AEP earnings increase for fourth quarter, year; company hikes 2008 ongoing earnings guidance range

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  • 2007 fourth-quarter earnings: $0.58 per share GAAP, $0.52 per share ongoing
  • 2007 full-year earnings: $2.73 per share GAAP, $3.00 per share ongoing
  • New rates for utilities in five states, favorable weather, marketing successes increase ongoing earnings for the quarter and year
  • Company increases ongoing earnings guidance for 2008 to between $3.10 and $3.30 per share

-Full news release and supplemental tables (PDF: 193KB: get viewer)

AMERICAN ELECTRIC POWER
Preliminary, unaudited results
4th quarter ended Dec. 3112 months ended Dec. 31
20062007Variance20062007Variance
Revenue ($ in billions)3.0 3.3 0.3 12.6 13.4 0.8
Earnings ($ in millions):
GAAP181 231 50 1,002 1,089 87
Ongoing151 209 58 1,093 1,199 106
EPS ($):
GAAP0.46 0.58 0.12 2.54 2.73 0.19
Ongoing0.38 0.52 0.14 2.77 3.00 0.23
EPS based on 396mm shares in Q4 2006, 400mm in Q4 2007, 394mm in 12 mo. 2006 and 399mm in 12 mo. 2007


COLUMBUS, Ohio, Jan. 29, 2008 – American Electric Power (NYSE: AEP) today reported 2007 year-end earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $1.089 billion, or $2.73 per share, compared with $1.002 billion, or $2.54 per share, for 2006. Ongoing earnings (earnings excluding special items) for 2007 were $1.199 billion, or $3.00 per share, compared with $1.093 billion, or $2.77 per share, for 2006.

GAAP earnings for fourth-quarter 2007 were $231 million, or $0.58 per share, compared with $181 million, or $0.46 per share, for fourth-quarter 2006. Ongoing earnings for fourth-quarter 2007 were $209 million, or $0.52 per share, compared with $151 million, or $0.38 per share, for fourth-quarter 2006.

GAAP earnings for fourth-quarter 2007 were $22 million higher than ongoing earnings primarily because of the gain on the October 2007 sale of AEP’s 50-percent equity interest in the Sweeny Cogeneration plant in Texas to ConocoPhilips and favorable tax adjustments related to assets disposed of in prior years, which were somewhat offset by interest expense related to an adverse U.S. District Court decision in the Bank of America proceeding related to the Bammel natural gas storage facility.

For the year, GAAP earnings were $110 million less than ongoing earnings primarily because of the effect of Virginia re-regulation, enacted in April 2007, which resulted in a return to a form of cost-based regulation for the generation portion of electric utility service in Virginia, and the effect of a settlement agreement reached with the U.S. Environmental Protection Agency, the U.S.Department of Justice, eight states and 14 environmental organizations resolving all issues related to claims against AEP regarding New Source Review requirements of the Clean Air Act.

A full reconciliation of GAAP earnings to ongoing earnings for the quarter and year is included in tables at the end of this news release.

“Our ongoing earnings for the fourth quarter increased by almost 40 percent from the same period last year, which pushed our ongoing earnings for 2007 to the top of our earnings guidance range for the year,” said Michael G. Morris, AEP’s chairman, president and chief executive officer. “We had a very good quarter and year, with a number of factors contributing to the excellent earnings results.

“Our utilities benefited from continued efficient operation, implementation of new rates in five of our 11 states and more favorable weather than we had in 2006,” Morris said. “We’ve seen continued success in our power marketing efforts, reaching new long-term power-supply agreements with municipal electric systems and rural electric cooperatives. This provides an important revenue stream and enables us to make the best use of our generation fleet. And our sale of a Louisiana power plant in late 2006 eliminated an asset that had operated at a loss, which helped to improve the year-to-year earnings comparison.”

EARNINGS GUIDANCE


AEP increased its 2008 ongoing earnings guidance range to between $3.10 and $3.30 per share from the previous range of between $3.05 and $3.25 per share.

“The decision to increase our guidance is driven by our forecast for continued strong results from our wholesale marketing activities as well as the earnings potential related to the implementation of our regulatory plan,” Morris said.

In providing ongoing earnings guidance, there could be differences between ongoing earnings and GAAP earnings for matters such as, but not limited to, divestitures or changes in accounting principles. AEP management is not able to estimate the impact, if any, on GAAP earnings of these items. Therefore, AEP is not able to provide a corresponding GAAP equivalent for earnings guidance.

SUMMARY ONGOING RESULTS BY SEGMENT
$ in millions except EPS
Q4 06Q4 07Variance12 mo. 0612 mo. 07Variance
Utility Operations126 152 26 1,028 1,086 58
     Ongoing EPS0.31 0.38 0.07 2.61 2.72 0.11
MEMCO26 21 (5)80 61 (19)
     Ongoing EPS0.07 0.05 (0.02)0.20 0.15 (0.05)
Generation and Marketing2 20 18 12 37 25
     Ongoing EPS0.01 0.05 0.04 0.03 0.09 0.06
All Other16 19 (27)15 42
     Ongoing EPS(0.01)0.04 0.05 (0.07)0.04 0.11
        Ongoing Earnings151 209 58 1,093 1,199 106
        Ongoing EPS0.38 0.52 0.14 2.77 3.00 0.23
EPS based on 396mm shares in Q4 2006, 400mm in Q4 2007, 394mm in 12 mo. 2006 and 399mm in 12 mo. 2007


Ongoing earnings from Utility Operations increased $26 million during fourth-quarter 2007 compared with fourth-quarter 2006. Higher gross margins from retail sales and off-system sales were somewhat offset by higher expenses than recorded in the prior period. A severe December ice storm in AEP’s Oklahoma service territory increased operations and maintenance expenses by approximately $70 million; the total cost of the storm, including capital, was approximately $90 million.

For the 12-month period, ongoing earnings from Utility Operations increased by $58 million from 2006 because of higher retail sales, reflecting higher usage, favorable rate changes and an increase in off-system sales. The improved margins were partially offset by increased expenses, primarily related to Oklahoma ice storms in January and December and higher interest expense. The year-to-year comparison also reflects the reduction in 2007 of the earnings-sharing payment from Centrica, the final payment from a multi-year earnings-sharing agreement established in 2002 when AEP sold its Texas retail electricity providers to Centrica.

Ongoing earnings from MEMCO barge operations were lower for the quarter and year than in prior periods because of a decrease in northbound freight demand, primarily related to steel and cement imports, and higher operating costs brought by increased fleet size, higher labor costs and increased fuel prices.

The increase in ongoing earnings from Generation and Marketing is primarily attributed to new contracts with municipalities and cooperatives. Generation and Marketing includes AEP’s non-regulated generating, marketing and risk management activities, primarily in the Electric Reliability Council of Texas.

All Other, which includes the Parent Company and other investments, improved in both the quarter and year when compared to the prior periods. The 2006 results included the losses from operations at the Plaquemine Cogeneration Facility in Louisiana that was sold to The Dow Chemical Company during fourth-quarter 2006. The favorable year-over-year results were somewhat offset by lower interest income and tax adjustments at the Parent.

ONGOING RESULTS FROM UTILITY OPERATIONS
$ in millions except EPS
Q4 06Q4 07Variance12 mo. 0612 mo. 07Variance
East Regulated Integrated Utilities565 582 17 2,111 2,215 104
Ohio Companies525 582 57 2,110 2,452 342
West Regulated Integrated Utilities230 230 0 1,018 994 (24)
Texas Wires114 133 19 476 529 53
Off-System Sales144 204 60 829 939 110
Net Transmission Revenue52 19 (33)271 152 (119)
Other Operating Revenue146 121 (25)527 536 9
     Utility Gross Margin1,776 1,871 95 7,342 7,817 475
Operations & Maintenance(885)(957)(72)(3,177)(3,326)(149)
Depreciation & Amortization(375)(361)14 (1,435)(1,483)(48)
Taxes Other Than Income Taxes(178)(188)(10)(735)(748)(13)
Interest Expense & Preferred Dividend(195)(191)4 (670)(790)(120)
Other Income & Deductions75 31 (44)246 124 (122)
Income Taxes(92)(53)39 (543)(508)35
     Utility Operations Ongoing Earnings126 152 26 1,028 1,086 58
     Ongoing EPS0.31 0.38 0.07 2.61 2.72 0.11
EPS based on 396mm shares in Q4 2006, 400mm in Q4 2007, 394mm in 12 mo. 2006 and 399mm in 12 mo. 2007


Retail Sales – Results for the fourth quarter and year were higher than results in the same periods in 2006, primarily because of increased usage attributed in part to favorable weather, and the implementation of new rates in the Ohio Companies and in AEP’s utilities in Virginia, Texas, Oklahoma and Kentucky. Sales to municipal and cooperative customers continue to add to the positive results in the East. Fourth-quarter heating degree-days were 9 percent lower than normal but 8 percent higher than in the same period last year in AEP’s East service territories and 5 percent lower than normal but 11 percent higher than in last year’s fourth quarter in AEP’s western service territory. Usage increases attributable to weather in 2007, when compared to the same periods in 2006 when weather was milder, increased 2007 gross margins by $22 million for the fourth quarter and $105 million for the year.

Off-System Sales – Gross margins from Off-System Sales for the fourth quarter were higher than in the prior period primarily because of higher volumes and prices. Stronger realized prices led to the improvement in gross margins for the year when compared to results for 2006.

Net Transmission Revenues – Transmission Revenues decreased $33 million for the fourth quarter and $119 million for the year when compared to the same periods in 2006 primarily because of PJM Interconnection’s implementation of marginal-loss dispatch and settlement implemented in June 2007.

Other Operating Revenue – Other Operating Revenues were lower in fourth-quarter 2007 than in the prior period because of lower third-party and miscellaneous revenues. For the year, Other Operating Revenues were higher than in 2006 because of increased securitization revenue at AEP Texas Central, partially offset by fewer sales of emissions allowances.

Operations & Maintenance Expense – Operations & Maintenance Expenses were higher during the fourth quarter and year as compared with the same periods in 2006 primarily because of higher steam production expenses and costs for storm damage repair in Oklahoma. The full-year comparison includes storm damage repair for ice storms in Oklahoma in January 2007 as well as the large storm in December 2007.

Depreciation & Amortization – Depreciation & Amortization expenses were lower for fourth-quarter 2007 when compared to the same period in 2006 primarily because of lower depreciation expense in Indiana and Michigan brought by the change in depreciation rates approved in June 2007 by the Indiana Utility Regulatory Commission and in September 2007 by the Michigan Public Service Commission, lower depreciation expense in Virginia as a result of the base rate case final order in May 2007, and lower depreciation in Oklahoma because of a base rate case final order received in October 2007. For the 12-month period, Depreciation & Amortization expenses were higher in 2007 than in 2006 primarily because of increases in regulatory amortizations, primarily related to securitization at AEP Texas Central, and higher depreciable property balances, somewhat offset by the lower depreciation rates mentioned above.

Interest Expense & Preferred Dividends – The increase in Interest Expense for the 12-month period is primarily because of increased long-term debt, higher interest rates on variable-rate debt and the issuance of securitization bonds at AEP Texas Central.

Other Income & Deductions – The decrease in Other Income & Deductions in fourth-quarter 2007 from the same period in 2006 is primarily attributed to the reinstatement in fourth-quarter 2006 of environmental and reliability deferred carrying costs for Appalachian Power in Virginia. These costs had previously been written off. The decrease for the year from the same period of 2006 is because of the lower earnings-sharing payment received from Centrica and lower carrying-cost income being recorded after AEP Texas Central began recovering stranded costs during fourth-quarter 2006.

Income Taxes – Income taxes for 2007’s fourth quarter and 12-month period were lower than those in the same periods of 2006 primarily because of unfavorable federal income tax adjustments in 2006 and favorable amended state tax return adjustments in 2007.

WEBCAST


American Electric Power’s quarterly conference call with financial analysts will be broadcast live over the Internet at 9 a.m. EST today at http://www.aep.com/go/webcasts. The webcast will include audio of the conference call and visuals of charts and graphics referred to by AEP management during the call. The charts and graphics will be available for download at http://www.aep.com/go/webcasts .

The call will be archived on http://www.aep.com/go/webcasts for use by those unable to listen during the live webcast. Archived calls also are available as podcasts.

Minimum requirements to listen to broadcast: The Windows Media Player software, free from http://windowsmedia.com/download, and at least a 56Kbps connection to the Internet.




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 more than 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.




AEP’s earnings are prepared in accordance with accounting principles generally accepted in the United States and represent the company’s earnings as reported to the Securities and Exchange Commission. AEP’s management believes that the company’s ongoing earnings, or GAAP earnings adjusted for certain items as described in the news release and charts, provide a more meaningful representation of the company’s performance. AEP uses ongoing earnings as the primary performance measurement when communicating with analysts and investors regarding its earnings outlook and results. The company also uses ongoing earnings data internally to measure performance against budget and to report to AEP’s board of directors.




-Full news release and supplemental tables (PDF: 193KB: get viewer)




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 and performance 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 (including AEP’s ability to obtain any necessary regulatory approvals and permits) 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 in Ohio 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 sells 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.

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614/716-1620

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