Bette Jo Rozsa - IR Nick Akins - Chairman, President and CEO Brian Tierney - CFO

Greg Gordon - Evercore ISI Ali Agha - SunTrust Jonathan Arnold - Deutsche Bank Julien Dumoulin-Smith - UBS Paul Ridzon - KeyBanc Stephen Byrd - Morgan Stanley Steve Fleishman - Wolfe Research Paul Patterson - Glenrock Associates Anthony Crowdell - Jefferies

Ladies and gentlemen, thank you for standing by and welcome to the American Electric Power Fourth Quarter 2016 Earnings Conference Call. For the conference, all participant lines are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I’ll to turn the conference over to Ms. Bette Jo Rozsa. Please go ahead.

Thank you, John. Good morning, everyone, and welcome to the fourth quarter 2016 earnings call for American Electric Power. We appreciate you 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. 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 thank you, once again, for joining AEP’s fourth quarter 2016 earnings call. I’m very pleased to report that AEP finished the year off strong with GAAP earnings coming in at $0.76 per share and operating earnings at $0.67 a share versus $0.96 per share and $0.48 per share, respectively, in fourth quarter 2015. This brings the year-to-date earnings to $1.24 per share GAAP and $3.94 per share operating for the year compared to $4.17 per share and $3.69 per share, respectively, for 2015. So, overall, finishing up strong in 2016 due to some tax-related settlements. Of course, the GAAP difference between 2015 and 2016 was primarily driven by the write-off we took in third quarter 2016 of the mainly Ohio competitive generation. This was a year of reducing risk and volatility of earnings for the company in the future and reinforcing our balance sheet to provide a strong platform for future growth. We also increased our dividend 5.4% in 2016 and improved our overall regulated operating ROE. As you know, we set operating guidance for 2017 at $3.55 to $3.75 per share with the $3.65 mid-point due to the rebasing after the unregulated generation asset sale and establishing a long-term future growth rate of 5 to 7%. We continue to reaffirm this guidance range and long-term growth rate. Load growth, as Brian will discuss in more detail later, was positive for the first quarter in over a year but was still minimal. So we continue to watch the economy closely particularly now that we have a new presidential administration with a pro-growth agenda. President Trump’s focus of enhancing the ability for manufacturing industries to thrive and produce jobs, well that's AEP’s service territory, his focus on balance portfolio of energy resources including fossil fuels that's also AEP’s service territory. So as I said before the election whether focused on the Clean Power Plan as in Hillary Clinton’s proposals or President Trump’s proposals, AEP should prosper and we are very much looking forward to working with the Trump administration to bring prosperity and jobs back to this country. There are several key areas regarding Trump initiatives that make us optimistic concerning the future of AEP, namely focus on infrastructure development, including the electric system, truly all of the above strategies regarding generation resources, reduction of regulatory burdens for permitting etcetera, expansion of the US manufacturing base, security of the nation, in our case cyber and physical security and the creation of jobs overall. All of these bode well for AEP service territory and the economy as a whole. And of course, tax reform is on everyone's mind but because we have positioned AEP well with relatively little debt at the parent level and a strong balance sheet metrics as well, AEP should be in good shape based on our analysis of potential outcomes. Brian will discuss this issue in more detail in a few minutes. 2016 has been a pivotal year for AEP. Three years ago we were talking to you all about the daunting task ahead of us in light of the Ohio moved to deregulation and there was a legitimate concern whether AEP can deliver a 2016 that met our objectives of consistent earnings growth and dividend growth trajectory which is the hallmark of our premium regulated energy company. I'm very proud of our employees, management and Board to work together to deliver strong operating results in the face of the headwinds that occurred during the years preceding 2016. This has been a year of repositioning and derisking the company to provide a firm foundation for financial stability, earnings and dividend growth as well as a refocus on our customer. We have come through with flying colors but as a premium energy regulated company, our work is far from done. Yes, there have been challenges but there is no question AEP has set a firm foundation for the future and I personally feel really good about that. So let's talk about a few of the things that are ongoing. First, regarding the disposition of the sale of the competitive generation Ohio, the first group of generation, which we formally called the non-PPA assets, that has been sold to Lightstone should be completed very soon. We just obtain the FERC approval for transfer as well as other prerequisites for the sale and expect that to happen very soon. I just want to take a moment to thank the employees of Gavin, Lawrenceburg, Darby and Waterford, who have made those generating stations what they are today and for being patient through a process that I know has been challenging to say the least. It should be over very soon with the baton of leadership been passed to the capable hands of Lightstone, we wish you all the very best in the future. The strategic process also continues for the remaining competitive assets formally called the PPA assets. We continue to be in discussions with the other co-owners to make decisions regarding retirement, consolidation of interest and/or sales to complete this process. We expect this process to be completed sometime in 2017. Second, regarding industry restructuring in Ohio, we are having discussions with utilities and other stakeholders concerning proposed legislation to allow the utilities to continue to invest in generation resources in the state of Ohio. AEP will not invest in new generation in Ohio unless we have a clear path to recovery of our investment, so enabling legislation is critical. Because AEP in its shareholders have already taken a write-down on these assets, our focus is forward-looking and additive to the earnings capability of this company is successful. The process continues on pace and we expect the result from our efforts in 2017. More to come on this subject as we progress during the year. Notwithstanding the generation issue in Ohio during the fourth quarter, we were successful in a global settlement with the parties on several outstanding cases. Some of which have been outstanding for years thereby eliminating risk to AEP Ohio into the future. Ron will also cover these settled cases in his comments. It is a great outcome because it really does provide us a clean slate in Ohio from which to continue to build our positive business case around wires related activities in Ohio such as transmission, distribution, smart grid, renewables, etcetera. So with that, let us move to the equalizer graph. That's on page five of the package. So you can see that our overall regulated ROE is currently at 10.7%, mainly driven by weather, a little help from weather and some one-time regulatory adjustments and tax adjustments. So really a good ROE for the quarter. Generally, we focus on these being around normally 10% level, so – and you'll see the different companies go up and down based upon where they're at in terms of ratemaking or in terms of activities that they may have ongoing from an O&M perspective. But obviously, some progress is continuing to be made relative to our regulatory recovery. You'll see that a couple of them are pretty low, Kentucky and PSO, not surprising that they'll be going in for rate cases, so I'll cover that as we go individually into each one of these companies. Regarding Ohio Power the ROE for AEP Ohio is – at the end of the fourth quarter was 13.9%. That was primarily due to rate relief associated with the distribution investment program, shared savings attributed to the energy efficiency programs and the annual transmission formula rate true-up. APCo, which stands at 10.3%, is obviously doing very well, primarily due to favorable taxes and continued efforts from the one-time recognition of forward billing in West Virginia and then also an increase in weather-related usage. Base rates remain frozen in Virginia as a result of the February 2015 rate freeze law, but everything is going fine there as well. Kentucky obviously is pretty low at 7.5%. We continue close fiscal management of the O&M expenses in Kentucky. Obviously, we are trying to react to some of the recovery associated with these expenses. The ROE is at or near our projected peak with current rates. So the company will need to address this shortfall with a base rate application in 2017. I&M achieved an ROE of 11.7% at the end of the fourth quarter 2016. I&M continues to benefit from strong revelatory frameworks in place for major capital programs across all of its business units. For 2016, I&M’s earnings were positively impacted by multiple one-time tax and accounting adjustments and sales being up across all retail customer segments. PSO – that also has an ROE that’s pretty low at 8.5%, the declining ROE is primarily due to the rate relief granted by the OCC in its December final order, which was less than anticipated. PSO is in the process of preparing their next base rate case, which would be filed mid-year in response to that. SWEPCO continues to be at 7.4%, and that range has come up a little bit. But it continues to be challenged by the weakness in oil and gas prices. You may have seen an article yesterday about Louisiana being in recession regarding to oil and gas activities. So SWEPCO is obviously feeling the brunt of that and weakness in industrial load and rate settlement with wholesale customers. They are nevertheless filing – and filed December 16 to update its Texas rates and also working on Louisiana formula based rate as well. So they are – and some transmission related activities as well. So – and there was also some intentional spending around tree trimming in those types of activities there that we needed to do and some increased O&M as well in their budget. So it is a work in progress there. And then as far as AEP Texas, the ROE for AEP Texas at end of fourth quarter was 11.7% which they got approval of DCRF, Distribution Cost Recovery Factor filing which is the first one they filed into that new regime in Texas and obviously turned out a good outcome. And then also they are experiencing some 3.1% normalized load growth over 2015 with all sectors seeing favorable load growth, so, obviously, a growing part of the territory. AEP Transmission HoldCo, the ROE for AEP Transmission at the end of fourth quarter is 12.1%, which is driven by the ETT ROE of 12.35% and Transco ROE of 11.22%. So an ETT’s 2016 ROE is certainly exceeding its authorized ROE of 9.96% so be the lower interest been, lower property taxes and no impact of accumulated deferred income tax and rate base. So they are doing very well from a transmission perspective. So that really goes to the overall 10.7%, obviously, the companies are doing well. We are working on the ones that we believe there's a path towards improvement and we will continue that effort. So to wrap up, 2016 was a very successful year for AEP. 2017 will be another transformational year and then you would ask why. You're now a fully regulated utility. You’ve made the transition but the truth be known, we spent a lot of time and energy trying to make a volatile unregulated business along with our core business growth produce outcomes consistent with the earnings and dividend growth of a fully regulated company. We are largely successful in that endeavor but risk fundamentals had to change. So, obviously, there was never any doubt about it but just in respective of passing of Mary Tyler Moore, I will just say, we are going to make it after all. And that something I think that we will continue to strive for as we change this company. AEP has to continue to reinvent ourselves to remain relevant to our customers by investing in infrastructure and technological innovation as well as dramatically improving the customers experience as we move to a cleaner energy future. This is obviously a different focus and a different American Electric Power, the premium regulated energy company. Brian.

Thank you, Nick, and good morning, everyone. I will take us through the financial results for both the quarter and the year. I will also provide some insight on load in the economy, review our balance sheet strength and liquidity position, discuss potential tax reform impacts and finish with a preview of 2017. Let's begin on Slide 6, which shows that operating earnings for the fourth quarter were $0.67 per share or $330 million compared to $0.48 per share or $233 million for 2015. As you can see, all of our regulated segments experienced growth for the quarter compared to last year. As did our competitive generation and marketing business. The growth in our regulated businesses was driven by positive weather impacts, a lower effective tax rate and rate impacts that reflected increased investment to serve our customers. The quarterly comparison in the transmission and distribution utilities segment was negatively impacted by a global regulatory settlement that we recently filed in Ohio. However, this settlement closes 17 cases and largely clears the deck of lingering historical rate cases. Many associated with regulatory transition in the state. Hearings on the settlement were earlier this week and we expect an order before February 28. The agreement covers the capacity pricing case, the retail stability writer case, the Phase-In Recovery Rider case, the double counting of capacity issue, and several historical fuel cases, as well as two significantly excessive earnings test cases. We appreciate the hard work of interveners and commission staff to help resolve these issues globally. Now, we have a healthy AEP Ohio wires company with little financial overhang from the regulatory transition. It was a long road, but we have finally arrived at a steady state of electric utility regulation in Ohio. AEP Ohio will focus is capital investment on transmission and new distribution technologies to improve reliability to better serve our customers. For the quarter the Generation and Marketing segment improved $0.08 per share over last year, due to lower depreciation expense from the competitive units, as well as increased earnings from our retail business. Corporate and Other was down $0.01 per share largely from the sale of our River Operations business in 2015. Turning to Slide7, our annual operating earnings were $3.94 per share or $1.9 billion compared to $3.69 per share or $1.8 billion in 2015. Similar to the quarterly comparison, all or our regulated segments experienced growth for the year, however the sale of our River Operations business in 2015 and the expected revenue challenges in our competitive generation and marketing business combined for a $0.31 drag on the annual comparison. The growth in our regulated segments was largely driven by rate changes from recovery of incremental investment to serve our customers, increased earnings in our transmission business, a lower effective tax rate and weather. For several years now our employees have been planning for the revenue challenges associated with the full transition to market in Ohio. Looking at the annual results for the competitive generation and marketing segment, it is clear how dramatic these challenges were for 2016 alone recognizing that this was the final year of a multiyear transition. Looking at this slide, it is equally how well the women and men of American Electric Power have responded to the challenge. Through continuous improvement, strategic procurement initiatives and spending discipline, they have reinvested in our regulated businesses to better serve our customers. I am proud and grateful for what they've accomplished over the last several years. Now, let's take a look at Slide 8 to review normalized load performance. Starting with the lower rate chart, our normalized retail sales grew by 0.3% for the fourth quarter. As Nick said earlier, this was the first quarter in over a year where we experienced growth in overall retail sales. For the year, our normalized retail sales declined by 0.2% due to lower industrial sales, partially offset by growth in commercial sales. In the upper left chart, normalized residential sales were down 2% for the quarter, giving back some of the gains from earlier in the year. For the year, residential sales were essentially flat. Customer counts for the system were up 0.2% in 2016. The relatively strong growth in our Texas territory was offset by the week performance in the Appalachian coal regions. In the upper right chart, commercial sales grew by 2.6% for the quarter and ended the year up 0.9% compared to last year. For the quarter, every operating company posted positive growth in their commercial sales. For the year, the results were mixed but followed a similar pattern as described earlier for the residential sector, with the strongest growth coming from our transmission and distribution utilities segment. Finally, in the bottom left, industrial sales increased by 0.4% this quarter and ended the year down 1.4%. 2016 was a challenging year for manufacturing within our service territory with lower energy prices, a strong dollar and week global demand. We started to see slight improvement in these areas, as we finished the year and are more optimistic about our industrial sales class outlook for 2017. Slide 9 demonstrates how different the various regional economies of our service area performed throughout the year. On the top left of the slide, AEP’s eastern service territories have experienced GDP growth of between 1.2% and 1.5% since the fourth quarter of 2015. This growth has trailed that of the U.S. by about 0.5 percentage point. This is not surprising, given the exposure that Kentucky and West Virginia have to coal mining. The textbook definition of a recession is a period with two or more consecutive quarters of GDP contraction. AEP’s western service areas have been in recession throughout 2016. GDP growth was weakest in the second quarter of 2016 and has experienced modest improvement since. This mirrors the pattern of oil prices in 2016 and is not surprising given the high concentration of oil and gas activity in Oklahoma, Louisiana and Texas. Looking at the eastern vertically integrated utilities in the upper right, Indiana and Michigan Power Company has experienced strong GDP growth of between 2% and 3% in 2016, driven by its exposure to the growing auto industry. This is in contrast to Appalachian Power and Kentucky Power with their exposure to coal mining. Appalachian Power return to growth in the third quarter of 2016 and has been improving since. Kentucky Power has reduced its contraction in the fourth quarter and is forecasted to return to growth in the second quarter of this year. On the bottom left, both SWEPCO and Public Service of Oklahoma were in recession in 2016. SWEPCO returned to growth in the fourth quarter of 2016 and PSO is expected to do so in the first quarter of this year. Improving oil and natural gas prices are helping to lift these regional economies. This is expected to continue in 2017. Finally, looking at Transmission and Distribution Utilities on the bottom right, AEP Texas, which also has significant oil and gas exposure, was in a mild recession in 2016 but emerged in the fourth quarter as oil and gas prices rose. AEP Ohio on the other hand has been in expansion mode throughout 2016 driven by growth in the construction and healthcare sectors. It is interesting to note that over 70% of all jobs added in our service area in 2016 have been in Ohio and Texas. Now let's move on to Slide 10 and review the company's capitalization and liquidity. Our debt to total capital ratio increased by 8/10 of a percent during the quarter to 55.9%. The asset impairment in the third quarter of 2016 had about a 200 basis point impact on this ratio. Our credit metrics, FFO interest coverage and FFO to debt are solidly in the BBB and BAA1 range at 5.8 times and 20.2% respectively. Our qualified pension funding improved a percentage point to 96%. Although plan assets decreased during the quarter, plan liabilities decreased more primarily due to the sharp rise in the discount rate in November. Our OPEB funding improved 3 percentage points to the end of the year to end the year at 107%. November sharp increase in the discount rate benefited our OPEB funding more than our pension funding due to the lower fixed income allocation in OPEB assets. Plan assets decreased by 4% during the quarter, while plan liabilities decreased by 7%. The estimated after-tax O&M expense for both plans for 2017 is expected to be about $15 million. Finally, our net liquidity stands at about $2.7 billion and is supported by our two revolving credit facilities. Nick mentioned earlier that the sale of the competitive assets is expected to close in the very near future. Let me give some color on the immediate use of cash from the sale. The cash coming in the door will be approximately $2.2 billion. We will refund approximately $1 billion of commercial paper, repay the $500 million AEP generation resources term loan facility, as well as about $200 million in debt associated with the Lawrenceburg generating facility. This activity will leave us well positioned to execute our capital plan and is expected to improve our debt-to-total-capitalization ratio by about 200 basis points. Turning to Slide 11, we have gotten a number of questions regarding tax reform since the likelihood of it actually happening has increased. As many of you know, I profess to be intellectually challenged in regard to tax issues, but I will share with you AEP’s expected positioning as explained to me by our tax experts. First, in regard to the prospect of the elimination of interest expense deductibility, AEP has less than $1 million of debt that is not subject to rate regulation. The majority of the debt we hold is at the operating company level where the elimination of deductibility would be mitigated through the ratemaking process. Second, in regards to the prospect of negative rate base implications of 100% capital expense deductibility, AEP has ample organic growth opportunities. Just as we did a little over year ago with the expansion of bonus depreciation, we would seek to use the cash freed up to reinvest in our system for the benefit of our customers. Third, AEP has very few unused tax credits that were accumulated under the current tax rates which would be negatively impacted by the prospect of a lower corporate tax rate. Fourth, assuming the elimination of interest expense deductibility, the 100% deductibility of capital expenditures, the elimination of the manufacturing tax credit and AEP’s low level of non-rate regulated debt, AEP's breakeven 10-year average tax rate would be 22%. This is positive since a reduction in the rate to 20% level is being discussed. Finally, let's look at the potential access regulated deferred federal income taxes at a 20% rate on the right-hand side of the slide. Today our regulated deferred FIT balance is $10.5 million. At a 20% rate $4.3 billion would be excess, but $3.3 billion of that would be depreciation related and would be expected to flow back over the life of the property. This would leave about $1 billion in unprotected access that we’d need to flow back to our customers over some negotiated period of time. We would make the case that we should flow this excess back to customers at a pace consistent with the originally expected reversal period. In 1986, we negotiated flow-back periods of between 2 and 18 years. In total, we believe that a globally competitive tax rate is good for the American businesses that we serve with some legislative adjustments for our historically regulated utility with some reasonable jurisdictional treatment of excess deferred tax flow-back to customers. And with AEP’s current low-risk balance sheet, we believe the company is competitively positioned for the prospect of corporate tax reform. We are actively engaged with industry peers and legislators and trying to sleep legislation that is both positive for the country and takes into account the idiosyncrasies of our regulated industry. With that overview, please save your really hard tax questions for Betty Jo. Let’s try to wrap up my remarks on Slide 12. We began 2017 with a strong track record. Regulated earnings were strong in 2016, as we continue to invest capital in our regulated businesses to better serve our customers. For several years, we have maintained O&M discipline and kept spending in a tight range of between $2.8 billion and $3.1 billion. We expect to remain in that range this year. In addition, over time, we have grown our dividend with earnings and expect to be able to do so going forward. Last year, AEP’s Board of Directors increased the dividend 5.4% on an annual basis. Looking ahead to 2017, we are reiterating our guidance of $3.55 to $3.75 per share. Back in November, we indicated that we anticipated about $0.09 per share in 2017 earnings from the assets we expect to sell and we assumed a sale date of March 31. As Nick said earlier, we expect to sell those assets in the very near future, and this creates a few cents of earnings that we will need to offset. In 2016, we demonstrated our ability to execute on our capital plan by investing $4.93 billion. In 2017, we anticipate investing $5.7 billion in capital, 95% of that in regulated businesses and 76% in wires. With that, I will turn the call over to the operator for your questions.

[Operator Instructions] And first one, Greg Gordon with Evercore ISI. Please go ahead.

Thanks. Great end of the year, guys. Good numbers. I only have one question and 27 parts on tax reform. The $2.2 billion cash coming in, you gave us $1.1 billion paying down CP, $0.5 billion for another tranche of debt and $200 million for another tranche, so that does leave some excess cash. Should we assume that gets consumed in a normal course of business for capital and dividends?

It does, Greg. We also anticipate being a tax payer by dent of the transaction so we anticipate quarterly tax payments as well and those would begin in the first quarter.

Okay. And just to be clear on your comments you made on tax, out of the gate if reform were to take the form that you use as your base case there, there would initially be a headwind associated with the return of rate base capital. But you think that you could, as most companies did in 2016, when bonus depreciation was extended, find enough customer-friendly projects to invest in that talks at that? I just want to be clear that's what you are saying.

We do, Greg, and we believe that would be for our capital spend a fairly modest percentage increase.

Okay. That was going to be my next question. Could you size the quantum of how much you would have to increase your capital spend every year to offset that?

Call it between $300 million and $400 million.

Perfect. Thank you, guys. Thanks a lot.

Our next question is from the line of Ali Agha with SunTrust. Please go ahead.

Thank you. Good morning. Brian, can you just quantify, what were the drivers for the lower-than-expected tax in the fourth quarter? And what's the effective tax rate we should assume, 2017 and beyond?

Perfect Ali. So we said overall that the tax impact for the year was $0.17 when you include corporate and other in that as well when you are not breaking it out by segment that impact comes down to about $0.13. And let me break out for you what the composition of that is. Resolution of prior period audits was about $0.02 per share. There was a Texas policy change that allowed for a lower taxable income that included a deduction for T&D expense that added about $0.04, some tax planning that we did that allowed some prior period charitable deductions to come through, added about $0.03 and then there were other currently accrued adjustments that mostly included tax to book differences accounted for on a flow-through basis that were about $0.04. So that's the composition of the $0.13 difference and the rate that we assume going forward is 35%.

Yes. And second question in terms of Nick you'd mentioned you are working with the Ohio legislature. Can you give a sense of what exactly what it is that you would like to see change and what the mechanics would be? Would that be a new bill that they would introduce or how would this work technically?

Yes. I mentioned AEP is sort of moving forward with a clean slate, so we really are focused on the ability to invest in new generation and its sort of a broad context, but certainly we want to be able to put renewables in place, perhaps natural gas, other forms of resources, distributed energy resources. Those are key areas for us in terms of the build-out of the – what we believe is the smart grid of the future and all the interoperability issues associated with it. So we want to have provisions that may be shrinking of the needs provision of the existing legislation, for example, to allow us a more prescriptive path to the commission for recovery of those expenses. So once we – we would file something for new resource of some kind and it would go through the commission proceedings and we would be. And certainly, we’d like the legislation to be prescriptive in terms of how the commission deals with that, so that it would be very clear. So we're not winding up back at the Ohio Supreme Court all the time. That's really what we're after and some questions always come up about obligation to serve and that kind of thing, but really we're starting with a clean slate and we want to be able to – we now file these things as opposed to have some obligation to serve that looks like a re-regulation. So there's still a lot of discussions about that, but AEP certainly is focused on that provision. Because we're doing very well from the regulatory structure in Ohio relative to transmission distribution and the interface associated with that so we want to be able to augment that growth potential here in Ohio as well.

Yes. And last question Brian, I just wanted to clarify a point you'd made, the fact that the merchant asset sales will happen sooner than March 31 that should resume. Did I hear that you guys felt you could offset that earlier than expected sale with other efforts or that you are just pointing out that maybe that $0.09, $0.10 number may be lower, keeps you in the range, but we should consider that in our numbers. I just want to be clear what you were saying.

It’s the latter, Ali. The $0.09 that we had expected given the March 31 sale will be less. We’re going to need to try to find a way to offset that, but we’re still in the range.

I got it. Thank you.

Next, we’ll go to Jonathan Arnold with Deutsche Bank. Please go ahead.

Good morning, guys. Just a quick question on sales. Brian, I think you said you were feeling more optimistic about 2017. But when I look at the analyst day, what you are forecasting now, it seems to be a little lower and then 2016 also came in a little lower. So could you just reconcile your comment about feeling better? Is that relative to the past or relative to coming in to the Analyst Day?

Relative to the past. So the slide that I took us through on the regional economies shows that through 2016 a lot of our service areas were in recession. But towards the end of 2016, they started to come out and started to show some growth. As we saw, oil and natural gas prices start to improve. We started to see improvement in the industrial regions that have exposure to oil and gas. If prices stay the same or continue to improve, we expect that trend to continue into 2017. Most of our growth in 2017 is forecasted to come from the industrial sector.

Right, so would you say your forecast -- you feel more conservative -- your forecast more conservative relative to what you are actually seeing now or it's similar?

No. We think our forecast reflects what we’re seeing right now, which is some improvement in industrial, particularly oil and gas.

We’re actually seeing a lot of oil and gas projects that aren’t just being talked about. They’re already in the pipeline and being – and under construction of some kind. So that tells us a lot about what will actually true-up in that stream of new projects that are occurring because when we started going down in 2016 we had all these projects and at the end of 2015 that we thought were coming in 2016 but they weren’t materializing or at least there was a propensity to slow them down because obviously prices were coming down. But now we’re seeing a different direction. So if you look at those underlying fundamentals relative to the automobile industry, relative to oil and gas activity starting to pick up and actually confirmed projects that are under construction, it makes you somewhat optimistic but at the same time, we are being very careful about this economy like we have been for several quarters now in terms of we really need to see a trend develop.

Great. Thank you guys and if I could just following up on the Ohio legislation. Nick can you give us a little more sense of when in the year you would anticipate this coming together and is there -- do you already have a draft bill, do you know who might sponsor it? Or are we still at the more exploratory stage?

Yes, we are still in discussions with the other parties that would be involved with this thing and obviously all the utilities and others and really we have to get it nailed down on the provisions, all the provisions that will go into the bill and some parties are looking for different thing than others, so we have to manage through that process a little bit but the legislature obviously is being kept up to speed on what's going on and we are having regular meetings with leaders in the legislature. So nothing is going to happen that’s really unknown at this point. I think really a major focus right now is not to burden the legislation with provisions that may slow it down because if you start talking about reregulation or obligation to serve, all those kinds of things, it just brings in more issues associated with how, okay, do you actually restructure this market, but if it's surgical in terms of its approach and actually there may be other surgical provisions of other companies want, let's put those together and move forward very quickly through the legislature. So I'm still thinking probably second quarter, we will have something that we can have someone sponsor.

So Q2, a bill material and then we start to see the shape of it?

Yes, again, there's already drafts of legislation that are circulating around and we just need to make sure all the parties are comfortable with that. And so it is a work in progress with the new legislature as well here in Ohio and from AEP's perspective, like I said, its additive to our ability to invest in this state. We already have some measure of renewables that are in place and we have to bid for those and that kind of thing but this is really centered on ensuring that we're able to address really what Ohio wants to do regarding its energy future, and our part in it. And so, that's where it stands right now.

Great. Thank you.

Our next question is from Julien Dumoulin-Smith with UBS. Please go ahead. Julien Dumoulin-Smith: Good morning. Maybe to just follow-up on the last question to, if you permit me, you mentioned burdensome provisions. Can you elaborate a little bit? What would you not want to see as part of this that might get it dragged down vis-a-vis timing or ultimately palatability and I have got a few others.

Yes. I think from AEP's perspective and obviously you'll have to ask the others, but from AEP's perspective to try to have AEP Ohio responsible for capacity in the future. I mean, we sort of lived through that and done that and obviously if you try to have AEP Ohio responsible for capacity and having to go out or – because obviously we're in the process of selling our generation, so you could wind up in a situation where we have long-term large PPAs and that would be a balance sheet issue for AEP Ohio. So you think about that obligation and of course the obligation to serve in, and it becomes pretty onerous in terms – not only in terms of how we deal with the financial picture of AEP Ohio going forward, but also in terms of you're trying to restructure a market and everyone, if you try – if you put that – invest it back with the utilities then you would basically have to go through a whole lot of discussions with multiple parties of what does that mean and how do you deal with that completely different structure, short of re-regulation. So if it's more surgical in its approach in terms of new facilities or that kind of thing, then I think it's a lot easier. Julien Dumoulin-Smith: Got it but no opposition to nuclear, for instance?

Well, I'll let FE speak on the nuclear point, but we'll say this from AEP's perspective, if there is support – and I don't call it like New York or Illinois, but if there is support in terms of ZEC or something like that for nuclear, I'm supportive of that being in legislation as long as ZEC gets attributable to FE's connected customers. And so, because we're a little different in Ohio than the other states. AEP Ohio doesn’t have any nuclear and the others don’t either. So I think you have to sort of think about that. But overall I’m very supportive of nuclear. I think it’s a travesty that these nuclear units are getting retired. And if there is any kind of state support that can be given to support these nuclear units, that’s a good thing because this competitive market – we call it a market and PJM is not working for long-term base load capacity. So I really believe that there should be some – there can be some provision, but the cost of that can’t be borne by our customers because AEP Ohio is moving toward its own set of resources including renewables. And we want to make sure that there is the ability for us to invest in relation to impact on customer rates. So that’s really long answer to the short question, but I think it says a lot in terms of where things are going. Julien Dumoulin-Smith: Right and if I may follow up on the Ohio side, obviously you've got a settlement here. You obviously posted pretty healthy ROEs. Can you just give us a little bit more of a summary in terms of what that settlement means vis-a-vis your prospective earnings and maybe just give us a little bit a sense of how you expect the cadence of your earnings at that subsidiary to proceed given where you stand today?

Yes. I think from AEP Ohio’s perspective, it certainly clears out all the overhang associated with all these cases. So it really puts us in a great position I mean, obviously, the capacity of the Supreme Court – the Ohio Supreme Court had remanded back the issues on the capacity and the RSR payment, and it gets all that squared away. And then, of course, some other historical fuel cases are resolved too that had been hanging out for years and then as well as too excess of earnings there. So it really provides a clean slate going forward. So I fully expect AEP Ohio to continue to be a very good investment from a wires perspective. Transmission and distribution that we’re trying to do – and I think the commission is somewhat responsive to this, and that is with the Smart Cities challenge in Columbus, we are working on interoperability with the grid, going back to transportation, and we want to be able to do that throughout our territories. But certainly Ohio and Columbus, Ohio, is central to that theme going forward. And I really believe we’ll have a supportive commission in that regard. So I think that really bodes well for the investment potential in AEP Ohio, but also the benefits for customers and the commission should be very happy with that. Julien Dumoulin-Smith: Great, thank you.

Next we’ll go to Paul Ridzon with KeyBanc. Please go ahead.

Good morning, and congratulations on a solid year.

Thanks.

Looking at, I think it's slide 9, your economic forecast, you issued guidance November 1, before the election, before OPEC had cut production. Is there a tailwind now hidden in the midpoint of your guidance here. Obviously you've got one offset on the timing of the sale, the generation, but it looks like the world has improved since you gave guidance.

Yes, so it has right, as you look at the trends of what's happened with GDPs there they seem to be coming from contraction into growth and we've reflected that in the update for our numbers. You will see on Slide 8, our numbers are slightly different than what they were on page 24 of our release at the Analyst Day but what that really reflects is the passage of another quarter, new data being updated and us looking at the dead reckoning forecast that we have for our service areas for 2017.

I think you have to look at is, I know business get repetitive quarter after quarter but these quarters are a snapshot in time that we don't see intuitively obvious long-term trends that we can really hang our head on in terms of how the year goes. So I would say if we continue to see bolstering activity in the second quarter and then we will continue looking at what that means in terms of load forecast and keep in mind too it's the mixture of load to. Weather -- if it's industrial load that's picking up, the margins on industrial load are much less than others. So you have to really look at this thing in the context of overall trends moving forward throughout the economy and will just have to take that quarter by quarter and make a determination.

And then, on your pension discussion, I missed it, you said there would be an expense of $15 million in 2017. What was that expense and what was it in 2016?

It's the after-tax expense for both pension and OPEB, so it's after-tax O&M pension and OPEB, about $15 million and it was roughly the same in 2016.

That is 15?

Yes.

And then a question from my tech analyst. Now that you have got Ohio pretty much cleaned up, when do you think you can start the AMI spend?

Grid smart.

Yes, the grid smart, we were set for hearing, I think it was yesterday. They delayed it until next week. So we should get a decision then and be off and running.

Thank you very much.

The next question is from Stephen Byrd with Morgan Stanley. Please go ahead.

Hi. Good morning. I just wanted a quick question on Ohio restructuring. In your discussion with the other utilities in the state, do have a sense that you all are on the same page? Are there still key issues that have to be resolved to make sure that you all are arm in arm as you think about legislation?

I think, I'd say, generally, we recognize we need to be arm in arm, but there's still outstanding issues that we need to resolve. And – but I really believe that the participants are motivated to move this process forward because they understand the importance of the restructuring effort here in Ohio. So I'd say the parties are motivated, but still there's issues that we have to resolve specifically related to if it's a surgical legislation.

Understood. And then tax reform, I think we are all trying to get our arms around the implications and the slide you laid out was very helpful. When we think about -- you laid out your breakeven tax rate at 22% and maybe just a dumb mechanical question, but there's some discussion that maybe the corporate tax rate goes down to 25% and not 20% or 15%. If it were at 25% instead of the 20%, could you just talk through some mechanically earnings power and other impacts from that kind of an outcome?

Yes, so if it's 25% rather than 22% or less, it means that from a net income standpoint the takeaways that we would have from interest deductibility would not outweigh the reduction in the tax rate that we're talking about. Does that make sense?

Okay. So it would be a net drag compared to say a 22% or 20% outcome and we could try to mechanically how to trace that out?

Correct.

Okay. That's all I had. Thank you very much.

And next we’ll go to Steve Fleishman with Wolfe Research. Please go ahead.

Good morning. Hi. First, thank you for setting a high bar on tax reform disclosures. We will see if others can get close to this, thanks. A couple questions. On the former PPA assets, could you give us an update on resolving the future of those?

Yes. On the former PPA assets, as I mentioned, we’re talking to the other parties. And really it focuses on what the swap potential is and, of course, looking at units that may – I mean, you look at him and say, well, we should go ahead and retire them. And then if there is consolidation of interest, then is there a strategic process that needs to continue in some variation associated with those. And I would say those conversations are going very well. Timing of those conversations I still suspect we’ll be completing something certainly in 2017. So obviously it’s pretty complicated given that there is multiple owners. But also there is multiple issues to be dealt with in terms of how you move forward from whatever the result maybe of the discussions with the parties themselves. But I would say those conversations are going very good.

Okay. Secondly, just on the transmission business, you had that 206 filing. And then, I think, did you make the 205 filing?

We did.

Okay.

We did the 205 filing.

And is there any updates on either of those or is that just going to be a long process?

Yes. On the 205 filing, I think, we have – it's a March timeframe for, I guess, for the forecast to act and then the 206 filing that’s still sitting out there. And it may be a couple years. But obviously that process will continue, if they decide to set it for hearing or whatever. But we haven’t heard anything else on there.

And then lastly, is there any update on your renewables investment program that the $1 billion you are targeting. Are you, I think, obviously after your analyst day we had the Trump election win that was unexpected and the like. So I'm curious just how are you feeling about being able to get to the $1 billion of renewables that you are targeting?

Yes. I think Chuck still has his $1 billion number out there. I think he is probably over a third of the way. But we’re going to be very selective. And as I said earlier and we have our return thresholds that we expect, and we have not changed those return thresholds. He continues to be involved with projects and if he can't make it to $1 billion, he will give it back to us and we will put it somewhere else including transmission and other places. So I think we are going to continue with the same degree of discipline that we have today regardless of what happened to tax provisions or anything else and so it's not -- this is not where AEP is trying to form some major business. It really is focused on an augmentation that's disciplined and has a return expectation associated with it that actually contributes to what we are trying to achieve. So that process hasn't changed at all and Chuck continues to be involved with projects both solar and wind and we will continue with that.

Great, thank you.

Next, we will go to Paul Patterson with Glenrock Associates. Please go ahead.

Hi, how are you doing. So most of the questions have been answered, but I've just got a really basic one and that is, we've seen tax reform proposals before. Obviously this seems like it's got momentum to it and it doesn't -- it looks like you guys have, your disclosure is pretty clear and the impact doesn't look necessarily huge. But it's pretty disruptive in many ways, generally speaking, to different players. And I just was wondering, when you're looking at this and when you're talking to your people, what do you think the chances are and I know it's a tough -- I'm not holding you to it or anything. But what are the chances that we actually see something this dramatic being enacted? It just seems rather -- I don't know, we've seen it before and things don't usually happen like this. When you look at this landscape now, if you had to guess fifty-fifty, what would you say is the chance of this actually-- these proposals substantially getting enacted.

I wouldn’t say -- I don't know that we've had a Trump administration before too, the pace at which he is moving already and I think a lot of these things have been pinned up for years and on its face you'll say it's pretty daunting to get tax reform done in these multiple things that we are talking about particularly when you take away interest expense deductibility and issues like that. That's going to be tough. I'm not saying that it can't get done because I think there's probably enough movement out there of a lot of companies who want to see that tax rate come down, and I think the importance of American industry going forward to be competitive internationally. I think that process will move forward and it becomes an issue of, okay, how do you pay for it? And that's where interest expense deductibility and all that kind of stuff comes in. As far as the industry is concerned, I still think right now the Trump Administration is dealing with ACA. They – the tax reform could come after that. Although, infrastructure seems to be a key issue as well. So it remains to be seen. I think it'll probably be later in the year before we really see things that we can really latch onto to fully understand where this thing is going and so we'll continue to look at our tax situation and consideration of that but it is something we'll watch very closely. And if it is a broad tax reform package, we probably dealt with in our analysis here, some of the extremes that would occur. If you take 100% expensing and interest expense deductions away, that's pretty considerable. So I think that's probably as much of a stress test as you're going to get. As far as the industry is concerned, and AEP's position, we would – we think that our industry is the most heavily – it is the capitalized industry by far of anyone in the US. And when you talk about interest expense deductibility and deductions and how the impact ultimately customers, you really have to think twice about that. So I really believe there ought to be a utility exception because we typically pass our rates through to customers and the benefits in there to manufacturing and other endeavors that we have for the economy. So whether that can get done or not is another question. But certainly we really have to look at those provisions and how it applies to our capital intensive industry. And we’ll obviously be active in Washington associated with that thought as well.

And that will be from the line of Anthony Crowdell with Jefferies. Please go ahead.

Hi, thanks for squeezing me in, Nick. I appreciate it. I guess on Ohio restructuring, AEP is already taking the pain of getting rid of oil generation of the utility in the and maybe have not and AEP is looking more forward-looking with future generation needs potentially in this restructuring bill. Do you think we could see an Ohio back to what we had as we moved to market where the state gets split and the restructuring as differently in the northern part of the state than in the southern part of the state?

I really don't see that. I think you hit up on a point though that different companies may be looking for different provisions based upon where they stand today and somehow we’ve got to make sure that an industry restructuring package is transparent enough and people will understand it well enough to accommodate some of these varied interests. And that’s really – that’s part of the challenge. And so we will just have to see how things work out from that perspective.

Great. Thanks for taking my question. I’m glad your blue jackets are relevant now.

Yes. I know. They are really relevant. Aren’t they?

Yes, they are.

It’s only taken like two decades.

Unfortunately, at the expense of my rangers, but yes.

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. I guess that now includes tax. John, would you please give the replay information?

Certainly. And, ladies and gentlemen, this conference is available for replay. It starts today at 11:15 AM, Eastern Time, and will last until February 2, at midnight. You can access the replay at any time by dialing 800-475-6701 or 320-365-3844. The access code is 415052. Those numbers, again, 800-475-6701 or 320-365-3844, and the access code is 415052. That does conclude your conference for today. Thank you for your participation. You may now disconnect.