COLUMBUS, Ohio, April 24, 2007 – American Electric Power (NYSE: AEP) entered 2007 with a strong balance sheet and a focus on sustainability and disciplined growth, Michael G. Morris, AEP chairman, president and chief executive officer, told shareholders attending the company’s annual meeting today in Shreveport, La.
“We celebrated 100 years of operations in 2006 and spent some time last year reflecting on what AEP has contributed to our industry and the communities we serve during its long history. We are continuing AEP’s legacy as a strong, sustainable company. Our earnings rose in 2006, and we ended the year with ongoing earnings of $2.77, toward the high end of our earnings target range. We also were able to reward our shareholders again in 2006 with a 5.4 percent increase in the dividend, following the 5.7 percent increase the previous year.”
AEP increased the quarterly dividend paid on its common stock to 39 cents in October 2006.
“We’re starting 2007 on the right track to grow our earnings annually by 5 to 7 percent,” Morris added. “We are expecting to report first-quarter ongoing earnings of 68 cents, right in line with our expectations. Although this result is below our 2006 first-quarter earnings performance, we knew that two of our key power plants would be offline during the first quarter of 2007 for scheduled completion of emission-reduction retrofits. These plants came back online by mid-quarter and are now operating well. We’ve completed nearly 60 percent of our $4.1 billion emissions-reduction investment program, and I’m pleased to report that much of the equipment we’ve put online is working better than expected to reduce emissions.”
In March 2007, AEP announced plans to expand its emission-reduction retrofits with the first commercial use of technologies to significantly reduce carbon dioxide (CO2) emissions from existing coal-fueled power plants. AEP will install a post-combustion carbon capture technology developed by Alstom at AEP’s Mountaineer Plant in New Haven, W.Va., in 2008. Following the validation at Mountaineer, AEP plans to install Alstom’s system on one of the coal-fired units at its Northeastern Station in Oologah, Okla., in late 2011.
AEP also signed an agreement with The Babcock & Wilcox Co. (B&W) for a feasibility study of oxy-coal combustion CO2-reduction technology. Following a pilot demonstration, AEP and B&W will select an existing AEP plant site for commercial-scale installation. The oxy-coal combustion technology is expected to be in service on an AEP plant in the 2012-2015 timeframe.
AEP’s CO2 retrofit plans are one piece of a larger strategy to address the company’s contribution to global concentrations of greenhouse gas emissions (GHG). AEP adopted an expanded climate change strategy as part of a new focus on corporate sustainability initiated in 2006. AEP’s climate change strategy includes continuing improvements in the efficiency of its existing coal-fueled plants; adding 1,000 megawatts of wind generating capacity to its eastern fleet through long-term purchase agreements; additional investments in domestic GHG offsets, including methane capture; increased investment in forestry offsets; and programs to offset emissions from its 11,000-vehicle fleet and corporate aircraft. The strategy is detailed in AEP’s first Corporate Responsibility Report, which was provided to shareholders attending the annual meeting.
“Our Corporate Responsibility Report represents a new commitment by AEP to discuss issues that affect our sustainability, including climate change, environmental performance, public policy, work force issues, energy security and stakeholder engagement, in a candid way with our shareholders and other stakeholders. Our commitment to addressing our day-to-day operations and future challenges in a sustainable way is supported by our Board of Directors, who reviewed, provided input and approved the report,” Morris said.
Morris highlighted AEP’s plans to build extra-high voltage transmission as part of AEP’s earnings growth strategy. “Last week, we announced a joint venture with Allegheny Energy to build the first phase, about 290 miles, of the 550-mile, I-765TM transmission superhighway that we proposed in PJM last January. The agreement allows us to move forward with construction of a significant portion of the 765-kilovolt (kV) transmission expansion that is urgently needed in PJM to help relieve transmission congestion and enhance reliability,” Morris said.
In addition to AEP’s I-765 TM Interstate Project in PJM, the company’s aggressive transmission growth strategy includes Electric Transmission Texas (ETT), a joint venture with MidAmerican Energy Holdings Co. announced in November 2006, that has proposed a $7 billion transmission plan within the Electric Reliability Council of Texas (ERCOT) designed to support growth of renewable generation and the economic future of Texas. AEP also is performing a technical study with ITC Holdings Corp. to evaluate the feasibility of extending AEP’s 765-kV transmission infrastructure through Michigan, a potential $2 billion investment. And, AEP filed a $3 billion 765-kV transmission proposal for consideration in the Southwest Power Pool to reduce congestion and enhance reliability.
AEP continues moving forward with plans to build more than 3,200 megawatts of new, cleaner generation to serve growing customer demand. The company expects to obtain permits and complete the front-end engineering and design later this year for the two Integrated Gasification Combined Cycle (IGCC), clean-coal power plants proposed in Ohio and West Virginia. These two plants would add 1,258 megawatts of clean-coal capacity to serve the company’s seven eastern states. AEP also is working to build more than 2,000 megawatts of generation, including two ultra-supercritical, advanced pulverized coal plants, one combined-cycle natural gas plant, and three simple-cycle natural gas turbines, to serve its customers in Arkansas, Louisiana, Texas and Oklahoma.
Successful regulatory recovery of these investments will be critical, according to Morris. “We are focused on helping our regulators and customers understand the benefits of the planned investments in our system, and we believe our efforts will reflect in their decisions about adjusting rates to cover our costs of doing business. Even with all of these investments, our customers will continue to benefit from some of the lowest rates in the regions that we serve.
“Because of the hard work of our operating company employees and our regulatory support teams in Columbus, we achieved beneficial rate adjustments in West Virginia, Virginia and Kentucky in 2006, providing an additional $325 million in revenue last year. We are seeking an additional $340 million in recovery this year through regulatory proceedings in Virginia, Texas, and Oklahoma,” Morris said.
Morris reaffirmed AEP’s ongoing earnings guidance of $2.85 to $3.05 per share for 2007.
“We’ve had significant success over the last two years, and I appreciate the efforts of the more than 20,000 AEP employees who’ve helped make that happen. Achieving our aggressive 5 to 7 percent annual earnings growth targets, when facing projected increases in fuel, financing and operational costs, won’t be simple or easy. We also intend to do everything in our power to help ensure that each one of our employees and contractors goes home safely every day,” Morris said. “I know we can accomplish a great deal if we remain focused on doing our jobs in a way that is responsible and sustainable. If we do that, our customers will be better served, and our employees and shareholders will feel good about being part of AEP.”
In business items, AEP shareholders re-elected 13 directors to hold office until the next annual meeting or until the election of successors. Directors elected to the Board are: Morris, 60, of Columbus, Ohio; E.R. Brooks, 69, of Granbury, Texas; Donald M. Carlton, 69, of Austin, Texas; Ralph D. Crosby Jr., 59, of Arlington, Va.; John P. DesBarres, 67, of Park City, Utah; Robert W. Fri, 71, of Washington, D.C.; Linda A. Goodspeed, 45, of Richardson, Texas; William R. Howell, 71, of Dallas, Texas; Lester A. Hudson Jr., 67, of Charlotte, N.C.; Lionel L. Nowell III, 52, of Purchase, N.Y.; Richard L. Sandor, 65, of Chicago; Donald G. Smith, 71, of Roanoke, Va.; and Kathryn D. Sullivan, 55, of Columbus, Ohio.
Approximately 94 percent of shares voted accepted the American Electric Power System Senior Officer Incentive Plan as proposed by AEP Directors. The 2007 Plan amends and restates the American Electric Power System Senior Officer Annual Incentive Compensation Plant dated Jan. 1, 1997.
Approximately 99 percent of shares voted ratified the firm of Deloitte & Touche LLP as AEP’s independent auditors for 2007.
American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP’s transmission system directly or indirectly serves about 10 percent of the electricity demand in the Eastern Interconnection, the interconnected transmission system that covers 38 eastern and central U.S. states and eastern Canada, and approximately 11 percent of the electricity demand in ERCOT, the transmission system that covers much of Texas. AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP’s headquarters are in Columbus, Ohio.
This report made by AEP and its Registrant Subsidiaries contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its Registrant Subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are: electric load and customer growth; weather conditions, including storms; available sources and costs of, and transportation for, fuels and the creditworthiness of fuel suppliers and transporters; availability of generating capacity and the performance of AEP’s generating plants; AEP’s ability to recover regulatory assets and stranded costs in connection with deregulation; AEP’s ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; AEP’s ability to build or acquire generating capacity when needed at acceptable prices and terms and to recover those costs through applicable rate cases or competitive rates; new legislation, litigation and government regulation including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other substances; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery for new investments, transmission service and environmental compliance); resolution of litigation (including pending Clean Air Act enforcement actions and disputes arising from the bankruptcy of Enron Corp. and related matters); AEP’s ability to constrain operation and maintenance costs; the economic climate and growth in AEP’s service territory and changes in market demand and demographic patterns; inflationary and interest rate trends; AEP’s ability to develop and execute a strategy based on a view regarding prices of electricity, natural gas and other energy-related commodities; changes in the creditworthiness of the counterparties with whom AEP has contractual arrangements, including participants in the energy trading market; actions of rating agencies, including changes in the ratings of debt; volatility and changes in markets for electricity, natural gas and other energy-related commodities; changes in utility regulation, including the potential for new legislation or regulation in Ohio and/or Virginia and membership in and integration into regional transmission organizations; accounting pronouncements periodically issued by accounting standard-setting bodies; the performance of AEP’s pension and other postretirement benefit plans; prices for power that AEP generates and sell at wholesale; changes in technology, particularly with respect to new, developing or alternative sources of generation; other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.