1

                            

American Electric Power Company

Transmission Formula Rate

AEP East Companies

Annual Formula Rate Update

June 2012

2

TRUE-UP PROCESS

• Annual update for the Rate Year beginning July 1, 2012 through June 30, 2013

• True-up – Rates effective July 1, 2010 (billed January – June 2011) --

$65.88/MW Day

– Rates effective July 1, 2011 (billed July – December 2011) -- $74.89/MW Day

– Trued-up to Actual 2011 Cost Data with Average ending Ratebase Balances (2010-2011) -- $70.69/MW Day

3

Regulatory Changes

• July 2011 FERC issued an order approving the internal corporate reorganization consummated on December 31, 2011 under which Columbus Southern Power Company (“CSP”) merged into Ohio Power Company (“Reorganization Transaction”).

• March 2012 AEP submitted for filing amendments to Attachments H-14A, H-14B of the PJM Interconnection, L.L.C. (“PJM”) Open Access Transmission Tariff (“PJM Tariff”) to incorporate proposed revisions to make changes necessitated by the internal corporate reorganization.

4

Annual Update 2012

http://www.aep.com/about/codeofconduct/

OASIS/TariffFilings/

• Annual Update - 2012

• Notice of Annual Filing (PDF)

• Annual Update Customer Meeting Notice (DOC)

• Formula Rate Update AEP Operating Companies Summary (DOC)

• PJM ATRR Formula Rate Summary (XLS)

• Appalachian Power Company (XLS)

• Indiana Michigan Power Company (XLS)

• Kentucky Power Company (XLS)

• Kingsport Power Company (XLS)

• Ohio Power Company (XLS)

• Wheeling Power Company (XLS)

• NITS Attach C True-Up (XLS)

• RTEP Attach C True-Up (XLS)

• Schedule 1A Attach C True-Up (XLS)

• AEP Actuarial Report Non-UMWA YE 2011 (PDF)

• AEP Actuarial Report UMWA YE 2011 (PDF)

• ADIT Detail Historical (XLS)

Docket No. ER08-1329-000, OATT Formula Rate

5

Summary of Rates

Charge July 1, 20122011 FERC Form 1

(projected plant 2012)

July 1, 20112010 FERC Form 1

(projected plant 2011)

% Change

Point-to Point Rate $/MW Month

$2,194.98 $2,348.65 (7%)

Schedule 12 $5,385,840 $5,890,993 (9%)

Schedule 1A $.0643/MWh $.0918/MWh (30%)

AEP East Zone

Network Service Peak Load

24,530.8 MW 23,492.3 MW 4%

6

Primary Drivers Decreasing Rate

• Projected 2011 investment within 2% of actual 2011 capital spend

• 4% increase in the East Zone Network Service Peak Load

• Decrease in O&M Expense for 2011

7

Revenue Requirement (including revenue credits) used to calculate the Existing Zonal ATRR for PJM OATT

$0$50,000,000

$100,000,000$150,000,000$200,000,000$250,000,000$300,000,000$350,000,000$400,000,000$450,000,000$500,000,000$550,000,000$600,000,000$650,000,000$700,000,000

APCo $198,406,997 $218,315,385

I&M $102,001,398 $123,475,024

KPCo $42,605,499 $50,947,838

KgPCo $2,670,047 $2,904,010

OPCo $317,945,680 $259,552,737

WPCo $4,982,356 $11,436,644

AEP East OPCo's $668,611,976 $666,631,638

2011 Projected 2012 Projected

8

Gross Plant Investment – 2011 Projected vs.

2011 Actual Average Balance Gross Plant Investment

$0

$1,000,000,000

$2,000,000,000

$3,000,000,000

$4,000,000,000

$5,000,000,000

$6,000,000,000

APCo $1,934,693,178 $1,883,354,260

I&M $1,194,357,912 $1,176,235,026

KPCo $460,203,821 $452,827,494

KgPCo $21,314,849 $20,042,191

OPCo $1,913,754,301 $1,875,469,470

WPCo $38,363,580 $38,869,431

AEP East OPCo's $5,562,687,641 $5,446,797,872

2011 Projected 2011 True-Up

Includes allocated general and intangible plant investment.

9

O&M Expense Comparison

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

APCo $20,081,159 $29,542,106

I&M $4,992,996 $22,990,255

KPCo $582,514 $7,053,914

KgPCo $719,637 $700,357

OPCo $105,011,557 $40,353,219

WPCo $1,031,331 $990,852

AEP East OPCo's $132,419,194 $101,630,704

2011 Projected 2011 True-Up

2011 Projected Cost of Service includes 2010 actual expense2011 True-up Cost of Service includes 2011 actual expense.

10

2012 Projected Plant Capital Spend

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

APCo $95,284,309 $131,598,099

I&M $31,664,202 $43,340,071

KPCo $12,429,281 $22,378,645

KgPCo $2,017,427 $3,222,427

OPCo $54,302,091 $90,052,292

WPCo $8,077,323 $37,372,947

AEP East OPCo's $203,774,633 $327,964,481

2011 Projected 2012 Projected

11

Revenue Requirement For PJM Socialized ‘Schedule 12’ Investment

Company/Project

Investment

$

In-Service RTEP Revenue

Requirement$

I&M/Twin Branch

8,288,332 2009 1,319,695

I&M/Rockport Jefferson

580,000 2012 92,584

OPC/Hanging Rock

5,491,718 2009 1,057,666

OPC/WMoulton

4,486,000 2012 832,082

OPC/East Lima

1,941,459 2012 374,752

APC/Amos

13,706,017 2008 1,906,118

12

Summary Comparison

2011 Projected – 2011 True-up

Line 1 REVENUE REQUIREMENT APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's2 2011 Projected $198,406,997 $102,001,398 $42,605,499 $2,670,047 $317,945,680 $4,982,356 $668,611,9763 2011 True-Up $204,374,733 $116,900,686 $49,044,165 $2,490,593 $250,504,956 $4,874,599 $628,189,7324 True-Up Inc/(Dec) $5,967,736 $14,899,288 $6,438,666 ($179,454) ($67,440,724) ($107,757) ($40,422,244)5 Percentage Inc/(Dec) 3.01% 14.61% 15.11% -6.72% -21.21% -2.16% -6.05%

6 REVENUE CREDITS APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's7 2011 Projected $5,764,845 $1,952,792 $419,718 $125,083 $12,114,583 $1,344,290 $21,721,3118 2011 True-Up $5,652,699 $876,831 $67,700 $158,042 $9,441,988 $1,437,263 $17,634,5239 True-Up Inc/(Dec) ($112,146) ($1,075,961) ($352,018) $32,959 ($2,672,595) $92,973 ($4,086,788)10 Percentage Inc/(Dec) -1.95% -55.10% -83.87% 26.35% -22.06% 6.92% -18.81%

11 GROSS INVESTMENT APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's12 2011 Projected $1,934,693,178 $1,194,357,912 $460,203,821 $21,314,849 $1,913,754,301 $38,363,580 $5,562,687,64113 2011 True-Up $1,883,354,260 $1,176,235,026 $452,827,494 $20,042,191 $1,875,469,470 $38,869,431 $5,446,797,87214 True-Up Inc/(Dec) ($51,338,918) ($18,122,886) ($7,376,327) ($1,272,658) ($38,284,831) $505,852 ($115,889,769)15 Percentage Inc/(Dec) -2.65% -1.52% -1.60% -5.97% -2.00% 1.32% -2.08%

16 NET PLANT INVESTMENT APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's17 2011 Projected $1,313,888,154 $668,663,041 $303,205,843 $10,771,659 $1,115,725,826 $19,262,511 $3,431,517,03418 2011 True-Up $1,285,850,447 $664,275,594 $301,486,153 $9,765,804 $1,112,989,664 $20,078,931 $3,394,446,59319 True-Up Inc/(Dec) ($28,037,707) ($4,387,447) ($1,719,690) ($1,005,855) ($2,736,162) $816,420 ($37,070,441)20 Percentage Inc/(Dec) -2.13% -0.66% -0.57% -9.34% -0.25% 4.24% -1.08%

21 WORKING CAPITAL APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's

22 2011 Projected $15,849,665 $9,888,917 $2,848,932 $743,207 $33,115,118 $545,508 $62,991,34723 2011 True-Up $15,032,985 $8,037,979 $2,740,157 $786,500 $28,208,108 $481,060 $55,286,78924 True-Up Inc/(Dec) ($816,680) ($1,850,938) ($108,775) $43,293 ($4,907,010) ($64,448) ($7,704,558)25 Percentage Inc/(Dec) -5.15% -18.72% -3.82% 5.83% -14.82% -11.81% -12.23%

26 RATE BASE APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's

27 2011 Projected $1,126,350,752 $553,093,765 $259,755,225 $9,338,032 $978,098,492 $19,517,349 $2,946,153,61528 2011 True-Up $1,081,169,162 $539,738,275 $253,538,337 $8,094,810 $953,958,684 $16,982,968 $2,853,482,23629 True-Up Inc/(Dec) ($45,181,590) ($13,355,490) ($6,216,888) ($1,243,222) ($24,139,808) ($2,534,381) ($92,671,379)30 Percentage Inc/(Dec) -4.01% -2.41% -2.39% -13.31% -2.47% -12.99% -3.15%

RATE BASE

13

Summary Comparison2011 Projected – 2011 True-up (cont.)

Line 1 TRANS. O & M EXPENSE APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's2 2011 Projected $20,081,159 $4,992,996 $582,514 $719,637 $105,011,557 $1,031,331 $132,419,1943 2011 True-Up $29,542,106 $22,990,255 $7,053,914 $700,357 $40,353,219 $990,852 $101,630,7044 True-Up Inc/(Dec) $9,460,947 $17,997,259 $6,471,400 ($19,280) ($64,658,338) ($40,478) ($30,788,490)5 Percentage Inc/(Dec) 47.11% 360.45% 1110.94% -2.68% -61.57% -3.92% -23.25%

6 DEPRECIATION APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's7 2011 Projected $31,716,297 $17,630,917 $7,993,115 $504,518 $42,654,000 $777,128 $101,275,9758 2011 True-Up $31,039,902 $17,228,352 $8,039,215 $505,527 $43,413,482 $839,450 $101,065,9289 True-Up Inc/(Dec) ($676,395) ($402,565) $46,100 $1,009 $759,482 $62,322 ($210,047)

10 Percentage Inc/(Dec) -2.13% -2.28% 0.58% 0.20% 1.78% 8.02% -0.21%

11 TAXES - OTHER THAN INCOME APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's12 2011 Projected $19,004,965 $9,475,894 $3,282,933 $245,301 $52,912,648 $344,342 $85,266,08313 2011 True-Up $18,373,424 $10,069,907 $3,701,140 $234,531 $54,667,232 $545,055 $87,591,28914 True-Up Inc/(Dec) ($631,541) $594,013 $418,207 ($10,770) $1,754,584 $200,713 $2,325,20615 Percentage Inc/(Dec) -3.32% 6.27% 12.74% -4.39% 3.32% 58.29% 2.73%

16 INCOME TAXES APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's17 2011 Projected $33,798,720 $19,896,046 $8,097,320 $401,319 $33,141,765 $1,004,135 $96,339,30518 2011 True-Up $35,959,508 $18,861,014 $8,091,582 $352,702 $31,140,221 $894,499 $95,299,52619 True-Up Inc/(Dec) $2,160,788 ($1,035,032) ($5,738) ($48,617) ($2,001,544) ($109,636) ($1,039,779)20 Percentage Inc/(Dec) 6.39% -5.20% -0.07% -12.11% -6.04% -10.92% -1.08%

EXPENSES

14

Summary Comparison2011 Projected – 2011 True-up (cont.)

Line 1 RETURN ON RATE BASE APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's2 2011 Projected $93,732,841 $49,912,468 $22,641,847 $799,273 $84,225,711 $1,825,421 $253,137,5613 2011 True-Up $89,384,377 $47,664,497 $22,150,288 $697,475 $80,930,802 $1,604,743 $242,432,1824 True-Up Inc/(Dec) ($4,348,464) ($2,247,971) ($491,559) ($101,798) ($3,294,909) ($220,678) ($10,705,379)5 Percentage Inc/(Dec) -4.64% -4.50% -2.17% -12.74% -3.91% -12.09% -4.23%

6 WACC ON RATE BASE APCo I&M KPCo KgPCo OPCo WPCo AEP East OPCo's7 2011 Projected 8.32% 9.02% 8.72% 8.56% 8.61% 9.35% 8.59%8 2011 True-Up 8.27% 8.83% 8.74% 8.62% 8.48% 9.45% 8.50%9 True-Up Inc/(Dec) -0.05% -0.19% 0.02% 0.06% -0.13% 0.10% -0.10%10 Percentage Inc/(Dec) -0.65% -2.14% 0.23% 0.67% -1.48% 1.03% -1.12%

RETURN ON RATE BASE

15

Schedule 1A

AEP AnnualLine RevenueNo. Requirement

A. Schedule 1A ARR1 Total Load Dispatch & Scheduling (Account 561) (TCOS Line 14) $35,725,5372 Less: Load Disptach - Scheduling, System Control and Dispatch Services (321.88.b) $19,249,4733 Less: Load Disptach - Reliability, Planning & Standards Development Services (321.92.6) $4,301,7164 Total 561 Internally Developed Costs (Ln 1 - Ln 2 - Ln 3) $12,174,348

5 Less: PTP Service Credit $1,853,853

6 EXISTING ZONAL ARR (Ln 4 - Ln 5) $10,320,495

7 BILLED HISTORICAL YEAR (2011) ACTUAL ARR $10,320,4958 BILLED PROJECTED (2011) ARR FROM PRIOR YEAR $11,708,1629 PRIOR YEAR TRUE-UP (Ln 7 - Ln 8) -$1,387,667

10 INTEREST ON PRIOR YEAR TRUE UP -$69,555

11 Net Schedule 1A Revenue Requirement for Zone $8,863,273

B. Schedule 1A Rate Calculations12 2011 AEP East Zone Annual MWh 137,821,586 MWh

13 AEP Zone Rate for Schedule 1A Service. (Line 11 / Line 12) $0.0643

AEP Transmission Schedule 1A Revenue Requirements

16

NITS True-UpFERC Case No. ER08-1329PJM AEP Formula RateInterest Calculation on True-Up of NITS Revenue Requirement

AEP Zone MW Billing

Determinant Days in MonthProjected MW

Day Rate Revenues as BilledTrue-Up MW Day

RateRevenues @ True-

Rate(A) (B) (C) (D)=(A)*(B)*(C ) (E) (F)=(A)*(B)*(E) (G)=(D)-(F) (H)=Quaterly Total (I)=Quarterly Average (J)=Prior Quarter (N) (K)=(I)+(J) (L) (M)=(K)*(L) (N)=(H)+(J)+(M)

January-11 23,492.30 31 65.88 47,975,160 70.69 51,477,368 (3,502,209) February-11 23,492.30 28 65.88 43,332,402 70.69 46,495,688 (3,163,285)

March-11 23,492.30 31 65.88 47,975,160 70.69 51,477,368 (3,502,209) (10,167,702) (3,389,234) - (3,389,234) 3.25% (27,538) (10,195,240) April-11 23,492.30 30 65.88 46,427,574 70.69 49,816,808 (3,389,234) May-11 23,492.30 31 65.88 47,975,160 70.69 51,477,368 (3,502,209) June-11 23,492.30 30 65.88 46,427,574 70.69 49,816,808 (3,389,234) (10,280,677) (3,426,892) (10,195,240) (13,622,133) 3.25% (110,680) (20,586,597) July-11 23,492.30 31 74.89 54,538,105 70.69 51,477,368 3,060,737

August-11 23,492.30 31 74.89 54,538,105 70.69 51,477,368 3,060,737 September-11 23,492.30 30 74.89 52,778,811 70.69 49,816,808 2,962,003 9,083,476 3,027,825 (20,586,597) (17,558,772) 3.25% (142,665) (11,645,786)

October-11 23,492.30 31 74.89 54,538,105 70.69 51,477,368 3,060,737 November-11 23,492.30 30 74.89 52,778,811 70.69 49,816,808 2,962,003 December-11 23,492.30 31 74.89 54,538,105 70.69 51,477,368 3,060,737 9,083,476 3,027,825 (11,645,786) (8,617,960) 3.25% (70,021) (2,632,331)

603,823,073 606,104,500 (2,281,427) 365 (2,281,427) (350,904) (2,632,331)

Interest Accrual From End of True-up Calendar Year Until Beginning Of Rate Year

Accrual Balance @ 12/31/2011 (2,632,331) First Quarter Rate 3.25%

Accrual For First Quarter (21,388)

Accrual Balance @ 3/31/2012 (2,653,719) Second Quarter Rate 3.25%

Accrual For Second Quarter (21,561)

Refund (Surcharge) Balance @ 6/30/2012 (2,675,280)

Interest To Accrue During Rate Year Starting 7/1/2012 (See Note 2) (47,330)

Note 1: The Quarterly Average reflects in the calculation of interest the delay in recepit of cash due to timing of invoicing. Total to be Refunded (Surcharged) During Rate Year, Including Interest (2,722,609)

One Twelfth of Refund (Surcharge) Amount During Rate Year (230,898) Note 2: Calculation of rate year interest assumes refund will be made ratably over rate year at the interest rate pursuant to 18 C.F.R. 35.19a in effect during quarter preceding the Rate Year.

Basis of Interest Accrual

Prior Quarter Cumulative Refund

(Surcharge)Quarterly Interest

Cumulative Refund

(Surcharge)Year by Month

Ended:

Excess (Under) Collections at Quarter End

Average of Excess (Under) Collections

During Quarter (Note 1)

Refund Interest Rate per Part 18 FRC Sec

35.19aCumulative Excess (Under) Collection

17

Actual Revenue compared to True-Up Revenue

2011 Actual Revenue Collections - All AEP NITS revenue received during 2011 is allocated on ATRR share

APCo I&M KPCo KgPCo OPCo WPCoNTS Rate Days

Jan-11 $15,964,393 $9,306,715 $3,848,698 $185,811 $18,507,653 $161,891 $47,975,160 65.8763 31Feb-11 $14,419,452 $8,406,065 $3,476,243 $167,829 $16,716,589 $146,224 $43,332,402 65.8763 28Mar-11 $15,964,393 $9,306,715 $3,848,698 $185,811 $18,507,653 $161,891 $47,975,160 65.8763 31Apr-11 $15,449,413 $9,006,498 $3,724,546 $179,817 $17,910,631 $156,669 $46,427,574 65.8763 30May-11 $15,964,393 $9,306,715 $3,848,698 $185,811 $18,507,653 $161,891 $47,975,160 65.8763 31Jun-11 $15,449,413 $9,006,498 $3,724,546 $179,817 $17,910,631 $156,669 $46,427,574 65.8763 30Jul-11 $17,601,286 $10,557,179 $4,228,609 $212,949 $21,633,668 $304,414 $54,538,105 74.8881 31

Aug-11 $17,601,286 $10,557,179 $4,228,609 $212,949 $21,633,668 $304,414 $54,538,105 74.8881 31Sep-11 $17,033,503 $10,216,625 $4,092,202 $206,080 $20,935,808 $294,595 $52,778,811 74.8881 30Oct-11 $17,601,286 $10,557,179 $4,228,609 $212,949 $21,633,668 $304,414 $54,538,105 74.8881 31Nov-11 $17,033,503 $10,216,625 $4,092,202 $206,080 $20,935,808 $294,595 $52,778,811 74.8881 30Dec-11 $17,601,286 $10,557,179 $4,228,609 $212,949 $21,633,668 $304,414 $54,538,105 74.8881 31

TOTAL $197,683,608 $117,001,170 $47,570,266 $2,348,852 $236,467,097 $2,752,081 $603,823,073-

2011 True-up Revenue Collections - All AEP NITS revenue received during 2011 is allocated on ATRR share

APCo I&M KPCo KgPCo OPCo WPCoNTS Rate Days

Jan-11 $17,129,801 $9,986,109 $4,129,654 $199,375 $19,858,720 $173,709 $51,477,368 70.6853 31Feb-11 $15,472,079 $9,019,712 $3,730,010 $180,081 $17,936,908 $156,899 $46,495,688 70.6853 28Mar-11 $17,129,801 $9,986,109 $4,129,654 $199,375 $19,858,720 $173,709 $51,477,368 70.6853 31Apr-11 $16,577,227 $9,663,977 $3,996,440 $192,943 $19,218,116 $168,106 $49,816,808 70.6853 30May-11 $17,129,801 $9,986,109 $4,129,654 $199,375 $19,858,720 $173,709 $51,477,368 70.6853 31Jun-11 $16,577,227 $9,663,977 $3,996,440 $192,943 $19,218,116 $168,106 $49,816,808 70.6853 30Jul-11 $16,613,483 $9,964,699 $3,991,295 $200,998 $20,419,563 $287,330 $51,477,368 70.6853 31

Aug-11 $16,613,483 $9,964,699 $3,991,295 $200,998 $20,419,563 $287,330 $51,477,368 70.6853 31Sep-11 $16,077,565 $9,643,257 $3,862,543 $194,515 $19,760,868 $278,062 $49,816,808 70.6853 30Oct-11 $16,613,483 $9,964,699 $3,991,295 $200,998 $20,419,563 $287,330 $51,477,368 70.6853 31Nov-11 $16,077,565 $9,643,257 $3,862,543 $194,515 $19,760,868 $278,062 $49,816,808 70.6853 30Dec-11 $16,613,483 $9,964,699 $3,991,295 $200,998 $20,419,563 $287,330 $51,477,368 70.6853 31

TOTAL $198,624,999 $117,451,301 $47,802,117 $2,357,115 $237,149,288 $2,719,681 $606,104,500

AEPJan-11 to Dec-11 23,492.3

TOTAL

TOTAL

18

Questions

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