Supply Chain and Coal Suppliers

Developing a Sustainable Supply Chain
We are looking at how we manage our supply chain in terms of environmental and social performance. We are identifying opportunities to work more closely with suppliers on a range of issues and have begun discussions with many of them. We place a high priority on safety, health and the environment – and we will require our suppliers to share that commitment.

Working With Our Coal Suppliers
Our relationship with our coal suppliers is of particular concern to some of our stakeholders. Our choice of suppliers is determined largely by a least-cost procurement process to enhance our ability to receive full cost recovery from regulators. Because of this dynamic, we would be dependent on our regulators to accept a decision to buy fuel from certain higher cost suppliers even if the costs were higher as a result of better health, safety and environmental performance.

We are developing a process with coal suppliers to measure and track their safety, health and environmental performance, which we hope to implement in 2010. This type of transparency is new to our industry. We invite our peers to join us in working with the mining industry to adopt similar standards.

One issue we have been pressed to address is our position on mountaintop mining. As a regulated utility, we have an obligation to provide reliable electricity to our customers while taking steps to minimize cost. We do not make choices based on mining practices; our focus is on quality of coal and cost. However, we expect our suppliers to make every effort to operate in compliance with all regulations that apply to their industry. When our new process is in place, we will have greater transparency of our coal suppliers' mining operations, allowing us to make more informed decisions that we will share with regulators. Because of today's tight coal market and the duty to serve customers, we must purchase coal to meet the demand, without exclusion. We recognize the concerns about mountaintop mining and have committed to continue discussions with interested stakeholders, including Appalachian Voices, to find common ground on this issue.

Beyond Our Coal Suppliers
For the first time, AEP is taking a hard look at what we buy – from utility poles and transformers to chemicals and office paper – to see if there are better alternatives with fewer environmental impacts. AEP was the first electric utility to join the Green Suppliers Network. By the end of 2008 we expect at least five suppliers will have completed the environmental and technical reviews; three have already signed up.

To help us achieve our own goals, we have appointed a manager of Sustainable Supplier Development, who is organizing a process for sharing best practices among utilities that have a similar interest. We are also visiting manufacturers in China who make some of the parts for equipment that AEP buys, in order to learn more about their processes and impacts. This focus is still new to the electric industry, but we are enthusiastic about the opportunities to influence our supply chain and about the interest from our peers in collaborating with us.