COLUMBUS, Ohio, April 28, 2009 – Actions taken by American Electric Power (NYSE: AEP) to manage the effects of the nation’s economic downturn have the company positioned to resume growth when the economy improves, according to Michael G. Morris, AEP’s chairman, president and chief executive officer.
Morris spoke with shareholders attending the company’s annual meeting today in Austin, Texas.
“We had a very good year in 2008, with strong earnings despite a weakening economy,” Morris said. “Ongoing earnings were up 8 percent from 2007. Sales were up, in part because of new supply agreements we reached with municipal and electric cooperatives. We also had success in state regulatory matters during 2008. Our state regulators recognized the increased costs of providing service and approved $527 million in rate increases during the year.
“But of even greater importance are our actions in late 2008 and the first part of 2009 to address economic concerns,” Morris said. “These measures assure our continued stability during weak economic conditions and have us in an excellent position to resume our growth when the economy recovers.”
Morris noted that the company accessed existing lines of credit during fourth-quarter 2008, providing funds for day-to-day business activities at a time when credit markets typically used by companies for short-term funding were unavailable. The company also tightened controls on spending, reducing its 2009 capital expenditure budget by 20 percent.
During the first quarter of 2009, AEP received orders from regulators granting rate relief or implemented approved rate increases in Ohio, Oklahoma, Indiana, Virginia, Texas and Tennessee. The approved rate changes, which will supply $679 million in rate relief for AEP, establish new rate structures that recognize the increased costs of providing service to customers in each state.
AEP took additional steps in the first months of 2009 to reinforce its ability to cope with financial and operational effects of continued economic weakness. AEP reduced its capital budget for 2010 to $1.8 billion from the previous planned capital budget of $3.4 billion. The reductions in capital spending for 2010 are spread across AEP’s operating companies in generation, transmission and distribution. The company will continue construction of the John W. Turk Jr. Power Plant, a 600-megawatt ultra-supercritical coal-fueled plant in Arkansas scheduled for completion in 2012; the J. Lamar Stall Unit, a 500-megawatt natural-gas fueled plant in Louisiana scheduled for completion in 2010; and the carbon capture and storage project scheduled for completion in September at the Mountaineer Plant in West Virginia. AEP will continue seeking necessary approvals for extra-high voltage transmission projects under development as part of the company’s efforts to lead development of a national electric superhighway system.
AEP also completed an equity offer in early April, issuing 69 million new shares of common stock with net proceeds of $1.64 billion. The proceeds are being used to reduce debt and improve the company’s balance sheet.
“The success of the equity offering shows that investors recognize the value of AEP, our strengths and our growth potential once the economy improves,” Morris said. “Our goal, as always, is to keep debt below 60 percent of our total capitalization. The proceeds from the new equity will place our debt percentage in the high 50s. When the economy improves, this will position us to put capital to work.
“We anticipate that earnings will grow at 2 percent to 4 percent over the next year or so,” Morris said. “When the economy improves, we expect to return to a 4 percent to 8 percent growth rate.”
In business items at the annual shareholders meeting, AEP shareholders re-elected 12 directors to hold office until the next annual meeting or until the election of successors. Directors elected to the board are: Morris, 62, of Columbus, Ohio; E.R. Brooks, 71, of Granbury, Texas; Donald M. Carlton, 71, of Austin, Texas; Ralph D. Crosby Jr., 61, of McLean, Va.; Linda A. Goodspeed, 47, of Franklin, Tenn.; Thomas E. Hoaglin, 59, of Columbus, Ohio; Lester A. Hudson Jr., 69, of Charlotte, N.C.; Lionel L. Nowell III, 54, of Purchase, N.Y.; Richard L. Sandor, 67, of Chicago, Ill.; Kathryn D. Sullivan, 57, of Columbus, Ohio; Sara Martinez Tucker, 53, of San Francisco; and John F. Turner, 67, of Moose, Wyo.
Approximately 91 percent of shares voted approved the company’s proposal to eliminate cumulative voting and adopt majority voting in the election of directors.
Approximately 98 percent of shares voted ratified the firm of Deloitte & Touche LLP as AEP’s independent auditors for 2009.
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 American Electric Power 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 the ability to obtain any necessary regulatory approvals and permits) when needed at acceptable prices and terms and to recover those costs (including the costs of projects that are canceled) 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 or contraction 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 impacting 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 markets; 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 implementation of the recently passed utility law 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 and the impact on future funding requirements; prices for power that AEP generates and sells at wholesale; changes in technology, particularly with respect to new, developing or alternative sources of generation; and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.