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American Electric Power (AEP)

Q4 2010 Earnings Call

January 28, 2011 9:00 a.m. ET


Chuck Zebula - Treasurer and SVP, Investor Relations

Mike Morris - President, Chairman and CEO

Brian Tierney - EVP and CFO


Daniel Eggers - Credit Suisse

Paul Patterson - Glenrock Associates

Bill Appicelli - Morgan Stanley

Steve Fleishman - Bank of America

Michael Lapides - Goldman Sachs

Raymond Leung - Goldman Sachs

Ali Agha - SunTrust

Paul Ridzon - Keybank

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Welcome to the fourth quarter 2010 earnings conference. [Operator Instructions.] I'll now turn the conference to Chuck Zebula, treasurer and senior vice president, investor relations. Please go ahead sir.

Chuck Zebula

Good morning and welcome to the fourth quarter 2010 earnings webcast of American Electric Power. Our earnings release and related financial information are available on our website, The presentation slides are also available on our website.

Today we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of the factors that may cause results to differ from management's forecast.

Joining me this morning are Mike Morris, our chairman and chief executive officer, and Brian Tierney, our chief financial officer. We will take your questions following their remarks.

I will now turn the call over to Mike.

Mike Morris

Thanks Chuck, and let me join in the welcoming all of you here as we look at 2010 and share a bit of 2011 with you. We're quite pleased with the way that things ended in 2010. By almost any measure that we look at, the overall earnings of $3.03, north of our midpoint $3.00 range that we spoke of as the year went on, and as you'll remember we tightened our ranges throughout the year; tremendous rate success as we've shared with you as the year progressed, and a good foundation for the rate activities in 2011 and beyond.

Overall, the returns on equity for the AEP system were 10.75% collectively. We think that's an extremely strong number. As you know, we had two dividend increases for a total of 12% of an increase as we go, and the total shareholder return was 8.7%, something that we're very pleased with. And lastly, and very importantly, 2010 was another year where AEP did not experience any fatalities. So we're quite pleased in every way that we measure 2010.

When we look at 2011, as you know, we shared with in October, our earnings forecast of somewhere between $3.00 and $3.20, we feel comfortable about our opportunity to perform at that level. We clearly have demonstrated and will continue to demonstrate our ability not only to manage O&M but also to manage the capital spending on our system.

We will continue to put equity capital to work in those jurisdictions where we feel more comfortable with the rate treatment and the rate process, and continue obviously to make those investments necessary to make sure that reliability and customer satisfaction continues to be strong and growing.

Our regulatory play, which we've shared with you, for 2011, has a total stack of required rate increases of some $235 million. To date, $162 of that is already built in to the rates that we're recovering effective on January 1. We do have a settlement in West Virginia that we hope to be approved in the not too distant future. That will add another $45 million and leave us about $28 million short of the total goal that we have for calendar year 2011, and we have a number of current rate proceedings and others that we will file as the year progresses, to fill up that last piece so we feel comfortable about our rate plan as we have before.

Not dissimilar from almost every year at American Electric Power, Ohio and Ohio rate proceedings will take center stage as 2011 unfolds. As many of you know from yesterday's press releases, we filed our ESP plan and will talk about that in a few moments. It obviously is a center stage activity for us, and it will be affected by new commissioners being appointed, but as we've done before we feel comfortable that we'll find a way to manage ourselves through the events in Ohio here as they pertain not only to ESP but to the 2010 seat review, which will go on as you'll remember through calendar year 2011.

A couple of important policy update discussions. Let me spend a few moments. I think you're all very aware of what the Edison Electric Institute and many people call the EPA Train Wreck. It's a series of orders and rules that will come out of the EPA as the year progresses that will have an effect on the generation fleet throughout the country. I know that most people focus on the effects on coal-based generation, but many of them will touch on gas-based generation going forward as well, quite honestly, when you think of the water requirements of the nuclear fleet.

We feel comfortable about where we are in the process of trying to put comments in not only on behalf of EEI, but on behalf of our company through the Business Roundtable and other places where AEP plays in that space. We are encouraged by the comments of President Obama not only with his Executive Order before the State of the Union speech but by comments he made there. We are somewhat heartened to see that Bill Daley coming in as chief of staff may put a business balance on the activities that go forward in the regulatory arena, particularly at the EPA.

I think it's essential, however, that everyone understands it has never been American Electric Power's desire, nor anyone else in the utility space, to undo the Clean Air Act. What we've been asking for, and what we've been seeking, and what we think we'll accomplish is a reasonable timeline to go forward with continuing to improve the quality of air and the production of electricity from a very important segment of the baseload generation fleet in the United States.

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