligence that we have gained in the recent sale process of other generating assets. There will be no cash tax savings from this impairment until the units are either sold or retired. However, coincident with the impairment, we – the capital budget for these plants was reduced by approximately $400 million over the remaining life of the plants. These are dollars that will be reinvested in our regulated or contracted businesses. This asset impairment, combined with previously announced sale of our other Ohio generating assets, puts the financial impact of the costly Ohio deregulation debacle squarely behind us. To be clear, we now have a significantly smaller financial footprint in Ohio, but we also have wires companies that in the…

Well, good morning. It’s a pleasure to be here with you today and talk about our Transmission business. As Nick mentioned, AEP owns, operates and maintains the largest transmission network in North America. From a transmission business unit standpoint, we have 2,600 employees located in over 90 offices across the system for 11 states. From these offices, we basically maintain the assets of our seven operating companies, our six Transcos and our five joint ventures. This is a portfolio that provides tremendous geographic as well as project diversity. And that has been and will continue to be key to our execution in the future. I want to talk a little bit about Transmission Holding Company and to point you to our net plant figures that you see on the screen here. Our Transmission Holding Company assets are fairly new. Underneath these companies, we have our joint ventures as well as we have our AEP Transmission Company and AEP Transmission recently secured Moody's rating of A2, with a stable outlook and S&P family rating of BBB+. In that issuance, they also mentioned the fact that if it was a stand-alone company, that AEP Transmission Company would get an A+ rating. These strong ratings reflect the strength of transmission-only businesses in our portfolio. By contrast, assets held in our operating companies are older. You can see that we have about $10 billion of net plants and used assets. And that reflects about 37,000 miles of line and 3,000 substations. AEP Transmission Holdco is created in 2011 with 2 FERC formula rates. Since that time, we've been putting dollars to work in support of good reliability and furtherance of that effort. Diversity has been our key in terms of our execution from a project portfolio standpoint and a geographic standpoint. It has enabled…

Well, good morning, and thanks, Lisa. What a great investment story. And I’m pleased to be able to have some time this morning to share with you the regulated properties are well positioned to put that capital investment and other capital investment to work for our shareholders. And I’d also like to share with you how the capital allocation and a resource mix in AEP is changing based on crisp capital allocation, plant sales and unit retirements that’s all leading to a lower environmental and lower overall business risk. So let’s take a look. So Nick graciously allowed me to take his favorite slide, the equalizer slide, it’s something you've all seen every quarter, and talk about how the regulated operations are doing. You’ve seen it before, we have a variation in performance across the 11 states. But overall, I’m pleased to report at the end of the third quarter, the regulated ROEs for these companies were 10.5%. We had some nice uplift from weather. But overall, the properties are performing at a rate of about 10%, like we performed over the last three to four years. Quickly going from left to right, to give you a perspective of what’s going on. Obviously, Ohio is leading the ROE race here. It’s now a wires company, smaller, and Nick had talked a little bit initially and will talk some more about some opportunities for investment in Ohio. But – and of the ROE at 13.2% is actually on a book basis, about 140 basis points higher. We’ve discounted this number for some of the regulatory proceedings that gave us WAC, improved WAC recovery on fuel and the seed cap. So we’ve removed that and this reflects more the ongoing earning power of AEP Ohio. APCo is now our largest operating company…

Thanks Bob, and good morning everyone. My good friend, Brian Tierney, often reminds me of an award I achieved in 2006, which was the Ohio Coal Man of The Year, and often take a ribbing for that. It's interesting to me that 10 years later, here speaking about our entrée into the renewable energy space from a contracted basis. And so time does change a lot of things in our industry. And no question, 10 years from now, I'm sure there'll be someone up here, someone else up here talking about some other transformational opportunity in our industry. So we've had a very busy year in the competitive space. On November 12 of last year, 2015, we sold AEP River Operations to ACBL. That was a very successful transaction. And immediately, after that, we began working diligently on the divestiture of the 4 power plants that we sold in September, the Gavin plant, Lawrenceburg plant, Waterford and Darby. We announced that transaction in mid-September. As Brian and Nick had addressed earlier, all the regulatory filings are in for that transaction. We expect first quarter close for that, the teams at AEP are very busy, as well as the buyer of the assets transitioning, working on a number of work streams to enable a smooth transition. And all that work is on path, and it looks like we’re on schedule for a first quarter close. A lot of people wonder, what takes so long for something like that occur? The due diligence process for gas plants is much different than it is for a coal plant. As you know, a coal plant was a big part of that sale, 2,600 megawatts at the Gavin plant. Throughout the process, we’ve logged all the questions that we had to answer in the due…

As you can see, there's a great degree of enthusiasm about where this company is going in the future. I know some say that AEP really should be a boring regulated utility, but it's anything but that. It's actually, I think for me, personally, it's the most exciting time that I've ever experienced in my career working for a company that's really focused on the future. It doesn't have the baggage that we used to have, and is really clear to focus and make those decisions that are going to be important for our customers in the future. So as I, let me go one more slide here. We've gotten pretty good at doing these before and after slides to get our point across. But if you look at 2014, 79% of our earnings were from the regulated side. Afterwards, today, 97% of our earnings will be from the regulated operations. So clearly, clearly, a substantial change has occurred. And you heard Bob mention, this is really the exciting part. To me, I get carried away. I know Bette Jo doesn't want me to talk about technology a lot, but that will be for the next Investor Analyst Day. But clearly, we're in a position now where we have a firm foundation to be able to grow and make decisions about how we want to address the customer experience in the future. And that's done through infrastructure development, blocking and tackling associated with these projects. When you tell Lisa Barton, "Hey, guess what? You have another $1.6 billion you need to spend over 3 years." And she said, "Yes, we can do that." And that shows the incredible agility of what we have relative to our projects, the project flow, the project management, all those types of activities to support…

For the purpose of the webcast, if you could state your name.

Hi, it's Andrew Levi from Avon Capital. Just a couple of questions. 2018, 2019, what gets you to the high end of your guidance?

Load recovery and rate improvements. It's really a recovering economy.

On the plant impairments, on those 4 plants that you have out there, are they losing money in '17, 18 and '19 in your forecast? Or how does that work?

They're going to be about cash flat.

No, but earnings-wise?

About flat.

Flat? Okay. So if you were to sell or shut them, there wouldn't be any earnings incurred one way or the other?

Correct.

Yes, just think about what we need to do relative to those assets. I mean, some of them are multiple owners. So we've got to resolve some of those issues. So there's really our own strategic review around those sets of assets to determine, can there be consolidation? Would you package them together? How do you deal with the variances associated with those particular plants as opposed to the non-PPA plants?

Well, I guess, 1 or 2 of them, if they were, let's say, Dynegy's co-owner on them? I guess, they probably could run them cheaper than you guys? Do you feel that?

We're in talks with people who might be interested in buying those. And obviously, co-owners might be ways that we could settle that fairly easily. But there are others who are interested in those as well.

Okay. And then my last question, and I'll let somebody else go, on the 205 filing that you made, is that in your guidance that you get that? Or is it your guidance basically incorporates how you have it today?

Lisa, do you have a microphone?

Thanks. So the 205 filing, we have one, we have not filed it yet. We anticipate doing so in the next 30 days. The guidance that you see basically is reflective of the ROE before the 206 complaint, as well as not having the 205. The two in ‘17 will likely cancel out each other. When you look at – for example, we have O&M expenses, property taxes, and the impact of bifurcated plant in service, if you look at over the past three years that’s been about 119 basis point delta.

And Andy, the net – the net that keeps us in the range.

The question is, would it be a one-year pop; and yes, it would be a one-year pop. And what we have seen in the past is on an average, has been about 119 basis points.

Back here. Julien Dumoulin-Smith, UBS. Just a couple of quick questions. Well done on the transition regulated. Let’s turn it back to that 3% unregulated for a quick second. Can you talk about what the future is of that 3%? What is there? Is it sustainable? And then also, where are you reflecting the renewables pieces? In that 3%, I mean, obviously, there’s probably not a ton in there. How does that grow over time? And then perhaps a second one, if I can throw it out there. What is a good rule of thumb in terms of levered IRR, earned ROE or just in general, 100 megawatts of x contributes x cents?

Yes. So we’ll make sure Chuck gets a microphone here as well, if there’s a microphone. We’ll get back to all the questions. Don’t worry about it. But part of that is the energy supply business, the retail business, and I have been a proponent of maintaining that retail business because, and Chuck talked about this a little bit, it’s a relationship, it’s a channel growth opportunity. As you long as you stay disciplined around the execution and can find the risk of that business, it can be a very good business. Now we’re not a huge retail energy provider in this country. I mean, obviously, we don’t intend to be that. We are – we have about 500,000 customers in that part of the business spread out in various states. And it gives us eyes and ears in terms of what customers truly want in those various areas, and it gives us an opportunity to expand in other areas as well. So Brian, I don’t know if you have additional comments? We’ll get to Chuck as well.

Yes. So just to add to that right, the contribution or lack of contribution, if you will from the PPA plants right would be also represented in that 3% area. So again, it’s the retail business, the wholesale business, and the contracted renewables. All of those businesses are fully hedged, either backline asset or some other hedging mechanism right through our risk management procedures. And in terms of – as we look at investing in contracted renewables, if you kind of stack up the IRR kind of possibilities in orders of preference financially, we’d prefer a win, it also comes with more risk, right? Secondly, we prefer the OnSite Partner opportunities because those smaller projects often have an ability to get a higher IRR. And then lastly, the universal solar is providing kind of the least opportunity in terms of IRR and equity as we stack up what we want to do in pursuing that business.

I also see the retail business as a hedge from a structural part of the industry going forward because you know, I mean you’re seeing in Nevada and other states the potential for some form of restructuring. If that were to occur, we want to make absolutely sure we have the foundation ready to advance from that perspective. And we've done a nice job of it so far.

But just to clarify, call it, diamond of earnings from the retail business, that should be ongoing? And renewables should be incremental to that number?

Exactly.

Got it. Okay. Excellent. And then just if I can follow up real quickly, separate related subject. Why not do renewables via kind of a more traditional rate-based approach? Why bother with the contracted PPA approach at all?

We're going to do that as well. And that was the $400 million that we talked about for the use of proceeds. That was in vertically integrated utilities.

Got it.

And keep in mind, too, a lot of things that Chuck is doing in his part of the business around the relationships with customers, whether it's micro grids, whether it's solar, wind, battery technologies. We're also working to advance the regulatory structural mechanisms in place to support or regulate utilities to make those same type of investments, because that's important to provide universal access to everyone as opposed to individual customers with those tailored needs.

Hi. Mike Weinstein from Crédit Suisse. Just to follow up on Julien's question. Can you quantify the IRR, ROEs that you expect to get from the renewables business?

That's competitive information, I'd hate to be able to throw that out there in the space and offer my competitors the ability to know where AEP's doing business. There's very active projects we're participating in right now. Would not be a wise thing to do to.

And one, just one follow-up on...

Let me just to add that, though. We talked a lot about the threshold level that's acceptable to us. And that when Chuck was talking about being selective in the process, we're managing the discipline around that from a financial perspective.

Just one follow-up on the transmission forecast. The EPS forecast looks a little bit lower than the EEI presentation from last year. I'm just wondering what drives that.

Brian? Chuck?

It is, basically, it's bonus depreciation is the most significant contributor in 2015. We did not assume extension of bonus depreciation. Also, this past year, our network system peak will change from summer to winter peaking. And that results in a lag that would be remedied with the 205 filing.

Michael Lapides of Goldman. Two questions, one, a little bit of housekeeping, and one more kind of strategic or longer term. On the housekeeping, Brian, one of the slides, Slide seven shows that you actually do have earnings contributions from the generating business in 2017. I think it's $0.09 from the remaining assets and $0.09 from the soon-to-be divested ones?

It's until the sale, Michael.

For both?

Yes. So $0.09 from the generating, and I apologize. That's until we sell it, then we don't have that. And then it's about $0.09, $0.10 for what's left.

Got it. So like if I were to rebase '17, it's really that $3.47 you're talking about?

Yes.

Okay. My second question is more thinking about the generation portfolio at the regulated subsidiaries. And you've done a great job as a company overall of reducing emissions, putting controls on existing coal plants. We've seen some of your peers among the larger utilities be more proactive in terms of fleet transformation at the regulated subs, meaning whether building and owning gas-fired generation within the regulated business. And I know you can't really do that right now in Ohio. You've got a lot of other regulated subs that own generation. But you've not build a lot of gas fired generation in rate base. We've seen other companies, including ones that are in states that don't have renewables standards. So states in the Southeast neighboring some of yours that built renewables in rate base. And I know, Brian, you touched on you're going to spend $400 million or so. Back of the envelope map, that's not even 300 megawatts. For a company your size, it's kind of a rounding error. So just curious how you're thinking about fleet transformation at the regulated subsidiaries within the AEP asset ownership profile versus other owners? Or is this a conscious move where AEP becomes less of an owner of the generation that serves its customers?

Yes. So as far as regulated generation is concerned, we'll still be an owner of that generation. I think when you going back to Bob's slide of the future and what we're showing, it's all renewables and natural gas. Now keep in mind, our Western territories already have a lot of natural gas. And but we made decisions, and you can expect decisions to be made very differently about the investments that were made, particularly as it relates to coal fired generation, and whether the mechanisms we can work through to ensure that we reinforce the transition occurring. We just retired a wells unit, one of the wells units, and that was in the context of adding renewables as well. You're going to see more of the trade off being made of natural gas and renewables against coal fired generation to really focus on balancing out that fleet perspective. So the units we have left are fully controlled, but the issue still remains. When you look at huge, new investments being made and what you have to invest in those plans in the future versus making a change here during a transformation cycle, that's an opportunity that we have with all of our regulated jurisdictions to go through, through the integrated resource planning process. And we intend on doing that. I think you're seeing, like I said, very, very different decisions being made about not only depreciation, but also in terms of investment and where you focus on the plant actually being retired. In the past, it was run these plants as long as you can. Today, it's really bound to financial decisions around what the options are, which are very different today, versus trying to achieve that transformation as quickly as possible. So Brian?

Yes, Michael, the only thing I'd add to that is we're not in a position of having to add large central station generation right now. Remember, given what happened with Ohio deregulation, there were states that wanted access to Amos and Mitchell that they've had for many years. And we were able to transfer those assets at book value and cover up a lot of those company central station needs for a long period of time. In addition, in the West, we also have Turk that was recently added to the portfolio there. And so there hasn't been large central station needs in the Western part of our system as well.

And keep in mind, too, just the overall investment thesis is, all of our investments are smaller, whether generation smaller capacity segments or smaller in terms of transmission investments, things that we can turn on and off in a very fluid fashion as opposed to being half built on a $1 billion scrubber or in the middle of a large central station facility. We're not doing that. We're going to be focused on investments that we can make to have the agility that's required to provide that consistent earnings profile. That's what we're doing across the board.

Brian, first, on O&M, the slide shows $3 billion flat through 2017. I think you might have said something about beyond? But could you just clarify what we should be thinking about within the guidance for O&M out to '17.

Our goal is to keep it at that level for the foreseeable future. And there's been a transition on that as well, Jonathan. Some of that, as you know, as we've sold some of the generation or shut down some of the generation, the generation has gone down. And some of the things that we've been spending on emerging costs, like IT and security, have actually increased over time. But our goal is through continuous improvement initiatives and procurement initiatives to stay at that $3 billion level for the foreseeable future.

Safe to say that's what's in the guidance?

Yes.

And then separately, you sounded like you might be at least somewhat optimistic you could still sell the PPA assets. I think, Nick, you described the restructuring as being thinking about the future. And I was just curious whether that precludes some sort of arrangement around those existing assets or just handicapping which way you that'll likely to go and how likely you are to be out of them.

Yes. We definitely want to be able to neutralize the financial impact of those units. In the restructuring discussion, I really believe that we have, hugely, a much better chance of going through restructuring with a forward view of what we can do for Ohio. When you look at those assets, and particularly when you're thinking about in the excess cost of market recovery that's being transferred back to the wires company, that really -- while it potentially could be done as a challenge, and it encumbers the ability to really get that forward view of the investment potential that's available in Ohio for us. So I tend to look at it more from a forward perspective than looking back. That may have impacts on others, obviously. But from an AEP perspective, after all, you get -- you can only beat your head against the wall so many times. And it really is a difficult message to say, we want excess cost over market. And that becomes the headline as opposed to a true forward-looking view of enhancing the earnings capability of the company going forward. If we're able to move forward and have Ohio in a position where the utilities can invest in new generation, then that's also an earnings positive for us that's not in the plan, and that's something that we're really focused on.

And level of optimism on selling the assets?

I mean, so we've had third parties who were interested in examining those assets, and we've had a team that's been focused on selling a different set of assets. And as that comes to a close, we're going to explore conversations with those folks.

Hi guys, Praful Mehta from Citi. So a quick question, just to clarify again on the 2017 earnings. The $0.09 we get, that is the assets that are being sold. The other $0.09, is that the other assets, the PPA assets, effectively? And is that earnings neutral or is that $0.09 that other assets?

The $0.09 is everything else that's in Chuck's business, but we don't anticipate much contribution from the -- what we used to call the PPA assets.

That’s right.

Got you. And so if you look at the trajectory then going forward, the 5% to 7%, given if Chuck’s business, effectively the other $0.09, what contribution, I guess, is the renewable component going forward? So if you look at, let’s say, 2019, apart from the utility business, which we can see in the growth profile, what is the renewables business, I guess, add up to as a proportion of the total by 2019?

So you should think of it – next year, in the $0.09, we have a favorable hedge position by which is contributing, right to the benefit of that $0.09, right? As that rolls off, if we sell the generation, that number is going to come down and it’s going to be replaced, right, by the growing renewable business. So you should consider that $0.09 to be somewhat slow-growing through the period, not at the 5% to 7%.

Fair enough. And then, finally, just to – Chuck you said a number of people are going after renewable businesses, and this seems to be the new kind of theme to kind of seek growth right now in the utility space. I guess, just to test that thesis, if you don’t get the IRRs that you’re looking for because it is becoming more competitive to buy contracted renewable assets, is there a backup plan B? As in, if you’re not able to deploy the $1 billion of capital, do you have a Plan B? Or is that – what I guess is, is if you don’t get the ability to invest, what do you do?

Yes, I think I’d be a lot more concerned if we just laid out a $3 billion or $4 billion plan over the next 3 years. Because in reality, I think with the $1 billion plan, we can high grade that opportunity and choose the projects that we want to participate in. If I was to win everything that I’ve have got a bid out on, I’d be well over $1 billion right now. And I already 25% of it in letter of intent phase that I – that basically we’re going through the due diligence to make sure everything is set on that. So the reality is I’m very comfortable at $1 billion because it allows me to choose what I want to do. If things fall through the bottom, we’ll return the capital to the company, right and the company will deploy that in a different fashion that provides the return right that you were seeking as a shareholder.

Got you. But there's no plan ever to move into the development side. It’s always buying developed assets is the goal?

Yes. There could be a few exceptions AEP owns some property that has renewable development potential. So that would be the exception. But the rule is more stepping in, right, behind the developers, already incurred those expenses and purchasing the projects. You could strand up a lot of cost, right through developing projects. And so therefore, we’re playing a much lesser role in the true development phase. We are more development in the OnSite partner part though, because you’re specifically working with a customer.

Keep in mind, your premise was around plan B. Chuck gives the plan B. Plan A is to focus on our transmission and regulated investment. And when we look at what Chuck is doing, Chuck is some form of high grading, but certainly that is occurring because we have that optionality. But it’s not – is not the way we’re trying to grow his business at an inordinate standpoint when we have the forecast out there. We want to forecast that Chuck is completely comfortable with as opposed to something, again, that's aspirational that may or may not occur or could occur with low returns. So we have that ability and I think that's the huge part of the message here today. As Chuck said, if you can't do it at the threshold level that we set on the return expectations, we're also constantly looking at our own business, including transmission, including the regulated operations, to see what we can make those investments in. And with the growing areas of security, resiliency of the grid, technology deployment around the customer experience, those are also growth areas that will be occurring on that side. So this is not set in stone. This is what we know today. And as we look at the future, that process will continue and we'll continue to look for even further growth. We're not stopping there.

Ali Agha, SunTrust. First question, the $2.2 billion that you've invested or plan to invest over the next three years. Just to be clear, for planning purposes, in total, what kind of return have you assumed on that? Is that the 10% roughly that you've been looking at on the regulatory side?

Yes.

Yes.

Okay. And then second question. In your chart, when you look at the 5% to 7% growth, you have a section beyond '19 kind of the future, if you will, what is your line of sight right now? How far is your visibility when you look at the transmission projects that Lisa has or other investments that gives you comfort that this continues how far beyond '19?

I think that's what Lisa was trying to lay out and showing age of system, the type of projects that she's investing in. We see a run way going out 10 years in that business for ample opportunity to invest, whether it's aging infrastructure, local reliability, regional reliability. One of the things that we haven't seen yet and we should have opportunity to invest upwards of $1 billion associated with retirements that happened in 2015, there is likely another set of retirements that are coming about associated with the affluent standards of what we, in effect in the early 2020s. So that's not even in our numbers yet on top of what we have just on our own system.

And Brian, as you look at those investment opportunities even beyond '19, when at the earliest do you think equity issuance comes to the table for AEP?

I just, I don't see it in our plan right now. That's not to say that we wouldn't do that for the right opportunity. But we haven't had to do that since 2009, and I don't see it in our plan currently.

We even cut off the DRIP.

Yes.

Last question, Nick. There is ongoing consolidation going on in the space, electric as well as gas. Maybe not the next three years, but strategically, is there an interest for you now that you are 100% focused regulated company to seek out opportunities for growth?

Absolutely, we're always looking at opportunities. But, and you know the story, we have to be positioned to do that. I think we are positioned to do that. But there again, the things we talk about today, the indigenous growth potentials that we have within our service territory, the ability to invest, it's a higher threshold for us. So it's going to have to be something that's truly strategic, truly something that's additive to the issues that we've brought up today. And we'll continue to looking at that. But I think we are in a much better position to do that kind of thing strategically. But our focus is making sure that we are wise in the capital deployment that we have, that we're efficient for investors and as long as we will only be paying premiums, if it's of true strategic value going forward. Right now, we're making a lot of investments with no premiums.

But the organic opportunities keep you at that 5% to 7% threshold?

Absolutely. And actually, on that graph, we even talked about how it will end. I mean because, you show the cone going out and you cut it off for the year. The logical question is what happens after that? And we purposely said, no it continues on. We're in a great position in that.

Steve Fleishman. Couple of related questions. Just overall, in your plan, kind of what is the impact on customer rates? Are you kind of close to inflation on average crusher system? Also, are there any kind of key rate cases coming up that we should watch? And then, lastly, in the Ohio ESP outcome, there was the grid mod and renewables that you were allowed to do. Is that in the plan? Is that part of the mix here?

So let me start with the rate changes. Over the forecast period, we're anticipating average rate increases in the 3% range.

In regarding Ohio, I'm reasonably optimistic that some of the issues, Steve, that you highlighted will get resolved in the near term, which would represent investment opportunity and enhanced DIR. Again, I think the smart city decision in Columbus has got the attention of the Public Utility Commission of Ohio from a positive standpoint. As far as rate cases you should watch, we're watching the pending decision by the Oklahoma Commission in PSO. Obviously, we put $75 million of rates at risk on that decision. If for whatever reason that doesn't mean our expectation, we'll be looking to refile in Oklahoma shortly after.

Yes. Certainly, Steve, I wouldn't want to undervalue the importance of issues like the smart city challenge, that was one. We already had proposals before the Ohio Commission focused on smart city type of applications. And it's important to not only the entire area of Central Ohio, but important to many leaders, including the commission, to focus on the ability for us to invest in those smart technologies of the future. And so we see that as an important framework for the expansion in other areas of our service territory. That's the, and with those particular riders that are applied for, we expect the commission to be very supportive of those applications because that is AEP's avenue for growth in Ohio, that along with the restructuring. And I think we've probably registered the importance of AEP's position in Ohio is driven by our ability to invest in new technologies, new generation, but also focus on the strategic aspects of smart cities and those types of applications, whether it's micro grid technologies, energy storage, those kinds of devices that can be deployed to support transportation or other types of activity. So that is a central part of the theme going forward for Ohio.

Greg Gordon. Just on Pages 19 and Page 37, you talk about the current earned ROEs, expected earned ROEs, and you talked about in your guidance that the difference between the 7.7% CAGR on rate base and the 5.7% earnings growth target is regulatory lag. So can you kind of walk through the algebra of that? Because I think that would presume that your ROEs are going down over time when, theoretically, you should be trying to make them go up.

Very good. There's a couple of things going on there that add to that lag as well. One is the fact that we have $0.09 in for a business that we're going to sell in 2017, and that, of course, goes away. And so we need to make up that piece as well. And I think taking that out, you can do the algebra and you'll get very close to the 7.7%. You'll also see that the remaining piece, the $0.09 that we had talked about that Chuck described doesn't grow as fast as the 7.7% as well. So those 2 factors, combined with the lag, will get you to the reconciliation between the 5% to 7% growth rate and the CAGR of 7.7%.

Okay. So you do think that in the core business, when we do that, sort of the big -- the layer cake here, that the ROEs are stable.

You'll end up right on top of it.

Paul Patterson, Glenrock Associates. Just -- I guess, for Lisa, FERC Order 1000, just sort of competitive issues they are developing also with smaller -- potential smaller projects and what have you, just sort of what your outlook is on that. And then also, just in terms of O&M and you're investing -- you're replacing 100-year-old stuff and what have you, it sounded to me that the 205 complaint sort of suggested that there was actually regulatory lag with respect to O&M. I was wondering, how is O&M trending, given that you're putting that much CapEx in the business? Just intuitively, I would think that would mean your O&M might go down. So I just was wondering if you could elaborate on those 2 things.

Sure. Both great questions. With respect to Order 1000, we won two of the two competitive projects in PJM. I think that the RTOs are still struggling with the process. I don't think the RTOs like the process of moving forward with Order 1000. That being said, I think it's very difficult for folks to argue against there being some level of competition in that space and that is what FERC has continued to say. So we continue to be well positioned in that space. So we look within our borders as well as outside our borders. And we firmly believe that your best defense is a strong offense. And so by virtue of actually participating on these, we've actually identified a lot of projects that benefit our customers that we'd move forward on, whether it be investments of our operating companies or our Transcos. So even though it shows really a couple of smaller projects in that space, it's allowed us a strong defense as well. With respect to O&M, yes, we are reducing some of that O&M, but you have to kind of take a look at the overall system. We still have 37,000 miles of line and over 3,000 substations that are older. So it will take quite some time before you'll see significant savings on the O&M side of that piece. As you mentioned, with respect to the 205 filing, that 205 filing that we make is going to allow us to fix to -- fix our formula rates that is completely forward-looking. As you know, in the past, we've had one that's a bit of a hybrid. We have been reticent to move forward on that 205 because as soon as you move forward on the 205, you're triggering an ROE review. And so this actually provides us that opportunity to address that on a going-forward basis. And it will allow us to also remedy the network system, peak load adjustment that would have been a one year hit for us into '17 as well. The nice thing about the 205 is it positions us also in those outer years to actually achieve our authorized ROE, whatever that might be. What we have had in the past is you’ve always seen on the slide that has the – what our ROE has been, like the 12.2%, that is always reflective of the true-up. And so that true-up would go away and it would also – it would be forecasted.

And then just on the 3% rate increase, in fact, is that the entire bill? Or is that just the rate base? I mean, is that the entire bill that we’re talking about that you’re seeing in that – in annual numbers?

Entire bill average across the system.

Yes, okay.

Anthony Crowdell, Jefferies. Two quick questions. I guess, one, to Chuck, when I look at that $0.09 we’re all talking about, on Slide 20, you show renewables as $0.01. So then is the other $0.08 all generation on marketing? Is that a good way to look at that?

Yes, yeah, for ‘17.

Great. That was easy. Question for Bob, I guess, and a little to Jonathan’s question earlier about Ohio restructuring. I mean, if we think of the potential outcomes that could come about, whether it’s full regulation – or reregulation of the state or some stranded cost recovery, I mean, what are the kind of options you think are possible coming out of Ohio?

Well, as Nick handicap things and I would agree since our team is kind of reporting out to Nick, I don’t think a total restructuring is, if you were to handicap that, you’d have to get some pretty long odds to take that bet. As far as stranded cost recovery, maybe not as much of a galvanizing issue as total restructuring, but still difficult. I think you got to look at it more from a going-forward standpoint. It is clear at least to the commission there’s been some very positive support for renewables. So you are aware that the state currently has its renewables standards on hold, legislatively, there’s a lot to talk about what should be done there. But part of that smart city commitment on the part of AEP or proposal was the fact that 900 megawatts of renewable that was in the stipulation associated with the PPA, we did not pull down. So there’s every opportunity for the commission to endorse both from a supportive restructuring standpoint that renewable. And that was split between solar and wind, about 500 and 400, if I remember. I mean, the other thing that’s out there is clearly Marcellus and Utica Shale gas. I mean, there is clear a desire from a standpoint of growing the state’s economy to build out the infrastructure associated with – in supporting infrastructure like a combined cycle gas plant. So we’d like to think that from of structuring standpoint that Ohio could work to make a development-related opportunity for Utica part of that whole restructuring process. That’s the way I’d kind of handicap it.

There’s a clarity of message here because it started out with a focus of reregulation, which meant customers didn’t have a choice. All of the generation would be slammed back into the wires company, those kinds of connotations. We really refocused it on restructuring, which our customers would continue to have some level of choice. We would potentially transfer assets back into the wires company, but that remains to be seen. We don’t want to encumber the forward view and the ability to invest in resources of the future in Ohio and for the headline to be trying to put coal plants back into AEP Ohio rate base. And so it is a tradeoff that's occurring there. We're obviously going to continue to try to find a home for those assets, but it'll be strategically reviewed just like the other assets. But we don't want to be, we want to be very clear and consistent in the message to legislators and so forth about the future of AEP in Ohio is driven by the outcome of restructuring and the commission's view of where we're trying to get to in terms of movement toward resource of the future and the technology deployment associated with these riders in clean city and all that kind of stuff. So we want to make sure that the message remains very clear on that.

Gregg Orrill, Barclays. Just a clarifying question on the Ohio Electric Security Plan. Is that in the guidance, the extension there, including the distribution rider? And also, do think you'll be able to spend the targeted amounts in that plant?

Brian?

Yes and yes.

Yes. So I think if it gets you there is, yes, it's included in the plan in its present form. But if this really takes off like it should, then there's additional opportunities available there as well.

On the restructuring?

On the restructuring, but also on the investment in the grid itself.

Will Zhang with LNZ Capital. On slide 26, what's driving the $0.20 of higher growth in 2018 as compared to the $0.13 of growth in the other years?

So let's say, sorry, you're on 26?

Yes.

So what you're seeing with respect to '17 because I think that's really where the big difference is, that's where you're seeing some of the impact of bonus depreciation. You're seeing that actually in all years, but the network system, peak load delta as well as O&M is hitting in '17 and that's resolved in '18.

By flowing through the formula rate, right?

Yes.

And just the acceleration of earnings from the projects that are being put in place as well.

Thank you very much for the three year look forward on earnings. Just by segment, how much of this capital, how firm is this capital? And how confident are you that there's not going to be some snags at being able to deploy it? And then, secondly, I appreciate you didn't buy back stock because you do have these opportunities out there and you've probably downside, asymmetric downside, list to, on cost of capital going forward here. So how should we think about the balance sheet for the next 3 years? Are you just going to run underlevered and then grow into that leverage as you deploy the capital? And then, I guess, just one follow-up. What's the status on when you're going to start spending money on smart meters in Ohio?

Bob, you can address the smart meter question. We're going to do that first and then we'll do it soon.

That application has been in for a long time, and again, I offered by optimism that there's been constructive dialogue with staff on a number of issues including that grid smart, smart meter deployment along with self-healing circuits and Volt-VAR optimization. So we're very optimistic that we'll see some of it from the commission soon. Can we spend in '16? Can we spend in '16? I'd like to have an order first.

In terms of the as far as the capital deployment in each area, we're very confident of the capital that's being managed in that plan. Those plans exist, and certainly, we want to make absolutely sure and we wanted to make sure that when we gave the new cone of 5% to 7%, that it wasn't aspirational, that it was focused on existing projects and existing confirmation of what we felt like we can achieve. And I think Chuck gave you a little bit of insight, too, in his messaging of we could have done more. But we wanted to stay conservative in our approach about the expansion of that part of the business. And of course, when you tell Lisa you got another $1.6 billion you need to spend, you have to get the engine going to address that. The fact that she could is a great testament. But as time goes on, certainly, the ability to take on even more projects may became prevalent. Lisa, you may want to respond to that.

So it's known that there'll probably be a bit of cash out there for a little bit of time. So from a transition standpoint, we've been preparing for that. We're basically scoping about $3.5 billion worth of projects, and that's really to make sure that projects are ready to go on a going forward basis. So across the system, that's what we're doing. We're also being very aggressive with our RTOs and talking about needed projects that are there. Those numbers are not in the forecast that you see.

In terms of the balance sheet, yes, our planned spend was to consume some of that capacity that we have. Also, what you saw the board do with the increase in the dividend in the middle part of the payout range starts to consume some of the capital that we have. And we had anticipated becoming a cash taxpayer in 2018, which we haven't been for some time now. If the sale of the assets go through, we'll be very fortunate to have the opportunity to pay some cash taxes in 2017.

So when we step out of this room and its ongoing now, but it's focused on execution around the plan we put together for you today, but also it's about expanding the additional earnings capability of the company going forward through not only Chuck's business, but channel growth associated with our customers. And that really goes to a lot of the smart meter applications, but also all those activities around optimization of the grid and so forth. So there's some great investment potential out there strategically, but we'll have to execute in the meantime and that's why that plan exists.

Jim von Riesemann from Mizuho. Two questions. The first question is on actual trends. It's following up to Paul's question. How much can you actually invest a year in transmission? Meaning, what are the structural impediments in terms of people, man hours, etcetera, to do transmission? And the second question is different. Is there anything in the financing plan that we need to think about from a tax, like tax equity section 174, credits under pilot programs or something, to help you with the financing?

Yes, certainly. Lisa, you can address the transmission piece. But I think one of the challenges that and I ask the same question of Lisa quite frequently and a lot of it is just plain and simple of getting the outages to be able to put this equipment in place. And you had a massive reinvestment that's occurring in our part of the grid. So it's really focused on optimizing those outages to ensure that we are able to expand and grow and invest. But at the same time, you have the very real issues of resources deployed, project management to be able to deploy that many projects. But Lisa, you may want to expand on that.

Sure. Thanks, Nick. We're very comfortable wit the $3 billion and that's why it's $3 billion out there as opposed to a different number. With respect to how we're positioning ourselves, I mentioned that we're targeting to have more projects scoped than the $3 billion. That's gives us a little bit of a cushion. We always have to be concerned, as Nick mentioned, with respect to outages and so forth. And that's why having more projects in the pipeline helps us adjust and be flexible with respect to those outages. We have been very aggressive in terms of making sure that we have locked in engineering resources. Over the next several years, we have a relationship with a number of Tier 1 engineering companies as well as engineering and construction companies to make this happen. Because we're the largest developer of transmission in the company -- in the country, excuse me, we have those relationships with labor. We have those relationships with our suppliers, which helps us set forward that plan of execution.

Unless my colleagues are aware of the response to the tax question, we'll have to get back to you on that.

Next question. We have a full circle.

It's Andy Levi again of Avon Capital. So the question has got to do with M&A, but I just -- before I get into that, I just want to compare and contrast before you answer it. So if you look at the Analyst Day we went to a lot of us went to yesterday, Southern Company where, obviously, they've been on a buying binge. The reality is that their core utility is only growing 2% organically and that's why they went on this buying binge. And a lot of the growth that they're seeing is through acquisition and they paid up for that acquisition. Then we look at your story where you're growing actually much more than them, 5% to 7% versus 5%. And all your growth is organic and which is obviously what we prefer as investors. And so I think the story is a very good story going forward. But as well, you kind of opened the door a little bit to potentially looking at an M&A transaction. And where prices are today, I think it would be kind of crazy for you to do that. And then I said...

I'm not buying back my stock.

But your stock would be actually a lot less and it would pay 25 times earnings. I just want to make sure that we're very clear that you're not out there shopping and that you're focused on the organic growth and that you have this really good growth story and that there's no need for that. I just want to make sure that you answer the question.

Okay, great question. So the way we look at it is this, and I repeatedly said over the years, it has been a process of ours to become more regulated to see the multiple expansion, to improve our currency value, to give us optionally around M&A type of activity. But I'll say I mean and Chuck said this when he looked when he's talking about the investment from a renewables perspective being very selective. We've defined a threshold level, and that threshold level is centered on our ability to indigenously invest in our own company. And you look at the amount to depreciations occurring versus the amount of investment, we're buying a company every year, but we're doing it without a premium. And that's the way that we look at it. So unless there is some – and you never want to say no, because unless there’s some strategic opportunity that really is beneficial to what we’re trying to achieve for the future, it’s going to have to measure against our threshold level, which is very high. Now I’m not going to comment on other companies and where they’re at. They're investing because they need to invest to grow and they’re investing in different things. We don’t have to do that. That’s why I keep saying AEP is unique from that perspective, because we do have the indigenous growth. We have the ability to invest in transmissions, by the way, that’s more than our customers within our indigenous territory that pay for the transmission. So that’s a real opportunity for us to continue to invest from that perspective. So I’m just saying that you never say never, but there’s a very high threshold. In that high threshold, we thoroughly understand the point that you’re making.

Nick, Brian, Michael Lapides of Goldman. Thank you for allowing the follow-ups. Two questions. One, Brian, can you just give for ‘17, ‘18 and ‘19, the expectation for bonus D&A. And I want to make sure I understand because your CapEx is going up so your bonus D&A should be going up and yet you’re commenting about being a federal cash taxpayer?

Yeah. So we’re going to be a modest taxpayer in 2017 if we end up closing the transaction that’s been announced. And then we will slowly become an increasing taxpayer over the next several years it’s a significant number approaching $1 billion of cash taxes on an annual basis. The assumptions that you would expect for bonus depreciation, given the CapEx that we have, are – as bonus depreciation decreases, we factor that into our capital plans.

Got it. So in other words, bonus D&A lowers rate base but you don’t get the corresponding benefit of not being a cash taxpayer in the interim?

We start becoming a cash taxpayer.

Okay. Nick, on Ohio, the wires business, I kind of like to think of things in a normal operating environment, kind of think about what’s a normal earnings power. You’re earning 13% ROEs in Ohio, that’s healthy. How do you think investors should kind of value that? Should they capitalize that number? Is that kind of a normal operating environment? Should they assume, hey, you have that for x number of years and if so, what’s your kind of view of how long? And then eventually, that changes. Just curious about how you kind of think about what normal in Ohio wires is?

Well, I think, generally, from the wires perspective, we have a very, very positive relationship with the commission that’s focused on addressing what everyone believes, including our customers, of what the advancement of the system should be. Our transmission business is very robust in Ohio as well. So I don’t see any reason for that to let up because, again, we’re spending on the right things in Ohio from wires a perspective. We’re spending on augmented by transmission from the Transco perspective in Ohio. So I feel good about that part of the business from an Ohio perspective. What needs work is and to further enhance that earnings capability is to be able to invest in generation in Ohio, and of course, the new applications, the smart city type of applications. But I think the commission's on board with that. I fully expect a positive result on that. But I really, they see the future we see in terms of investment in the grid, investment in the quality of customer service. Those are areas where you just can't go wrong. From a resource perspective, there's no question that customers are expecting a cleaner energy future, and right now, there's no way to invest in renewables in Ohio. And that has to be fixed. And along with that, everyone wants to see expansion from a natural gas perspective and the infrastructure and the economic development, the jobs, taxes, and that's not going to happen. It'll happen in the tempered sense. I mean, obviously, there are investors that will come in on a spec and build some, but not near about what should be getting built in Ohio to provide that energy future. So I just see upside from an Ohio perspective at this point.

So we have time for two more questions here.

This is for Lisa. Just to clarify on the 205 and 206, the 206 was filed on AEP East, I think you said. And then, the 205, is that also just on AP East? Is that broader? And how should we think about the West within this whole framework?

Yes, just on the East. And in terms of the West, I mean, it's the same question, I guess, that's out there tomorrow, which was there yesterday.

And what's the current allowed on the West? Is it the same or is it different? I should know.

I'm sorry?

What's the allowed ROE kind of...

11.2% and that includes the 50 basis point adder.

I'll close out by coming full circle here about that. Julien, UBS. So perhaps going back to Andy's question a little bit but trying to tie in rate cases as well, you own probably the smaller utilities in a number of other states, let's call it minority position. Does that actually make you more of a seller of certain assets to a certain extent? Like, for instance, to tie it back to your strategy in Kentucky. I heard some ambiguity as to what exactly you do, value a wide range of things. What do you do, for instance, in Kentucky or with respect to Arkansas?

So everybody likes to pick on Kentucky. I call it the little engine that could, because it's our first plant transfer that occurred there from Ohio. It has the first cyber-related rider. But that being said, now that we're fully regulated, there's probably a lot more optionally around decisions to optimize any portfolio. I'm not saying we're selling. I'm not saying we're buying. What I'm saying is, is that we position ourselves where we can be much more comfortable and objective about the decisions being made. We're fully regulated. We intend on staying fully regulated. What that means in terms of buys or sales says that we're going to be fully regulated. And so we now look at the individual jurisdictions through the equalizer chart. We know exactly where each state stands, each jurisdiction. We know the investment potential associated with that jurisdiction. Some may lag for some period of time because of the investment that's occurring. But as long as the average works out where we're, that utility rate of return of 10% or so forth, I think that's what we're after. The fact of the matter is, though, that we can more objectively look at that. So if there's a jurisdiction that's an underachiever for a long period of time and we can't see a view towards it getting better, then it more easily falls in the category of making those kinds of decisions than it did before because we had unregulated sitting out there. And if we sold any regulated, we'd become more unregulated and that's not the direction that we were going. So today, I'm just saying we can be very objective with a high threshold of what those changes can be. It's really a great position to be in from my opinion. Any other question? Okay, well, thank you very much for attending today.