Appalachian Power Now and into the future MEPAV Annual Meeting Larry Jackson External Affairs May 25, 2017 Today I’m going to talk about all the changes facing the energy industry and what we expect to see at Appalachian Power as we transform into a next generation energy company. (Reference to slide: Things are changing faster than we can get our compact florescent bulbs changed to these pretty LEDs!)

Appalachian Power 1,045,000 customers WV 428,000 VA/TN 576,000 Of note is that we have basically zero overall growth Little need for new base load generation resources at this point While our load may be stagnate – our company isn’t…

Transformation is Underway New AEP/APCo brand, vision and mission Activates repositioning; drives change within the organization Offers a hook for attention—introducing a new story for AEP’s future Acknowledges changing market dynamics and AEP is in step with those changes Propels AEP toward its goal as an Energy Company of the Future

Planning for a clean energy future… Fuel capacity mix The power sources available for use Our coal capacity declines over the next 10 years, but only as a percentage, because we will be introducing more renewables, energy efficiency and demand side management. The actual amount of coal, gas and hydro all stay the same. Hydro does get downgraded by PJM to 25% and wind to 5% in 2020/21. Also, Clinch River is retired in 2026. Source: Appalachian Power. (2017, May 1). Integrated Resource Plan to the Commonwealth of Virginia State Corporation Commission. 4

Fuel energy mix The power sources actually used to provide energy 2012 figures are for capacity, not energy. 5

The pace of innovation is accelerating Digital Customer Experience Solar Electric Vehicles Battery Storage Automation Robotics Big Data Analytics Artificial Intelligence Wind Micro-grids Distributed Generation Energy Efficiency Drones In a word, everything. The pace of innovation is accelerating. Not only are we seeing technological changes in the area of solar and energy efficiency, but technological innovation in other areas will affect our industry as well, like artificial intelligence, robotics, big data analytics, and electric vehicles. Large companies with influence – like Google, Toyota – have established their own targets for energy efficiency and renewables, and they expect support from electric utilities to meet them. Source: McKinsey & Company. (2016, February 11). Utility of the Future: Creating customer and investor value in 2020 and beyond.

Customer Expectations Finally, the last area of change I’d like to discuss is customer expectations.

Customers expect more Today’s customers expect more from everyone they do business with Customers today expect more – I don’t have to tell you that! You as a customer expect more from everybody you do business with, and that includes your energy company. You compare your experience with Appalachian Power to your experience with Amazon, FedEx, American Express.

What customers want from us Affordable prices Reliable electric service Hassle-free interactions What customers want from us can be summed up pretty easily. You want: Affordable prices, Reliable electricity, and You want us to be easy to do business with. We’re looking at what we can do in all of those areas.

Price Rates will be stable throughout 2017 and until at least mid-2018 Because we are a regulated utility, our rates are based on the cost of providing service. While we can’t say that our rates are going to drop, I think it’s important to point out that our rates will be stable for at least a couple of years. We will not be requesting a rate change in 2017, so rates will be stable until at least mid-2018, and quite possibly longer. Looking historically, APCo’s rates in VA have averaged only +1.5%/yr

Reliability/ED Major T&D upgrades Cloverdale ($250M) 138kV and subtransmission Commonwealth Crossing That leads me to reliability. Because we have finished paying for our environmental controls, we are finally able to devote our budget dollars to improving service for customers. We are working on projects all over West Virginia to improve the reliability of your service. These projects range from large transmission infrastructure projects that improve the reliability of the electric grid, to small projects that fix problems affecting just 100 customers in a neighborhood. Also, during the 2017 GA session a bill was passed to enhance the 2012 bill expediting service to industrial parks. This bill tied approval of the transmission line project to the transmission station thus eliminating the need for dual approvals.

Tree trimming VA Pilot successful Filed to get to a 4 yr cycle Outage frequency DOWN 40% Outage duration Filed to get to a 4 yr cycle

Tree trimming This is a picture of a right of way in Logan before trimming on the left, and after trimming with our aerial saw on the right.

Hassle-free service Utilities aren’t often seen as being “easy to do business with” We are working to change that

Coming soon A new easy-to-understand bill A mobile app to pay bills, check on outage, etc. Chat

Phone · Email · Text · Chat · Web Coming soon A customer center that uses all media according to the customer’s preferences, not ours Phone · Email · Text · Chat · Web

Coming soon Expanded payment options More energy efficiency options Renewables Energy storage Community grids and micro grids

Rubin Group 2016 2017 Ag Net Metering PBR increase Utility Community Solar 2017 Net metering reform Many customers and the solar industry want more access to the market. This group was assembled to find solutions, which we have. The 2017 discussions will be somewhat challenging due to the difficulty in changing the net metering paradigm . Net metering puts upward pressure on rates

OUR JOB is to do better at providing exactly that What we’ve learned Customers today want what they want, not what we think they should want OUR JOB is to do better at providing exactly that

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