Ladies and gentlemen, thank you for standing by, and welcome to the American Electric Power Fourth Quarter 2018 Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to now turn the conference over to our host Managing Director of Investor Relations, Bette Jo Rozsa. Please go ahead.

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

Okay. Thanks, Bette Jo. Good morning, everyone, and thank you for joining us today for AEP's Fourth Quarter 2018 Earnings Call. As we move into the New Year and look back at 2018, we are pleased to report solid earnings for the quarter and for the year. Favorable weather continued into the fourth quarter, with the economy remaining healthy albeit tempered later in the year by the negative impacts of trade tariffs issues and the strong dollar. With that said, 2018 was the strongest normalized load growth since 2011. We continue to see customer counts pick up and load growth continue, and primarily the oil and gas sectors and residential sales growth as well. Overall good, but we'll keep a close watch on the sector growth in the economy and the customer load growth makeup. As you all no, we earlier, during third quarter 2018, revised our guidance for operating earnings from $3.75 to $3.95 per share to $3.88 to $3.98 per share and came in for the year solidly in the upper end of the revised guidance at $3.95 per share. We're very pleased with how our employees continue to work to provide a better customer experience while being dependably consistent to our shareholders on delivering these results. 2018 was clearly has been a great year, but I am even more pleased with the track record over the last 8 years of what we have achieved. Brian and I and the rest of the team take this very personally and see this as one of the hallmarks of the emerging brand of AEP. So let's take a look at the actual numbers for 2018, starting with the financial performance for the fourth quarter. We came in with GAAP earnings of $0.74 per share versus $0.81 per share in 2017 and operating earnings of $0.72 per share versus $0.85 per share in 2017. This brought the year-to-date 2018 total GAAP earnings to $3.90 per share versus $3.89 per share in 2017 and year-to-date 2018 total operating earnings to $3.95 per share versus $3.68 per share in 2017. The difference between GAAP and operating earnings primarily being generation plant-related impairments and tax adjustments. We also concluded rate cases in five states as a pretty heavy year from that perspective, Indiana, Michigan, Kentucky, Oklahoma and Texas. AEP also filed rate cases in two states, West Virginia and Oklahoma, which will conclude earlier this year. Tax reform-related activities were also major regulatory undertakings in the AEP state jurisdiction as well. All are proceeding well in order to generally ranging from primarily excess unprotected ADIT refunds being amortized over various periods or applied against depreciation or various riders [ph]. Almost all of the states have concluded orders reflecting these adjustments, and we did not expect any additional impacts during 2019. Moreover, even with the headwinds described earlier in an increasing interest rate environment, AEP continues to outperform the S&P 500 Electric Utilities Index and the S&P 500 over the 1 year, 3 year and 5 year periods. Again, as I said last year at this time, the very definition of a premium regulated utility. So great performance in the past, but the recognition of one of this year's Rock Hall of Fame inductees Janet Jackson and the title of one of hers songs What Have You Done for Me Lately, let's talk about what we see in 2019. AEP's operating earnings per share guidance range for 2019 is $4 to $4.20 per share. As we had said during EEI financial last November and continue to say with the capital plan, we've outlined for the next 5 years, including $6.5 billion in 2019, our focus on disciplined capital allocation among our businesses and additional opportunities to grow renewables beyond our financial plan, we have been very disappointed to not ultimately be in the upper range of our 5% to 7% growth rate. Additionally, I will reiterate the regulated renewables opportunities represented by the various integrated resource plans filed in our state jurisdictions are not included in our capital forecast of upside potential certainly exist. We also continue to work to bend the O&M curve through efficiencies, process automation and digitization as well as implement technologies to drive efficiencies while improving the customer experience. Regarding the renewables opportunities, we have filed integrated resource plans and RFPs with all of the SWEPCO and PSO state jurisdictions representing up to 2,200 megawatts of wind resources. On March 1, Vizard's [ph] new focused on ownership of these facilities primarily due to factors such as balance sheet optimization, scalability opportunities, deliverability and various other risks versus of the use of PPAs. We will file the results of the RFP process in August, and each state regulatory circumstance will determine the path forward. Our view is that all construction will be completed by the end of 2021, thereby taking advantage of the 80% PTC value and contribute to earnings starting in 2022. The Ohio 400-megawatt solar review process continues, which is part of the 900 megawatts renewables contemplated for AEP Ohio. Hearings are continuing this week and the next week regarding the question of need for these facilities really focused on a strict definition based on capacity or other broader stated issues regarding renewables, job creation, state economic development which governor DeWine is very interested in and others. It is interesting to note low-income customer support us in this case because of the accessibility of renewable resources that would not otherwise be available. This position goes directly to the message that utilities are inherently equipped to derive the scale to reduce costs and the ability to provide universal access to these types of resources and technologies. After the hearings, we will continue to push this process forward to resolve this important question for Ohio. As far as rate cases are concerned, we contemplate - we completed a heavy load of rate cases in 2018 as, I mentioned earlier, in the 5 states, and we await the finalization of the already filed West Virginia and Oklahoma rate cases soon this year. We will also be filing rate cases in Arkansas and Texas as soon as well. Regarding the West Virginia rate case, we have already filed a settlement agreement among the major parties including the staff that is effective in March, so we should be in order soon from the commission. Regarding Oklahoma, as you all know, this is our third try to receive a positive outcome in Oklahoma where we have been locally underachieving from a financial viewpoint while providing excellent customer satisfaction operational performance. Interveners and staff testimony has been filed, and we believe our tenor of where we stand at this point is even keeled with some bright spots of at least recognizing law perhaps has concerned with the concept of performance-based ratemaking for various reasons, there may be options for distribution riders or forward test years that could alleviate the pressure of regulatory lag. The ROEs filed by the parties were slightly higher than the proposals from last case we went through but are still among the lowest in the nation. As Oklahoma really open for business and economic development has renewed Oklahoma government expresses, we'll find out. We're always open to settlement discussions with the parties to resolve these different issues, and we have a long way to go. And in no doubt we'll come down to the Oklahoma Corporation Commission making the ultimate call. I would ask them as our referee to make the right call and not be like the NEC championship game. This is important from the perspective of the integrity of the regulatory process in Oklahoma, the help of PSO and its stability to invest in the state and from an economic development standpoint that concerns the significant AEP presence, not PSO, but AEP of over 600 employees centralized in Tulsa. We expect interim rates in Oklahoma to be in place in April and an order from the commission soon thereafter. So now I'll turn it over to the equalizer chart and talk about some of the state actions here. Overall, the regulated operations ROE is currently 9.7% versus 10.1% last quarter. I'll remind you that we generally project the ROE for our regulated segments combined to be in the 9.5% to 10% range. The primary reason for the slight decline from quarter four versus quarter three was the increase in O&M in fourth quarter this year versus the lower spend as we had very tempered weather last year and in the fourth quarter. So some adjustments were made there. As far as AEP Ohio is concerned, the ROE for AEP Ohio at the end of the fourth quarter 2018 was 14.5%. The primary driver is obviously continue to be some of the adjustments that were made previously, the RSR, the fuel, the PIR, those kinds of adjustments that are going to roll off by the end of - some will roll off by the end of last year and some will roll off toward the middle part this year. We expect to see the ROEs come closer to the authorized range as we go forward. APCo. The ROE for APCo at the end of the fourth quarter 2018 was 9.4% compared to 9.9% at the end of third quarter. APCo's changing ROE from third quarter is primarily attributable to higher storm restoration expense during the fourth quarter and a tax true-up. And again, I will remind you there's a settlement agreement that will become effective in March 2019. In Virginia, APCo's first triangle review is in 2020 and will cover the 2017 and 2019 periods. For the first triangle case for rate adjustment clauses in the period December 2018 to November 2020, the Virginia corporation issuing authorized the 9.42% ROE, which will be the reference going into the period to determine whether APCo's Virginia earnings for the 3-year period or within the allowed range. The proved ROE for West Virginia is 9.75% right now. In Kentucky, the ROE for Kentucky at the end of the fourth quarter was 9% compared to 9.2% at the end of third quarter. Kentucky Power continued to perform well in 2018 from a 5.1% ROE at the end of 2017 to the 9.0% ROE at the end of 2018. So great progress in Kentucky. I&M. The ROE in I&M at the end of the fourth quarter was 11.4% versus 12% in the third quarter. I&M posted strong results in 2018 primarily driven by favorable weather. This was O&M spending and onetime true-ups associated with the regulatory items. Favorable rate reviews in both Indiana and Michigan also contributed to the strong year. And then as far as PSO is concerned, the ROE we've talked about previously is 6.9% versus 7.7% at the end of third quarter. PSO's ROE continues to improve over last year, which was 5.92%, but was slightly down in the fourth quarter mainly due to unfavorable normalized retail margins. However, the ROE continues to be challenged, primarily because of ongoing regulatory lag, and as you know, we have a rate case filed there to resolve some of those issues. SWEPCO, their ROE at the end of fourth quarter was 6.5% versus 7.4% at the end of third quarter. Primary reason for the decrease in the ROE is the impact of the most recent Texas rate case. The company recorded $31 million in December 2017 that related back to an implementation date of May 2017. SWEPCO's ROE continues to be affected by the Arkansas share of the FERC [ph] plant. It's not in retail rates. This impacts ROE by about 135 basis points. SWEPCO also had contracts expire with certain wholesale customers during the period as well, so that has an effect. We plan to file an Arkansas base rate case this year, so we'll continue with that to try to address the SWEPCO's issues. AEP Texas at the end of the fourth quarter was 8.5% versus 8.8% at the end of the third quarter. While earnings have grown year-over-year, the reason for the declining ROE is due to lag associated with the timing of annual filings as we continue to make significant capital investments along with some timing-related O&M spend. Favorable regulatory treatment has allowed us to file annual DCRF and Biennial T [ph] cost annual filings, but the fast growth in rate base and associated property taxes and depreciation has made lag and more significant factor, so we continue to invest heavily down there. AEP Transmission Holdco, the ROE for Transmission at the end of fourth quarter was 10% versus 10.4% in third quarter, and it's primarily lower in the third quarter due to differences between actual taxes and equity balances versus projected taxes and equity balances filed in our former rate revenue applications. This difference will be recognized in our June 2019 formulate rate true-up. So all in all, still within the range we have talked about previously, the 9.5% to 10% we expect to continue in that range, and we also expect continual improvement in the ones that are hanging a little bit lower. So as we move forward into 2019, we intend on building upon a tremendous track record of delivering earnings well within our guidance range, and in fact, in the last 6 years have exceeded the midpoint of our guidance range each and every year. Borrowing the words from another of this year's Rock Hall of Fame inductees, Dep Leopard, from the song Hysteria, our consistency and quality of delivering positive financial and operational results is such a magical hysteria. When you get that feeling, better start believing, but AEP is, in fact, the premium regulated utility. I have two scores to settle real quickly, Nods I hope you're having a great day. And And Scott, I need more cowbell. Brian?

Thank you, Nick, and good morning, everyone. I'll take us through the fourth quarter and year-to-date financial results, focusing primarily on year-to-date, provide some insight on loading the economy, review our balance sheet, liquidity and pensions and finish with a review of our outlook for 2019. Let's begin on Slide 7, which shows that operating earnings for the fourth quarter were $0.72 per share or $354 million compared to $0.85 per share or $420 million in 2017. Most of this year-over-year borrowings was expected and came from higher O&M as we reduced spending in 2017 in response to that year's unfavorable weather. All the detail by segment is shown in the boxes on the chart, but the change in the regulated businesses was driven by higher O&M and decreased load, more than offsetting a return on incremental investment to serve our customers. The generation of marketing segment produced operating earnings of $0.07 per share, up $0.02 from last year due to higher energy margins and favorable income taxes. Corporate and Other was down $0.10 due to higher O&M interest and income tax expenses. Turning to Slide 8, we will review the year-to-date comparison in more detail. Our annual operating earnings for 2018 was $3.95 per share or $1.9 billion compared to $3.68 per share or $1.8 billion in 2017. This difference can primarily be attributed to favorable weather and recovery of incremental investment, partially offset by higher O&M as we reduced spending in 2017. Our regulated segments experienced growth for the year. And as expected, our competitive generation of marketing business was down due to last year's asset sales. Looking at the earning drivers by segment. Operating earnings for Vertically Integrated Utilities were $2 per share, up $0.36, with the single largest driver being weather, which added $0.33. Looking at total degree days. 2018 was the highest in the last 30 years while 2017 ranked 29th. Successful implementation of rate changes add another $0.26. Other favorable items included higher transmission revenues in AFUDC as well as lower non-service pension costs and income taxes. Offsetting these items were anticipated decreases in wholesale load and lower normalized retail margins as well as increased O&M and depreciation expenses. The transmission and distribution utilities segment from $1.05 per share, up $0.04 from last year. Favorable drivers included higher rate changes, normalized load and weather as well as lower non-service pension costs. These were partially offset by higher depreciation. The AEP Transmission Holdco segment contributed $0.75 per share, up $0.03 over 2017. This growth reflected the return on incremental rate base, which was mostly offset by prior period accounting adjustments and minimal formula rate true-ups this year compared to the larger one in 2017. Net plant grew by $1.4 billion or 21% since December of 2017. The generation of marketing segment produced earnings of $0.29 per share, down $0.01 from last year, due to the sale of assets and mostly offset by favorable income taxes. Finally, Corporate and Other was down $0.15 per share from last year due to the prior year investment gains and higher interest, O&M and income tax expenses. We are pleased with our results for 2018. As Nick said, we landed in the upper end of updated earnings guidance range. Now let's turn to Slide 9 for an update on normalized load growth. Starting in the lower right chart, normalized retail sales decreased by seven-tenths of a percent for the quarter but ended the year up eight-tenths of a percent compared to 2017. Even with the modest load performance over the last half of 2018, normalized load growth for the year was the strongest AEP has experienced since 2011. Every operating company experienced normalized growth in retail sales in 2018 with the exception of Kentucky Power. Moving clockwise, industrial sales increased by three-tenths of a percent for the quarter and ended the year 2% higher than 2017. The growth in industrial sales moderated in the fourth quarter and was driven by increases in the oil and gas sectors. Industrial sales, excluding oil and gas, experienced a slight contraction in the quarter. This was driven by a more restrictive U.S. trade policy, a weaker global economy, a stronger dollar and lower energy prices. In the upper left chart, normalized residential sales increased by two-tenths of a percent for the quarter and ended the year up six-tenths of a percent over 2017. Growth in residential sales was mostly due to customer count growth while normalized usage was down half a percent for the quarter. For the year, residential customer counts increased by six-tenths of a percent, which is twice the growth experienced in 2017. Finally, in the upper right chart, commercial sales decreased by 2.8% in the fourth quarter and ended the year down half a percent from 2017. Commercial sales were down across all our operating companies for the quarter and the year. The estimates for load growth presented on this chart differ slightly from what we showed at the EEI conference in fall due to the fact that we now have actual numbers for the full year of 2018 rather than the estimates we have at that time. Our actual load estimate for 2019 has not changed. Now let's turn to Slide 10 and review the status of our regional economies. As shown in the upper left chart, GDP growth in AEP service territory was 2.8% for the quarter, which is three-tenths of a percent below the U.S. The U.S. economy has eclipsed that of AEP service territory since the tariffs went into effect in the second quarter. As discussed on previous calls, AEP has a higher exposure to tariff given its higher concentration to export manufacturing. In fact, 38% of all U.S. exports originate in the 11 states served by regulated utilities. The upper right chart shows the gap between employment growth is narrowing between AEP service territory and the U.S. The U.S. has experienced stable job growth over the past 2 years, and the job market within AEP's footprint has continued to improve. For the quarter, job growth in AEP's territory was 1.3% with higher growth in the West. The unemployment rate for AEP's territory fell to 4.1% this quarter, which is the lowest level on record. The sectors that added the most job this quarter, the professional and business services, education and health services and leisure and hospitality. Final chart at the bottom shows the income growth within AEP's footprint has not kept pace with the U.S. in recent months. For the quarter, personal income growth for AEP was two-tenths of a percent below the U.S. Income growth is a key driver for residential and commercial sales growth. It is too early to know what the impact of the partial federal government shutdown will have in our economy. Federal government share of unemployment across our territory ranges between seven-tenths of a percent in Arkansas to 7.2% in Texas, with some portion of these numbers being unaffected military employees. The longer the shutdown lasts, the higher impact we would expect to see in residential commercial sales due to lower personal income and spending. Overall, 2018 was a strong year for the economy in AEP service territory. The boost to incomes from a robust job market and tax reform create a momentum earlier in the year that carried us through the headwinds of the tariffs, stronger dollar and higher interest rates. We expect economic growth to continue in 2019. Now let's move to Slide 11 and review the company's capitalization, liquidity and pensions. Our debt to total capital ratio increased slightly during the quarter to [57%]. Our FFO to debt ratio was solidly in the Baa1 range at 17.8% and our net liquidity stood at about $3.1 billion supported by our revolving credit facility. Our qualified pension funding decreased to 99%, and our OPEB funding decreased to 129%. A drop in yields increased the liabilities for both plans while at the same time falling equity prices attractive from asset returns. Our fixed income holdings provided a positive offset to the liability increases in equity losses. Investors have been asking if our pension expense estimates are increasing in 2019 due to market volatility rate in 2018. We are not seeing a meaningful change in our assumed pension expense. This is largely due to having what we believe are appropriately conservative assumptions regarding discount rate for liabilities and the expected rate of return for investments. We are also comfortable with our asset allocation. As we disclose at EEI, our assumed pension discount rate for 2018 was 3.65%, and for 2019, it's 4.3%. Our assumed asset rate of return has increased slightly by 25 basis points to 6.25%. Our target asset allocation is 25% equities, 60% fixed income and 15% alternatives. Our combined pension, OPEB, pretax expense was a credit of [$65] million in 2018, and we expect a credit of $59 million in 2019. Now let's wrap this up on Slide 12 and try to get to your questions. We begin 2019 with a solid track record. Our earnings were strong in 2018 as we continue to invest capital in our businesses. For 8 years now, we have maintained O&M discipline and kept spending net of assets in a tight range of between $2.8 billion and $3.1 billion. 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 quarterly dividend by 8.1% on an annual basis. This increase, along with the midpoint of our 2019 earnings guidance range, brings our payout ratio to the middle of our [60%] to 70% targeted range. Looking ahead to 2019, we are reiterating our operating earnings guidance of $4 to $4.20 per share. We will finalize our pending rate cases and move forward with opportunities in the renewables space. We will continue our disciplined approach to allocating capital and are confident that there is significant runway in our capital programs to reaffirm our 5% to 7% operating earnings growth rate. With that, I will turn the call over to the operator for your questions.

[Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open. Julien Dumoulin-Smith: Good morning.

How are you doing? Julien Dumoulin-Smith: Good, congratulations. So let me go back to where you started the call a little bit. Certainly, we're impressed by the comment on being disappointed, but not being at the high end of that 5% to 7% range. Can you comment a little bit on what gives you that confidence today just given some of the movie [ph] business at the end of the year? But also, I just wanted to understand what your expectations are for moderating ROE in Ohio. I know we've been talking about it for a little bit. But basically, are you still talking about being at the higher end potentially despite having that moderation? And where the other pluses this year as you think about it?

Yes. So yes, we do expect the high end of that moderation. And also, as I look at the year going into it, certainly with the capital plan that we put out there, the consistency associated with that as well, the opportunities that exist in front of us, we continue to look at those opportunities. Certainly, the integrated resource plans are applied with the various states, what we're doing not only from that from a video [ph] and incur perspective. I think we have more tailwinds than headwinds. And when we look at the plan that we put forward, it's a solid plan. And as I've reiterated several times, it doesn't include some real opportunities out there for us to even achieve better results. So - and I don't - and really, I really think of that as sustainable results, not like up 1 year down, another year, that kind of thing. We pride ourselves on that element of consistency. And certainly, the capital plan demonstrates that, but also the opportunities ahead of us, they are more singular opportunities, more singles and doubles because, obviously, if we've gotten something like Wind Catcher, for example, front-end loaded, many of the integrated resource plan activities, but in this case, following these plans and the smaller projects that will come into play, and we'll see the continuing improvement. I think we have a great case for the utility and for - the AEP utilities to own use assets. And depending upon the outcome of that, certainly, I would suspect some positive movement from that perspective. So I feel good about it. I think I fell good about our culture of the organization. Our culture is around innovation, but it's also definitely around bending the O&M curve and addressing the issues in front of us. I mean, you look at the - for example, the weather last year in '17 versus last 2 years ago versus '18, very mild weather in '17. Earnings still came in where we really we're telling the market they would come in at. '18, it was ahead, still came in where we said it would be and, obviously, beat the midpoint. So we had some resiliency that's built in our organization, the culture of the organization that will address to those kinds of results. So I'm optimistic. Julien Dumoulin-Smith: Excellent. And you comment or perhaps elaborate rather on some new developments in Oklahoma, you alluded to several potential positives riders and other new mechanisms is I'll leave it abroad in Oklahoma, you helped improve your earned ROEs. What does that mean with respect to another rate case? Or do you think, largely, you can achieve some of these through the current rate case? I know it's still pending, but I just want to understand at least from a - more of a process perspective how you're thinking about it here.

Yes. Certainly, I don't want to presuppose the outcome. It'd be great if we got pretty considerable result in this rate case to get us back on an even footing. And certainly, Walmart, I guess, was one of the interveners that had - that's obviously performance-based ratemaking. I don't know about that. But certainly, looking forward, looking test years. So that'd be a great outcome to be able to look at forward-looking test years and as well some of the other - even - I think it was the Attorney General, maybe someone else, but was open to actually putting in an additional generation, additional distribution related rider activity. So - and I still have work to do with the industrials. They were probably the most negative from an intervener perspective. But I really believe when you look at the discussions and what was centered versus the last case and the previous case, there at least now is recognition of the issues that we have and there's no doubt that the issues that we're discussing are well known by the commissioners and certainly the interveners. So I'm hopeful that it can certainly move to a more positive outcome. What we're looking for, obviously, is progress, and we expect progress. And I think there has to be a clear message around that because we've languished since 2013 in Oklahoma, and that just has to change. And as a matter of fact, with the integrated resource plans we have filed in those various states, PSO in Oklahoma, obviously, is one of those, we just need a positive outcome rate case to make additional investments of that kind in the state. And obviously, the timing will work out to where we'll be able to make those kinds of decisions. And then I think it's pretty well known now that also, Oklahoma is like our second corporate headquarters to us. With over 600 people, they are that focus on primarily the Western properties but also some of the Eastern activities as well. Those are not PSO employees. They are AEP employees. So we should put AEP on top a building there so the Oklahoma knows that we do have a significant presence there. And I think that's important, and I think it's important to the livelihoods of the Tulsa area, but also I think it's important for this company to be able to have a central location like that, that we're able to operate out of at. So there's a lot of things in the context of all this that's probably becoming well known, and hopefully, will drive us to a better outcome. Julien Dumoulin-Smith: Excellent. Thank you. Best of luck.

Thank you.

Thank you. And our next question comes from the line of Jonathan Arnold of Deutsche Bank. Your line is open.

Morning, Jonathan.

Hi. Morning. Just to go back to your comments on the upper end of the - upper range of the 5% to 7%. Were those specific to 2019 guidance or they are more statement about your confidence in executing in that range over the 5-year plan? I wasn't quite clear when you set it at the outset.

Yes. We said 5% to 7% growth rate -- long-term growth rate over the future periods. And obviously, when you're paying renewables, they're not going to be in place until 2022. From a financial standpoint, that's part of it. So it's -- I would say it's geared more toward the long-term, but the trajectory should hold true. And there'll be things that come in during '19. There'd be things that come in during '20 and '21 and in the future years. So I think we have real opportunities in each and every year. But obviously, we're positioning this as part of our 5% to 7% growth rate.

Okay. So that upper range was going to be over the plan effectively?

Yes, that's right.

Yes. Great. And just the slowdown you saw in sales in the fourth quarter, can you give us a little more of a sense of why you remain confident keeping the 2019 sales estimate unchanged from EEI and maybe some color on what you're seeing early this year and what you're hearing from your customers?

Yes. Certainly, Brian can cover this in more detail, but the way I'll see it is we're seeing somewhat of a tempered economy because of the trade issues. And as Brian mentioned, we have a lot of companies in our territory that are -- and certainly trade has an impact. And once those shackles come off, we believe the economy will continue on its previous trajectory. And so it's certainly difficult. The tailwind, that's going to happen. But I think you're hearing some more promising dialogue from our national leaders. Let's hope that continues to be the case. But even then, I guess, probably, we look at customer counts. Customer counts is up considerably, so we're very happy with that. And the fundamentals, seeing this still being in place for the economy continued to roll along. From the world economy perspective, obviously, that would have an impact, but I think that's probably, again, tariff driven for many respects.

Jon, a lot of the growth that we anticipate in 2019 is going to be driven by the industrial space, and particularly industrial space in the oil and gas sector. We see a lot of company proposed and company invested -- customer invested in expansions in that area, and they are close at hand. We expect a lot of those to come on in 2019. In the fourth quarter, oil and gas was up 5.6%. In the third quarter, it was up 7.7%, and we expect that expansion to continue in 2019.

Brian, can you do the math for us, though? How much that wasn't oil and gas was down in 4Q?

Yes. In fourth quarter, it was down six-tenths of a percent non-oil and gas industrial. And in the third quarter, non-oil and gas industrial was up six-tenths of a percent.

Okay. And -- so obviously, your outlook is premised on an assumption with growth continues, you're talking about the plan, having building resilience in the company, talk to me a little bit about how resilient you think your plan is maybe if that view doesn't pan out.

Yes. I think if you look at -- and Nick talked about it, the change that we had year-on-year, '17 to '18, in terms of weather and how we were able to adjust O&M in both years to be able to hit our numbers, I think that demonstrates that resilience. So whether it's weather, whether it's loan growth, whether it's tariff impact or whatever, we actively manage our rate throughout the year, putting the brakes on, or the accelerator on as the case may be to get work done, what we need to get done. So I think just the weather year-on-year demonstrates that resiliency.

And I think we're seeing sort of a -- if you put a microscope to it with the industrials impacted by the tariffs in particular, the commercials, particularly the supply to the major industrials and those kinds of establishments will have an impact. And I think we're probably seeing somewhat of an immediate impact there. And again, I think as the industrials start to pick back up, the commercials should start to come back as well.

And our next question comes from the line of Ali Agha of SunTrust. Your line is open.

First question, Nick or Brian, just reconfirming, when you talk about the 5% to 7% growth rate, what's the base of the change? Have you roll it forward? Or can you just remind us the base year for that?

It's midpoint of 2018 guidance, so it's off 3 85.

Off 3 85, I got to you.

Yes, yes…

Okay. And then the renewables that you talked about in Ohio and in other places, the potential, if you do get approvals for those, can you just remind us in aggregate what kind of incremental CapEx we'd be talking about [indiscernible]?

Yes. So as for the renewables in Ohio that we've been talking about, it's not incremental CapEx, right? So the solar that we're talking about are PPAs, so that's not CapEx. For the competitive renewables, okay, so I'm not talking about Ohio, but I'm talking about Chuck's [ph] business, for the 5-year period, '19 forward, we anticipate spending about $2.2 billion over that 5-year period.

But the renewables associated with the regulated side of the integrated resource plans of PSO and SWEPCO, that would be additional capital requirements based upon really what the ownership percentage winds up being.

And important to say, Nick, because we get these questions, the earnings associated with that are not reflected in our numbers today.

That's right. That's right. And as far as Ohio is concerned, we elected not to participate in the construction of the project. But at the end of the day, when we get approval, there is an added component to the plan going forward that really reinforces our cap structure at AEP Ohio and evaluates the risk associated with the long-term PPA of that sort into construction. So you'll still seeing the earnings impact of the Ohio solar as well.

I see. But just to be clear, the -- from a regulated rate base perspective, there's no incremental CapEx associated with the Ohio renewables? Did I…

No. And actually, when the bids come in in March, we'll have a better understanding of what the CapEx looks like.

That's for the consumer protection plan.

Yes.

Okay. And the CapEx numbers that you have in the slide, no changes there since EEI. Is that correct?

That's correct.

And my last question on Oklahoma, Nick, I mean, again, assuming that the outcome is suboptimal or not as good as you would like it to be, what's your latest thinking there? Does that still give you hope that you can keep pushing and then maybe get to that end result? Or how are you thinking about Oklahoma post this current rate case?

I think some of the positions taken by it in the interveners and others, there is some cause for hope that research recognition of the issues, but I'm not going to presuppose the outcome because I did that 2x before, and who knows what the outcome will be. Certainly, the issue should be very well known. I would say that just based on the response of the interveners, it's marginally better than what -- how they responded earlier. So I guess you can look at that as some positive, but we won't know until we get into the discussions with them or -- and go through this process. And really what matters is what in the Oklahoma commission comes up with in terms of running order, and they recognize the value that PSO provides to the state. And so that's what we're looking for. And if -- as I've said earlier, we will wait for those results and then we'll make determinations of what the next steps are.

And our next question comes from the line of Paul Ridzon of KeyBanc.

Can you just clarify, when you say bend the O&M curve, is not decelerating O&M growth? Is that fattening or is it negative growth?

Negative.

Yes, negative. We really -- by bending, we mean negative it.

Can you kind of give a percentage kind of to think about [over] the next few years?

Yes. So we haven't said what that would be, Paul. If you look at our 2.8 to 3.1 that we've been in for about the last 8 years, we're looking to break through that and turn that negative, and we have plans to do that. It includes what we've done on lean activities, what we've done in process improvement. It includes automation, box. It includes partnering with third-party suppliers, like what we've done with an accounting and tax initiative with Accenture. And it's bringing all those things to build across the company that we're going to try and break through that $2.8 billion of non-spending that's not altered in past years.

And then just to clarify, the 5% to 7% does not include renewables at PSO or SWEPCO or Chuck's business, is that correct?

It includes the capital in Chuck's business, the $2.2 billion over the plan. It does not include the regulated renewables. It does not include Ohio.

And then any projects that could be impacted by the situation in FERC?

No, no. We don't see any projects impacted from that perspective because FERC obviously continues to advance transmission spending. And actually, the resource projects themselves, yes, we've moved to West transmission off of those. So I'm assuming it's on the transmission.

Yes.

We don't see any impacts there.

And finally, with the 2.8% reduction in commercial sales, is that just [clearly] volatility? Or is there something along the line there?

We think it's clearly volatility. We don't see that continuing as a trend into 2019. Could have been associated with higher consumer interest costs in some demand side management that we across our system, but we don't see that as continuing into the new year.

And our next question comes from the line of Praful Mehta with Citigroup.

So I just wanted to understand in Chuck's business, any exposure to PG&E or California Utilities that we should be aware or thinking about?

No. That is the right answer. Very fortunate in that regard. A lot of our optics are with our municipal co-ops and used customers.

Okay, great. Dodged a bullet which is great. I guess just touching on the review, like strategic review that you've talked about in the past, and obviously, you've touched on Oklahoma already. But just on a strategic perspective, is there any view that we should be thinking about around any of the utilities? If they don't -- if you don't get the outcomes you're looking for, is that still on the table right now? Or is that too far out at least not a 2019 event?

I think -- and the way we look at it is every utility that we have, we wanted to grow and prosper. And to the extent that they can grow and prosper and have a proper regulatory treatment, it's a great outcome. I think a couple 3 years ago, I guess, 3 years, we're talking about Kentucky and Kentucky's turned around. We focused on 2 things, the regulatory relationship and the compact that we have there, but also our emphasis placed upon economic development in the state of Kentucky. And that picture has turned around markedly. For PSO, PSO is now in the radar screen and probably in the middle of the radar screen because we definitely want to be a part of the economic development picture of Oklahoma, and we definitely want to be able to move forward in a very positive way on investments that benefit the customer experience in that state. So the way you look at it is we have a set of assets. And if they perform well, fine. If they're electronically underperforming, then we have to take steps in some fashion to alleviate that situation for our shareholders. And really, the focus because many times, when you have an underachiever, a lot of effort goes into trying to reconcile the situation. And there are some that say that PSO doesn't have a revenue problem. It has a spending problem. And that is just so far from the truth. It's just incredible because we run 7 utilities, and we run those utilities in much the same fashion. And we know what it takes to provide the customer services required, and PSO has been at the top of the list in terms of its performance. And I really believe that if you're a residential customer, if you're an industrial customer, you should you really take a hard look at what's happening there in Oklahoma, and it could very well have an impact on not only the presence in the future, but also the customer experience itself, and we don't want that to happen. So as we get these assets, obviously, we'll continue to make steps to further optimize our portfolio based upon what we see.

Okay. That's super helpful. And then -- and finally, you guys have been able to manage through different [indiscernible] years. It sounds like if you do have the shackles that are continuing to stay, let's say, from [Dallas] and other constraints from a macro perspective, and it doesn't work in your favor, is there any time that we should be worried about the '19 profile? Or do you think you have enough tools in the toolkit to manage to run those potentially macro challenges around the earnings for '19?

Yes, I think we're fine. We've had -- and if you look at [over] the last 2 years, 3 years, maybe even longer than that we've had perturbations of customer class going up and down and actually residential going down has more of an impact than commercial or industrial. And so the mix obviously has an impact because the margins are different based upon each customer class. But our service territory is very diverse, very -- certainly, every part of the economy is represented. And our customer mix is really pretty resilient in and of itself. So there's a lot of internal levers that continue to adjust for one another from that perspective. But at the same time, we will adjust when the economy is -- if the economy were to chronically be suffering, and we saw that on a continual success of a quarterly trend, then we would certainly make adjustments that were necessary to ensure that we remain financially healthy, and we intend on doing that. But I really believe we're in good shape in that respect. And we'll watch this next quarter and the quarter after, and hopefully, we'll see some progress in the federal government side. I think certainly immigration needs to get solved and the 2 parties need to get talking to one another again, and maybe that will warm them up and then they'll move to greater and better better things for the economy, but they've got to get going.

And our next question comes from the line of Greg Gordon with ISI.

So just two quick questions. One, just to be clear, you said the anchor for the 5% to 7% is 3 85 in '18?

Yes.

Yes.

Okay. So I mean, I guess this is just logically correct, but the high end of the guidance range for '19, which put -- would put you above 7%. You're not -- this is more a long-term target than an annual we're going to be tight inside the stance type of guidance? [indiscernible]

That's right. ROE is in the midpoint of the 5% to 7%. And then you look at the opportunities available to us in that 5% to 7% bandwidth, it's -- like I said, it's more tailwinds than headwinds.

And then just one final question because there's just -- there's been some conversation about this. You continue to give us a financial forecast that even though the absolute level of leverage has come up since 2013, the FFO to that metric continues to be really resilient just around 18%. And you're still confident that through this forecast period, you can maintain -- there'll probably be no deterioration in your FFO to that metrics.

We haven't said that. We do anticipate that it will [decrease] over the time period, and we expect it to approach [to] 15% level during the term of the forecast.

Okay, okay. Well, that's a higher number than other people have prognosticated anyway. So just wanted to make sure we understood what you thought the trend was.

We're very interested in the FFO to that percentage, and we intend to maintain our credit rating.

Okay. So you think 15% is sort of regular trend down to over this forecast period?

In that area, yes. A - Nicholas Akins Thanks, Greg.

Operator, we have time for one more question.

And our next question comes from the line of Angieszka Storozynski of Macquarie.

I have a bigger picture question. So we are hearing about this precipitous drop in prices for solar power and that more and more senior customers are signing contract with PPA simply because they see it as a way to hedge against fatality in falling natural gas prices that also seem to be at places that are not below favorable solar power curves. So 2 questions. Do you see it as a risk to your vertically integrated utilities given that you do have conventional generation assets? And number two, is there a way to tap into this growth beyond that $2.2 billion that you're planning to spend on renewables on the commercial side?

I would say, first of all, we don't see a risk if we're doing it, and we are doing it. And I think we are in discussions with many customers about what their specific resource needs are. We're also looking at various technologies that enable that to happen in some of these large customers. So we really have an opportunity to engage in that discussion. But the other part of it, too, is you see solar, you see energy storage. Those types of applications continue to advance, and that -- and certainly on the transportation sector, you're making up whatever you're going to lose. You're going to make it up with channel growth -- sales channel growth, particularly associated with the advent of electric transportation. So there's real opportunities for us to engage in that, and I think AEP is in a very favorable situation of being able to focus on those types of issues as opposed to something that some calamity that's occurred and real intent of making sure we maintain our operational excellence so that we can focus on those particular types of activities. And certainly, that's happening not only on the regulated side. and obviously, we're having to work with the regulators to broaden the perspective there. For example, continuity of service is not just a distribution line going in the home. It's a distribution with energy storage throughout [indiscernible] outages and really drive toward continuity of service as opposed to just basic service. Certainly, what we're doing with smart cities, what we're doing with other applications and engaging customers in a very substantial sense, those are things that we see as the future, and we are not going to get left behind from that perspective. As a matter of fact, from a technology standpoint, we're at the forefront of these technologies across the gamut. So we have pilots running in every one of our operating companies on various aspects of these technologies, and we intend on that channel growth to occur.

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. Selena, would you please give the replay information?

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