AEP transmission venture with Allegheny receives approval for transmission incentives from FERC

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COLUMBUS, Ohio, March 3, 2008 – American Electric Power (NYSE: AEP) today announced that the Potomac-Appalachian Transmission Highline (PATH), AEP’s transmission joint venture with Allegheny Energy (NYSE: AYE), received approval from the Federal Energy Regulatory Commission (FERC) for transmission incentives to help support construction of the approximately 290-mile, extra-high voltage transmission line from West Virginia into Maryland.

The joint venture filed a proposal for rate treatment with FERC Dec. 28, 2007. The companies requested and FERC granted four incentives for the project:
  • An incentive return on equity for new transmission of 14.3 percent.
  • Recovery of a return on 100 percent of prudently incurred transmission-related CWIP prior to the project’s in-service date.
  • Recovery of all startup business and administrative costs incurred prior to the time the rates go into effect.
  • Authorization to recover all prudently incurred development and construction costs if the PATH project is abandoned as a result of factors beyond the control of PATH or its parents.

As part of its decision, the commission set the requested formula rate for hearing and settlement judge procedures. The formula rate will go into effect March 1, 2008, subject to refund, pending the outcome of the hearing or settlement discussions.

“FERC’s approval of incentives for PATH clearly recognizes the need for transmission investment in this region and the benefits PATH will provide. PATH addresses significant reliability concerns, including overloads that will occur on more than thirteen existing transmission lines in Maryland, West Virginia, Virginia and Pennsylvania as soon as 2012 if the line is not built,” said Michael G. Morris, AEP chairman, president and chief executive officer. “Incentives for transmission projects recognize the diligence required to bring new transmission on line and the advanced technology necessary to enhance reliability. We need transmission investment, and incentives to encourage that investment, if our country is going to eliminate the weakest reliability areas, fully utilize existing generation and support development of renewable generation.”

The PATH project includes approximately 244 miles of 765-kilovolt (kV) extra-high voltage transmission from AEP’s Amos substation near St. Albans, W.Va., to Allegheny’s Bedington substation, northeast of Martinsburg, W.Va. Another 46 miles of twin-circuit 500-kV transmission will be constructed from Bedington to a new substation to be built near Kemptown, southeast of Frederick, Md. The total project is estimated to cost approximately $1.8 billion. AEP’s estimated share of the project is approximately $600 million.

The PATH project will employ advanced transmission technologies to make it the most reliable, efficient and environmentally sensitive project possible. Extra-high voltage transmission inherently costs less and requires less land to carry the same amount of power than other transmission designs, and new 765-kV designs reduce line losses 40 percent over older designs. That means the PATH line will transport electricity more efficiently and reduce the power generation necessary to meet electricity demand. Additional advancements in 765-kV and 500-kV conductor designs and new control technologies in the project’s substations also will enhance the reliability and efficiency of the PATH lines compared with other transmission lines.

PJM Interconnection, the regional transmission grid operator for a 13-state area, approved construction of PATH in June 2007 and identified June 2012 as the date by which the PATH project needs to be operational. The costs of the PATH project will be allocated to all electric utilities who serve retail customers in the PJM region.

AEP and Allegheny have begun work on routing studies and environmental assessments for the project. The companies anticipate seeking regulatory approvals for the project from the utility commissions in both West Virginia and Maryland in the fourth quarter of 2008, following the completion of the routing studies. AEP and Allegheny are committed to working with landowners, neighboring residents, business owners, affected communities and regulators to minimize the environmental and land-use impacts of the project.
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 the registrants 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 the company’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 of new investments in generation, distribution and transmission service and environmental compliance); resolution of litigation (including 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; volatility in the financial markets, particularly developments affecting the availability of capital on reasonable terms and developments impairing AEP’s ability to refinance existing debt at attractive rates; 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, coal, nuclear fuel and other energy-related commodities; changes in utility regulation, including the potential for new legislation in Ohio and the allocation of costs within Regional Transmission Organizations; accounting pronouncements periodically issued by accounting standard-setting bodies; the impact of volatility in the capital markets on the value of the investments held by AEP’s pension, other postretirement benefit plans and nuclear decommissioning trust; 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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Melissa McHenry
Manager, Corporate Media Relations

Julie Sherwood
Director, Investor Relations