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AEP Guides in Line

The power company accelerates capital spending.
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American Electric Power (AEP) swung to a fourth-quarter loss but matched Wall Street estimates and maintained 2006 guidance.

The Columbus, Ohio, power company lost $149 million, or 38 cents a share, reversing the year-ago profit of $177 million, or 45 cents a share. The latest quarter was hit by $261 million worth of one-time charges related to AEP Texas Central and the stranded cost true-up deliberations by the Public Utility Commission of Texas. Excluding those costs, earnings for the quarter ended Dec. 31 were 29 cents a share, down from 42 cents a year ago but a nickel ahead of the Thomson First Call analyst consensus estimate. Revenue fell to $2.9 billion from $3.5 billion a year earlier.

"When you analyze the ongoing results from an extremely successful year for AEP, it becomes obvious that the utility-focused strategy we've implemented and the team in place to execute that strategy are directly responsible for the success," said CEO Michael G. Morris. "For instance, weather was very favorable in 2005 for electric utilities operating in the regions we serve. We can't control the weather, but our strategy and the expertise of our people allow us -- better than many others in our sector, in my opinion -- to remain successful in favorable and unfavorable operating environments.

"As weather conditions drove demand for electricity higher during 2005, our generation staff had our plants prepared to meet the demand from our utility customers, our fuel-procurement group ensured we acquired sufficient fuel at favorable prices to support the increase in generation, and our market-savvy commercial group sold any surplus energy into the wholesale markets at attractive prices," Morris said. "And when coal-delivery constraints were hurting operations and earnings at other utilities, our team had already used its expertise in coal markets and logistics to address the issue."

AEP said it believes the Texas commission has substantially completed its deliberations on the Texas Central Company's true-up application filed in May 2005. Based on the company's understanding of commission deliberations during public meetings held to discuss the application, the company anticipates that the commission will issue an order in February that will reduce the amount requested in Texas Central Company's true-up application. As a result, Texas Central Company reduced its recorded net true-up regulatory asset, inclusive of carrying costs, to approximately $1.3 billion from approximately $1.7 billion at Dec. 31, 2005. The ultimate amount of such charge and related cash flows will depend upon the final action of the Texas commission.

AEP previously announced an ongoing guidance range for 2006 of between $2.50 and $2.70 per share. That guidance range remains unchanged, although the company has increased its capital expenditure projections for 2006 to $3.7 billion from the previously discussed $3.3 billion. The increase includes a combination of projects added for 2006 that are driven by below-budget capital expenditures in 2005 and projects moved to 2006 that were planned for later years.