10-QPeriod: Q3 FY2008

AMERICAN ELECTRIC POWER CO INC Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 31, 2008For Securities:AEP

Summary

American Electric Power Co. Inc. (AEP) filed its quarterly report on October 30, 2008, for the period ending September 29, 2008. The filing predominantly focuses on updated risk factors, highlighting significant regulatory uncertainties across several key operating jurisdictions, including Oklahoma, Ohio, Virginia, and Indiana. These uncertainties stem from proposed rate increases that face potential disallowance or reduction by regulatory bodies, which could adversely impact future net income, cash flows, and financial condition. Furthermore, the report details operational risks, notably the unexpected shutdown of Cook Plant Unit 1 due to a generator fire, with the duration and cost of repair still undetermined, though recovery through warranty and insurance is anticipated. Environmental compliance costs are also identified as a significant and growing risk due to increasingly stringent regulations, particularly concerning CO2 emissions, with potential impacts on the long-term viability of fossil fuel generation. The company also notes the ongoing volatility in financial markets, which could affect its ability to access capital on reasonable terms and potentially increase borrowing costs.

Financial Highlights

28 data points
Beta

Revenue

$4.19B

Net Income

$375.00M

8.9% Net Margin

EPS (Diluted)

$0.93

Cash & Equivalents

$338.00M

Free Cash Flow

$842.00M

Financial Statements
Beta
Revenue$4.19B
Operating Expenses$3.45B
Operating Income$737.00M
Interest Expense$216.00M
Net Income$375.00M
EPS (Basic)$0.93
EPS (Diluted)$0.93
Shares Outstanding (Basic)402.29M
Shares Outstanding (Diluted)403.91M

Key Highlights

  • 1Significant regulatory uncertainty exists in Oklahoma, Ohio, Virginia, and Indiana regarding proposed rate increases, with potential negative impacts on earnings and cash flows if not fully approved.
  • 2Cook Plant Unit 1 experienced an unexpected shutdown in September 2008 due to a generator fire, and the time and cost to return it to service are currently unknown, posing an operational risk.
  • 3AEP faces increasing risks and costs associated with environmental compliance, particularly regarding potential regulations on CO2 emissions, which could affect the economics of fossil fuel power generation.
  • 4The company's ability to access capital markets on reasonable terms could be impacted by ongoing financial market volatility, potentially increasing borrowing costs.
  • 5Credit ratings for several subsidiaries (PSO, APCo, OPCo, SWEPCo) have been under review or downgraded, raising concerns about future borrowing costs and access to capital, especially for the power trading business.
  • 6AEP successfully defended its market-based rate authority in the PJM market through a FERC order in September 2008, avoiding a potentially detrimental investigation.
  • 7No significant share repurchases were made by AEP or its subsidiaries during the quarter ended September 30, 2008.

Frequently Asked Questions

AEP is facing significant regulatory hurdles in multiple jurisdictions, including Oklahoma, Ohio, Virginia, and Indiana, where proposed rate increases are subject to potential disallowance or reduction by regulatory commissions. The outcome of these rate cases could materially affect the company's future net income, cash flows, and overall financial health.

The unexpected shutdown of Cook Plant Unit 1 in September 2008 due to a generator fire presents an operational risk. The company is assessing the damage and costs for repair, but the timeline for returning the unit to service and the ultimate financial impact are currently uncertain. AEP expects to recover costs through warranty, insurance, or regulatory processes, but any uncovered expenses could negatively affect its financial performance.

AEP is exposed to significant and increasing costs related to environmental compliance, particularly for air and water quality, waste management, and climate change initiatives. The potential regulation of CO2 emissions, following a Supreme Court decision and an EPA advance notice of proposed rulemaking, could significantly impact the cost-effectiveness of operating fossil fuel generation assets, especially coal-fired plants.

The company acknowledges the impact of recent financial market volatility on its ability to access capital and potentially increase borrowing costs. Downgrades in credit ratings for some subsidiaries have already occurred or are under review, which could further constrain access to funding, increase interest expenses, and negatively affect the power trading business that relies on investment-grade ratings.