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Press release from PR Newswire

AEP Reports Strong 2011 Third-Quarter Earnings, Tightens Full-Year Ongoing Earnings Guidance Range

Wednesday, October 26, 2011

AEP Reports Strong 2011 Third-Quarter Earnings, Tightens Full-Year Ongoing Earnings Guidance Range06:57 EDT Wednesday, October 26, 2011COLUMBUS, Ohio, Oct. 26, 2011 /PRNewswire/ -- Third-quarter earnings $1.93 per share GAAP and $1.17 per share ongoing Company tightens 2011 ongoing earnings guidance range to between $3.07 and $3.17 per shareWeather increases demand, but company also sees continued improvement in industrial volumeAMERICAN ELECTRIC POWERPreliminary, unaudited results3rd quarter ended Sept. 30Nine months ended Sept. 3020112010Variance20112010VarianceRevenue ($ in billions)4.3 4.1 0.2 11.7 11.0 0.7 Earnings ($ in millions):GAAP928 555 373 1,633 1,035 598 Ongoing566 552 14 1,310 1,272 38 EPS ($):GAAP1.93 1.16 0.77 3.39 2.16 1.23 Ongoing1.17 1.15 0.02 2.72 2.65 0.07 EPS based on 482mm shares in Q3 2011, 480mm in Q3 2010, 482mm in 9 mo. 2011 and 479mm in 9 mo. 2010American Electric Power (NYSE: AEP) today reported 2011 third-quarter earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $928 million or $1.93 per share, compared with $555 million or $1.16 per share for third-quarter 2010.  Ongoing earnings (earnings excluding special items) for third-quarter 2011 were $566 million or $1.17 per share, compared with $552 million or $1.15 per share in third-quarter 2010. GAAP earnings for the third quarter were $362 million higher than ongoing earnings as a result of a Texas Supreme Court decision resulting in a $425 million net-of-tax favorable adjustment related to recovery of stranded costs in Texas, offset by a $31 million net-of-tax loss related to the impairment of Sporn Plant Unit 5, a $27 million net-of-tax loss on the Muskingum River Plant Unit 5 suspended scrubber project and a $5 million net-of-tax loss associated with an agreement in a proposed settlement in Ohio not to pursue recovery of the Ohio-allocated costs of the Mountaineer Plant carbon capture and storage project.Year-to-date GAAP earnings were $323 million higher than ongoing earnings because of the third-quarter items discussed above and adjustments made in first-quarter 2011.A full reconciliation of GAAP earnings with ongoing earnings for the quarter and year to date is included in tables at the end of this news release."We had solid financial performance in the third quarter, with load created by warmer-than-normal weather," said Michael G. Morris, AEP's chairman and chief executive officer. "The historic heat in the West and periods of extremely hot weather in the East stressed the nation's power system, but AEP's generation and wires ? and our men and women who maintain them ? were up to the challenge."We had several positive developments in the quarter," Morris said. "The Texas Supreme Court ruled in our favor in our appeal of state regulatory decisions regarding the recovery of stranded costs associated with the transition to retail competition. The court required the Public Utility Commission of Texas to use actual capacity auction prices, which is what we had used in our original filing a decade ago. We expect to receive the cash associated with this decision in first-quarter 2012."We also reached a settlement agreement in Ohio with a majority of parties involved in several cases before the Public Utilities Commission of Ohio," Morris said. "The settlement still must be approved by the commission. Once approved, it will provide us with regulatory certainty to allow us to effectively manage our Ohio business."Morris noted that the company continues to see improvement in the economy."Industrial volume is up 5 percent for the quarter and year, based primarily on increased production by our metals customers and refiners," Morris said. "We see this as a positive sign for the economy as a whole."The AEP Board of Directors approved a 2.2 percent increase in the company's quarterly dividend yesterday, setting the quarterly dividend at $0.47 per share."Our investors receive a significant portion of their investment return through the quarterly dividend," Morris said. "The board, when declaring our 406th consecutive quarterly dividend, increased the dividend given our continued solid operating performance, strong balance sheet and confidence in outlook."The company also announced yesterday that it is redeeming all outstanding shares of preferred stock of AEP's utility subsidiaries.EARNINGS GUIDANCEAEP tightened its ongoing earnings guidance range for 2011 to between $3.07 and $3.17 per share from the previous guidance range of between $3.00 and $3.20 per share. In providing ongoing earnings guidance, there could be differences between ongoing earnings and GAAP earnings for matters such as, but not limited to, divestitures or changes in accounting principles. AEP management is not able to estimate the impact, if any, on GAAP earnings of these items. Therefore, AEP is not able to provide a corresponding GAAP equivalent for earnings guidance. SUMMARY ONGOING RESULTS BY SEGMENT$ in millions except EPSQ3 11Q3 10Variance9 mo. 119 mo. 10VarianceUtility Operations551 534 17 1,299 1,244 55     Ongoing EPS1.14 1.12 0.02 2.70 2.60 0.10 AEP River Operations17 15 2 23 19 4     Ongoing EPS0.03 0.03 0.00 0.05 0.04 0.01 Generation and Marketing8 0 8 20 17 3     Ongoing EPS0.02 0.00 0.02 0.04 0.03 0.01 All Other(10)3 (13)(32)(8)(24)     Ongoing EPS(0.02)0.00 (0.02)(0.07)(0.02)(0.05)        Ongoing Earnings566 552 14 1,310 1,272 38        Ongoing EPS1.17 1.15 0.02 2.72 2.65 0.07             EPS based on 482mm shares in Q3 2011, 480mm in Q3 2010, 482mm in 9 mo. 2011 and 479mm in 9 mo. 2010Ongoing earnings from Utility Operations increased by $17 million during third-quarter 2011 compared with third-quarter 2010. This reflects the continuing favorable impact of rate changes and continued favorable weather, offset by the disallowance of Provider of Last Resort (POLR) revenues by the Public Utilities Commission of Ohio. AEP's River Operations results for the third quarter were comparable to the same period last year.Ongoing earnings from Generation and Marketing, which includes AEP's non-regulated generating, marketing and risk management activities primarily in the Electric Reliability Council of Texas (ERCOT) area, increased $8 million when compared with the same period in 2010 because of increased volume related to weather. All Other, which includes the Parent Company and other investments, decreased $13 million over the prior year, primarily as a result of favorable tax adjustments in the prior year. ONGOING RESULTS FROM UTILITY OPERATIONS$ in millions except EPSQ3 11Q3 10Variance9 mo. 119 mo. 10VarianceEast Regulated Integrated Utilities727 737 (10)2,132 2,160 (28)Ohio Companies727 777 (50)2,099 2,153 (54)West Regulated Integrated Utilities460 435 25 1,111 1,050 61 Texas Wires189 171 18 502 472 30 Off-System Sales111 112 (1)293 244 49 Transmission Revenue - 3rd Party109 95 14 311 277 34 Other Operating Revenue142 151 (9)403 402 1     Utility Gross Margin2,465 2,478 (13)6,851 6,758 93 Operations & Maintenance(874)(852)(22)(2,565)(2,467)(98)Depreciation & Amortization(435)(413)(22)(1,226)(1,205)(21)Taxes Other Than Income Taxes(210)(210)0 (618)(603)(15)Interest Expense & Preferred Dividend(224)(239)15 (684)(712)28 Other Income & Deductions107 38 69 208 119 89 Income Taxes(278)(268)(10)(667)(646)(21)     Utility Operations Ongoing Earnings551 534 17 1,299 1,244 55     Ongoing EPS1.14 1.12 0.02 2.70 2.60 0.10             EPS based on 482mm shares in Q3 2011, 480mm in Q3 2010, 482mm in 9 mo. 2011 and 479mm in 9 mo. 2010Retail Sales ? Results for the third quarter were $17 million lower than in the same period in 2010, primarily because of a disallowance related to the Ohio POLR revenues, partially offset by favorable weather conditions in AEP's western service territories. Retail Sales includes the East Regulated Integrated Utilities, Ohio Companies, West Regulated Integrated Utilities and Texas Wires.Off-System Sales ? Gross margins from Off-System Sales for the third quarter were comparable with the prior year. Transmission Revenues ? 3rd Party ? Transmission Revenues for third-quarter 2011 were $14 million higher than in the same period last year primarily because of higher PJM revenues.Other Operating Revenue ? Other Operating Revenue for third-quarter 2011 was comparable with the prior period.Operations & Maintenance ? O&M expenses for third-quarter 2011 were $22 million higher because of higher storm expenses and higher plant maintenance expenses.Depreciation & Amortization ? Depreciation & Amortization expenses for third-quarter 2011 were $22 million higher than in the same period last year because of increased amortization of regulatory assets associated with the POLR disallowance in Ohio and overall higher depreciable property balances.Interest Expense & Preferred Dividends ? The $15 million decrease in Interest Expense for third-quarter 2011 was primarily because of lower borrowings when compared to 2010. Other Income & Deductions ? Other Income & Deductions for third-quarter 2011 were $69 million favorable when compared with the same period in 2010 because of higher equity earnings on transmission joint ventures, 2011 interest income related to the favorable Texas capacity auction true-up and higher AFUDC earnings primarily associated with the Turk plant.WEBCASTAmerican Electric Power's quarterly conference call with financial analysts will be broadcast live over the Internet at 9:00 a.m. EDT today at http://www.aep.com/go/webcasts . The webcast will include audio of the meeting and visuals of charts and graphics referred to by AEP management during the call. The charts and graphics will be available for download at http://www.aep.com/go/webcasts.The call will be archived on http://www.aep.com/go/webcasts for those unable to listen during the live webcast. Archived audio also is available as podcasts.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.AEP's earnings are prepared in accordance with accounting principles generally accepted in the United States and represent the company's earnings as reported to the Securities and Exchange Commission. AEP's management believes that the company's ongoing earnings, or GAAP earnings adjusted for certain items as described in the news release and charts, provide a more meaningful representation of the company's performance. AEP uses ongoing earnings as the primary performance measurement when communicating with analysts and investors regarding its earnings outlook and results. The company also uses ongoing earnings data internally to measure performance against budget and to report to AEP's board of directors.  This report made by American Electric Power contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.  Although AEP believes that its 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 of fuel suppliers and transporters; availability of generating capacity and the performance of AEP's generating plants; the ability to recover regulatory assets and stranded costs in connection with deregulation; the ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; the ability to build or acquire generating capacity when needed at acceptable prices and terms and to recover those costs through applicable rate cases; new legislation, litigation and government regulation, including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon and other substances; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery for new investments, transmission service and environmental compliance); resolution of litigation (including pending Clean Air Act enforcement actions and disputes arising from the bankruptcy of Enron Corp.); AEP's ability to constrain its operation and maintenance costs; AEP's ability to sell assets at acceptable prices and on other acceptable terms, including rights to share in earnings derived from the assets subsequent to their sale; the economic climate and growth in its service territory and changes in market demand and demographic patterns; inflationary trends; its 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 and number of participants in the energy trading market; changes in the financial markets, particularly those affecting the availability of capital and AEP's ability to refinance existing debt at attractive rates; actions of rating agencies, including changes in the ratings of debt; volatility and changes in markets for electricity, natural gas and other energy-related commodities; changes in utility regulation, including membership and integration into regional transmission structures; accounting pronouncements periodically issued by accounting standard-setting bodies; the performance of AEP's pension and other postretirement benefit plans; 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.American Electric PowerFinancial Results for 3rd Quarter 2011 vs 3rd Quarter 201020112010($ millions)EPS($ millions)EPSUTILITY OPERATIONS:Gross Margin:1East Regulated Integrated Utilities7277372Ohio Companies7277773West Regulated Integrated Utilities4604354Texas Wires1891715Off-System Sales1111126Transmission Revenue - 3rd Party109957Other Operating Revenue1421518Utility Gross Margin 2,4652,4789Operations & Maintenance(874)(852)10Depreciation & Amortization(435)(413)11Taxes Other than Income Taxes(210)(210)12Interest Exp & Preferred Dividend(224)(239)13Other Income & Deductions1073814Income Taxes(278)(268)15Utility Operations Ongoing Earnings5511.145341.12NON-UTILITY OPERATIONS:16AEP River Operations170.03150.0317Generation & Marketing80.02--18Parent & Other Ongoing Earnings(10)(0.02)3-19ONGOING EARNINGS5661.175521.15Note: For analysis purposes, certain financial statement amounts have been reclassified for this effect on earnings presentation.American Electric PowerFinancial Results for the 3rd Quarter 2011Reconciliation of Ongoing to Reported Earnings2011UtilityAEP River OperationsGeneration and MarketingParent & All OtherTotalEPS($ millions)Ongoing Earnings551178(10)566$       1.17Other: Carbon Capture & Storage - Ohio (5)---(5)$      (0.01) Sporn Unit 5 Retirement (31)---(31)(0.06) Muskingum River Unit 5 - Suspended Scrubber Project (27)---(27)(0.05) Texas  Capacity Auction True-up 425---4250.88Total Special Items362---362$       0.76Reported Earnings913178(10)928$       1.93Financial Results for the 3rd Quarter 2010Reconciliation of Ongoing to Reported Earnings2010UtilityAEP River OperationsGeneration and MarketingParent & All OtherTotalEPS($ millions)Ongoing Earnings53415-3552$       1.15Other: Restructuring Program 5(1)-(1)3$       0.01Total Special Items5(1)-(1)3$       0.01Reported Earnings53914-2555$       1.16American Electric PowerSummary of Selected Sales Data(Data based on preliminary, unaudited results)Three Months Ending September 30,ENERGY & DELIVERY SUMMARY20112010ChangeRetail Electric (in millions of kWh):   Residential18,23817,8172.4%   Commercial14,27414,0321.7%   Industrial15,20614,4605.2%   Miscellaneous8548322.6%   Total Retail (a)48,57247,1413.0%Wholesale Electric (in millions of kWh): (b)13,16410,68923.2%Total KWHs61,73657,8306.8%(a) Includes energy delivered to customers served by AEP's Texas Wires Companies(b) Includes Off-System Sales, Municipalities and Cooperatives, Unit Power, and    Other Wholesale Customers.American Electric PowerFinancial Results for YTD September 2011 vs YTD September 201020112010($ millions)EPS($ millions)EPSUTILITY OPERATIONS:Gross Margin:1East Regulated Integrated Utilities2,1322,1602Ohio Companies2,0992,1533West Regulated Integrated Utilities1,1111,0504Texas Wires5024725Off-System Sales2932446Transmission Revenue - 3rd Party3112777Other Operating Revenue4034028Utility Gross Margin 6,8516,7589Operations & Maintenance(2,565)(2,467)10Depreciation & Amortization(1,226)(1,205)11Taxes Other than Income Taxes(618)(603)12Interest Exp & Preferred Dividend(684)(712)13Other Income & Deductions20811914Income Taxes(667)(646)15Utility Operations Ongoing Earnings1,2992.701,2442.60NON-UTILITY OPERATIONS:16AEP River Operations230.05190.0417Generation & Marketing200.04170.0318Parent & Other Ongoing Earnings(32)(0.07)(8)(0.02)19ONGOING EARNINGS1,3102.721,2722.65Note: For analysis purposes, certain financial statement amounts have been reclassified for this effect on earnings presentation.American Electric PowerFinancial Results for Year-to-Date 2011Reconciliation of Ongoing to Reported Earnings2011UtilityAEP River OperationsGeneration and MarketingParent & All OtherTotalEPS($ millions)Ongoing Earnings1,2992320(32)1,310$       2.72Other Restructuring Program 9---9$       0.02 Carbon Capture & Storage - APCo (26)---(26)(0.06) Carbon Capture & Storage - Ohio (5)---(5)(0.01) Sporn Unit 5 Retirement (31)---(31)(0.06) Muskingum River Unit 5 - Suspended Scrubber Project (27)---(27)(0.05) Texas  Capacity Auction True-up 425---4250.88 Litigation Settlement - Enron Bankruptcy ---(22)(22)(0.05)Total Special Items345--(22)323$       0.67Reported Earnings1,6442320(54)1,633$       3.39Financial Results for Year-to-Date 2010Reconciliation of Ongoing to Reported Earnings2010UtilityAEP River OperationsGeneration and MarketingParent & All OtherTotalEPS($ millions)Ongoing Earnings1,2441917(8)1,272$       2.65Other Restructuring Program (178)(2)-(2)(182)$      (0.38) Carbon Capture - APCo Virginia (34)---(34)$      (0.07) Medicare D Subsidy (20)(1)--(21)$      (0.04)Total Special Items(232)(3)-(2)(237)$      (0.49)Reported Earnings1,0121617(10)1,035$       2.16American Electric PowerSummary of Selected Sales Data(Data based on preliminary, unaudited results)Nine Months Ending September 30,ENERGY & DELIVERY SUMMARY20112010ChangeRetail Electric (in millions of kWh):   Residential48,69048,2500.9%   Commercial38,83338,5080.8%   Industrial44,68842,5035.1%   Miscellaneous2,3542,3281.1%   Total Retail (a)134,565131,5892.3%Wholesale Electric (in millions of kWh): (b)32,53225,84625.9%Total KWHs167,097157,4356.1%(a) Includes energy delivered to customers served by AEP's Texas Wires Companies(b) Includes Off-System Sales, Municipalities and Cooperatives, Unit Power, and    Other Wholesale Customers.SOURCE American Electric PowerFor further information: Media, Pat D. Hemlepp, Director, Corporate Media Relations, +1-614-716-1620; Analysts, Bette Jo Rozsa, Managing Director, Investor Relations, +1-614-716-2840