Ladies and gentlemen, thank you for standing by. Welcome to the American Electric Power Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Instructions will be given at that time. And as a reminder, this conference is being recorded. At this time, I would now like to turn the conference over to our host, Ms. Bette Jo Rozsa. Please go ahead.

Thank you, Rich. Good morning, everyone, and welcome to the third quarter 2017 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 once again to AEP's third quarter 2017 earnings call. I know you all have probably seen the earnings release this morning. I just want to say from the outset, while primarily the weather has forced us to lower the midpoint of guidance for 2017 slightly, a deeper look at 2017 shows there is much to be positive about. This is exactly why we continue to reaffirm our 2018 guidance range of $3.75 to $3.95 per share with a $3.85 midpoint still built around 5% to 7% growth from a 2017 $3.65 per share midpoint base. Additionally, our board recently approved a $0.03 per share dividend increase or 5.1% further, exhibiting the confidence in our ongoing business plan. So, let me accentuate the positives here so that you can see what I see about this company and its prospects. First, despite having the mildest weather in the last 25 years that affected our normalized load forecast by $0.16 per share, we adjusted our midpoint of the 2017 guidance by only $0.03 per share, which is about the same as normalized weather was off of the third quarter. I remember watching Game of Thrones over the summer thinking that Khaleesi's dragons need some heat – to bring some heat to heat the place up, but that never happened. Now, don't go add $0.13 per share to your models for next year but recognize that our employees can do what they can do to adjust in real-time when necessary as headwinds persist. We will make up lost ground by driving efficiency, eliminating expenses where practical and with negligible movement of expenses to 2018. Additionally, we are seeing continued improvement in economy, which Brian will talk about later that gives us further confidence of a rebound…

Thank you, Nick, and good morning, everyone. I'll take us through the third quarter and year-to-date financial results, provide some insight on load and the economy, review our balance sheet and liquidity, and finish with a discussion of what we'll present at the EEI Conference. Let's begin on slide 6 which shows that operating earnings for the third quarter were $1.10 per share or $543 million compared to $1.30 per share or $640 million in 2016. This difference can be primarily attributed to the sale of competitive generation assets and mild weather. Let's look at the earnings drivers by segment. Earnings for the Vertically Integrated Utilities segment were $0.58 per share, down $0.13. The primary driver for this variance was cooler-than-normal weather this year compared to warmer weather last year. Other drivers in this segment include lower O&M and higher normalized retail margins, which were offset by higher depreciation and higher effective tax rate. The Transmission & Distribution Utilities segment earned $0.29 per share for the quarter, down $0.03 from last year. Unfavorable drivers in this segment included a higher effective tax rate, weather in Texas, lower sales in Ohio and increased depreciation. Partially offsetting these items was recovery of incremental investment to serve our customers. Our AEP Transmission Holdco segment continued to grow, contributing $0.15 per share for the quarter, an improvement of $0.01 over last year, reflecting a return on incremental investment. Net plant less deferred taxes grew by $1.1 billion, an increase of 30% since last September. The Generation & Marketing segment produced earnings of $0.07 per share, down $0.09 from last year. This segment realized lower earnings due to the sale of the competitive generating assets. Partially offsetting this impact were lower depreciation on the remaining assets, higher marketing revenues and lower overall expenses. Corporate and…

Thank you. And we will start with the line of Julien Dumoulin-Smith with Bank of America. Please go ahead.

Good morning, Julien.

Hey, good morning.

Good morning.

Congratulations on holding the line here on costs. Yeah, talk about it. Bring those dragons.

We need them.

I know. Oh man. Let me ask you real quickly if I can, on – let's just start with the weather really quickly. You talk about not exactly adding back that $0.13 year-over-year, how would you think about it? Obviously, you didn't change the 2017 number as much, just to hit that directly out of the gate here.

Yeah, when we look at the $0.13 – we're looking at this year like it is an anomaly. We're not doing anything stupid for reducing an O&M perspective. We are doing the tree trimming, we're doing all the things we need to do. But there is one-time things that we can do whether it's travel, whether it's all those kinds of things that employees can do to reduce costs and the efficiencies that we've seen from all the previous years' activities continue to inure to the benefit of O&M as well. So there's some opportunities for us to really respond to the weather-related activity. But keep in mind, we're very careful, we didn't want to move a bunch of stuff from 2017 into 2018 because there's things we need to do in 2017 and we want to keep the plan secure for 2018. So we really looked at it in that fashion. When you look at the weather and if it's weather adjusted $0.13, not all of it, so I think you do have some opportunity next year. I think it just makes us more confident about the midpoint for next year, particularly assuming we get any kind of normal weather. It would be great if we had a good winter before we had a bad summer or a good summer after we had a bad winter, but we had neither. And so all of the plans aligned negatively this year but to come out of it the way that we have I think really does show the ability to change our O&M profile to respond to it. I don't know, Brian, do you have anything you want to add to that?

No. We've kept O&M that's now been tracked flat essentially for the last seven years. And it's been lean activity, procurement activity, continuous improvement activity and we are advancing that activity and when we have the weather gap that we had this year, this management team knows what levers to pull to fill in that gap and we are not going to resort to gimmicks like factoring weather out. We know we're responsible for responding to what the weather is and trying to come in within our guidance range and that's exactly what this team has done.

Today, it's a different company than we had two years or three years ago with the unregulated generation. Today, I think it's much more transparent and the levers that you have to pull are still there in some regards, but weather will be more of a impact on the company than in previous years because then you had the market conditions that you could look at, and sometimes it saved you, sometimes it went against you, but that's all part of the process of making sure that we're consistent as we can be regardless of the situation.

Excellent. Thanks for the detail. Quick to follow-up on cleanup item here, we've seen some headlines around Oklaunion here. Can you comment just on, I presume that's fairly negligible in terms of earnings contribution to the extent which you were to transact on that? And presumably if you were, that would be all of it, that would not be any kind of specific portion of it? And then perhaps, in tandem with that, any thoughts here on Conesville given that the transfer has been completed for – a little bit here?

Yeah, obviously, we're still looking at the unregulated generation from a strategic sense and Oklaunion has been a drag, particularly on the unregulated side, in the ERCOT portion of Texas. And just like any other base load generation, I don't think it gets the value it deserves for what it provides to the market. But that being said, yeah, any kind of result that we get out of Oklaunion, I wouldn't expect too much of a financial change as a result. And then as far as Conesville is concerned, we continue to look at that, we consolidate some interests in some of the units, but we continue to look at our options from that perspective as well. And really I didn't talk about those upfront in any of the areas, but just know that we continue to work with Buckeye and Cardinal and then of course, seeing what the disposition of those units can be in relation to all the other opportunities that we have but there's no doubt we continue our process of that strategic review.

Got it. And just to clarify what this all meshes together to for your 2019, if you think about as you roll forward a few years that $0.10 of call it non-core utility earnings, the composition that is largely renewable by that point in time, or just how would you think about that given where you are in the plan on both the deployment of capital on the new generation assets as well as obviously getting rid of the legacy stuff?

Oh, yeah, absolutely, Brian, do you want to...

Yeah. So hedges that we have associated with our competitive generation and capacity revenues decline over time. And earnings from the renewable portion increases over time. Overall, we don't expect that business to be changing much from about the $0.10 contribution of earnings that it has in the near term.

So if you look at 2018, 2019, 2020, you're seeing minimization of the contributions of the old legacy units, but we're maximizing the contribution of the renewables efforts, particularly in Chuck Zebula's area, the contracted renewables, but also very much so the regulated renewables. And as I mentioned earlier, we have an RFP out in AEP Ohio for solar and then, of course, Wind Catcher. You're going to see other projects like that, that are going to be drivers for those future years and we're very much looking forward to it.

Excellent. Thank you all very much.

Yeah.

We'll now go to the line of Jonathan Arnold with Deutsche Bank. Please go ahead.

Good morning, Jonathan.

Hi, good morning, guys.

Good morning.

I've had just a question about the Transmission segment and obviously, you didn't provide for the quarter much a breakdown of the $0.01 of growth, but it seemed to be little slower than you've generally been seeing on investment growth. So I was curious, did you take any additional reserve against 206, or anything like that this quarter or just what's behind that $0.01?

So we did take reserve against the 206 for the quarter. For the year, contributing to that $0.14 improvement is the – what we're able to do in the FERC 205 as we're able to look at forward-looking O&M test years rather than truing up past years. And that contributed to the growth but we're pretty much on track with where we expected to be for the Transmission Holdco segment.

You're going to see an anomaly with the credit of the 205. That's really some of what you're seeing, too, the true up associated with it.

So that's the $0.09 that you're talking about on a year-to-date basis?

Yes.

Yeah.

And – but the – you're now reserved to the level that you think is a reasonable outcome for the 206 beyond the reserve you took earlier in the year, I guess?

We are, Jon.

That's right.

And we think that issue is going to play out over a fairly long period of time with what's going on with the New England Transmission Owners case and its remand back to FERC. We think we'll be in a long period of having to reserve before that issue gets resolved.

Yeah. And what drives the decision to up the reserve right now?

Yeah, I don't think it's been an increase in the reserve. I think we've been steady about where it's been and have kept it held at that level. I think there are positive things to come out of the new FERC makeup and we're just going to hold steady for – until it gets resolved.

Okay. But I thought you just said you did increase the reserve and that's why you didn't have growth this quarter, but now it sounds like maybe you didn't.

We did not increase the reserve. It's been steady. It's been constant.

No, we didn't increase it, but the true-up hits in July. That's what happened.

Okay. And then, just one other, on Wind Catcher, we noticed earlier this week that Xcel proposed some sort of different terms to how they might look to get recovery in Texas. And I don't know if you have any comment on that – the base or framework or if you think that could end up being a template for how things might play for you?

No. I don't see it that way because these projects are pretty unique and the way you look at them, and ours has a 350-mile, 765kV generation interconnection associated with it, but it's also massively larger. So you can look at the risk being taken and the economics of the projects themselves. They stand on their own merits. So we filed our plan. I know that Xcel had to change theirs a little bit, but that's sort of their business and our projects are our business. So we'll continue with all four jurisdictions in the same manner in which we filed and we'll see where it goes.

Okay. I think that's it. Thank you, guys.

Thank you.

We'll now go to the line of Praful Mehta with Citigroup. Please go ahead.

Thanks so much. Hi, guys.

Hi, Praful. Good to see you.

Hi, same here. Just following up on Wind Catcher, I wanted to understand, of the $2.5 billion benefit that you've highlighted for the first 10 years, how important is that PTC? And do you see any risk to that PTC flowing through to the project itself?

That PTC is really important and that's why the brevity in which we're asking for approvals of this project are instrumental. I mean, the numbers stand for themselves. The numbers are just, like I said earlier, a slam dunk. But when you look at the $2.5 billion PTC, that's a huge part of the economics associated with making sure our customers can benefit from that so – and timing is critical.

Got you. So I guess, when do we get color on like the likelihood of the timing? And what kind of risks does it bring to the approvals, I guess?

Yes. So, obviously, we filed – and I'm really actually happy that the procedural schedules have been set up pretty consistent and constructive of getting a solution in place. I mean, all four jurisdictions have procedural schedules that match-up to sort of our April timeframe that we're looking at, so that we can really take a hard look at what the risks are, what the rewards will be, what the result of the Commission's orders will be. That will give us some real insight in terms of this project. But like I said before, I'm pleased with the progress that's been made.

Praful, you may...

Okay. Fair enough.

Praful, you may not have gotten to it, yet, but slide 32 of our presentation, we kind of lay out the timeline in each of the jurisdictions and when we expect hearings to begin. And you can anticipate orders shortly after those hearings take place.

Got you. Thanks. And then in terms of the pending rate cases, obviously, you have a pretty busy regulatory schedule. Just wanted to understand, your ROEs for all these rate cases are in the 10% to 10.5% range, is there any risk given current interest rate environment on those ROEs? Or do you see those ROEs – authorized ROEs to be pretty stable?

I think we are pretty consistent, as we talked earlier about 2018 being in that approximately 10% range, and of course, it's going to result from negotiations or from the outcomes of these cases. And so as we look at it, the aggregation of those cases will be in that approximate 10% range, that's what you should look for. And of course, we filed – the normal course of rate cases. I mean, you file based upon what we really believe the ROE should be and then, the course, you have to deal with other parties and deal with the – and the Commission itself will make the decision on what the ultimate ROE is. And like I said earlier, we expect our aggregated to be around that 10% range.

Got you. Thanks so much, guys.

Yeah.

And we'll now go to the line of John Barta with KeyBanc. Please go ahead.

Good morning, John.

Good morning. Thanks for taking my question. I just want to better understand how interrelated the wind plant and gen-tie for Wind Catcher are, were hypothetically, is the capital associated with the wind side were reduced a little bit? Is the need still there for the 765 kilovolt gen-tie?

Oh, yeah, they go hand-in-hand. Obviously, you would be building a huge wind farm to nowhere if you don't have the generation interconnection there. And so with – and with 2,000 megawatts of wind capacity at that location, that drives a pretty large substantial generation interconnection. And even if you – in this case, you won't reduce the size of it, but the size of the wind farm is really the big driver on the capacity side associated with the size of the generation interconnect. So they go hand-in-hand. One doesn't occur without the other and that's why it's all being viewed as a single project. And that's why we're working really hard to lock in the arrangements associated with construction on both sides, so that we can eliminate as much risk as possible.

Okay. Thank you. That's it.

And we have exhausted all questions in queue at this time. Please continue.

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. Rich, would you please give the replay information.

Certainly. Ladies and gentlemen, this conference will be available for replay after 11:15 a.m. Eastern today through November 4 at midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701, and entering the access code of 431431. International participants may dial 1-320-365-3844. Those numbers again are 1 -800-475-6701 or 1-320-365-3844 with an access code of 431431. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.