Two Cash Position Case Studies

1. Two Cash Position Case Studies Rich Harvey Rick Gray rgray2@aep.com

2. Contents • Cash Position at AEP • Followed by Cash Position at Boise

3. AEP – Company Overview • American Electric Power has been providing electric service for more than 100 years and is one of the nation’s largest electric utilities, serving in 11 states. 2009 • Revenues (in billions) $13.5 • Net Income (in billions) $1.362 • Service Territory ~200,000 Square Miles • Total Assets (in billions) $45.2 • U.S. Customers (year-end) 5,213 • Employees (year-end) ~20,000

4. Why was AEP’s Corporate Borrowing Program and/or our Money Pools established? • Reduce outside borrowings by matching daily needs with available cash. • Reduce administrative costs by reducing the number of commercial paper programs, custody accounts, and physical transactions between accounts. • Money Pool BU’s exist for “transparency”, it identifies whether the pooled money is in an invested or borrowed position.

5. AEP Cash Consolidation High Level Structure Parent Company Stand Alone BU Money Pool Entity BU 100 Money Pool Entity BU 200 BU “Direct Borrowers” Participant Bu’s Participant Bu’s

6. Flow of Short Term Liquidity - Source External Short Term Borrowings Parent Company Stand Alone BU Money Pool Entity BU 100 Money Pool Entity BU 200 BU “Direct Borrowers” Participant Bu’s Participant Bu’s

7. Flow of Short Term Liquidity - Investment External Short Term Borrowings Parent Company Stand Alone BU Money Pool Entity BU 100 Money Pool Entity BU 200 BU “Direct Borrowers” Participant Bu’s Participant Bu’s External Investments

8. AEP Cash Processing Statistics • Procedures for determining the cash position for the day: • Consolidate incoming cash for the day • Determine the outgoing cash for the day • Determine the inter-unit settlements • Corporate Borrowing Program balances • Cash position lock • Current day Proof of Cash • Prior day Proof of Cash

9. Deeper Look at Cash Position for Individual BU’s Parent Company Stand Alone BU Money Pool Entity BU 100 Money Pool Entity BU 200 Participant Bu’s BU “Direct Borrowers” Participant Bu’s Participant Bu’s Participant Bu’s Participant Bu’s

10. AEP Corporate Borrowing Program (CBP) Beg Balance + Receipts – (Disbursements) = Net Cash Position, or Ending Balance BU 1 5 + 20 – (5) = 10 BU 2 (8) + 10 – (20) = (18) BU 3 3 + 15 – (10) = 8 BU 3 Money Pool Entity BU 100 (3) + 10 – (12) = (5) BU 4 (7) + 8 – (9) = (8) BU 5 10 + 30 – (10) = 30 Net Position or Ending Balance +8 BU 6 15 + 10 – (20) = 5 BU 7 8 + 15 – (10) = 13 BU 8 (20) + 10 – (12) = (22) BU 9 (4) + 8 – (9) = (5)

11. Tracking Individual BU Participants Daily Balance BU 1 BU 2 (8) + 10 – (20) = (18) 5 + 20 – (5) = 10 • Balances are used to calculate each business unit’s interest earned or expense. • Interest is calculated daily based on all outstanding short term debt and investments with external parties. • Interest amounts are included in adjusting each participants ending balances through our inter-unit process • The daily balances are also used compliance. Each BU has a short term debt limit. • In the example above, if BU 2’s limit is (20), we might need to take action to avoid exceeding our limit. • PS Internal Bank Accounts track these balances, the Money Pool BU acts as the Servicer Side

12. Information is Pulled from Various Sources Beg Balance + Receipts – (Disbursements) = Net Cash Position, or Ending Balance BU 1 BU 2 5 + 20 – (5) = 10 (8) + 10 – (20) = (18) • Beginning Balance = “Prior Day Bank Statement Ending Balance” • +/- Receipts and Disbursement can be actual and or forecasted • Actual are pulled from imported bank statements or inter-unit • Forecasted can be from AP, AR, Deal, or manually added • Once you Lock the cash position, actual bank transactions are compared to forecasted and the locked cash position is adjusted accordingly, until the next “lock”

13. AEP Custom Inter-Unit Settlement Process This high-level process flow details the Settlement Process from beginning to end. • AEP’s Understanding of PS Baseline Assumes: • All cash transactions will be settled with external bank transactions • Internal Bank Accounts will be set up with all potential Inter-Unit Combinations (for 100 BU’s that’s 10,000 combinations)

14. AEP Cash Position RequirementsPooling Funds with Corporate Borrowing Program • Determine daily cash position for all BU’s and money pools ~ 10:00AM EST daily • 5 to 15 minutes after Fed provides second controlled disbursement presentments • Settle accounts receivable and accounts payable between business units (inter-company) without incurring bank charges • Ability to Pool multiple "participants" or BU's daily cash position • Easy to maintain - Cash Position configuration is not feasible (too onerous) for companies with multiple business units (over 100 BU's) • Provide flexible process to modify setup as the business changes - Hierarchal or Pool • AEP incurs 5 to 10% change in our Corporate structure per year

15. Appendix PeopleSoft Deal Module Utilization v9.0 Case Study - AEP Rick Gray AEP Cash Management rgray2@aep.com

16. AEP Cash Position RequirementsPooling Funds with Corporate Borrowing Program

17. AEP Cash Position RequirementsConfiguration and Structure

18. Questions? Rick Gray AEP Cash Management rgray2@aep.com