10-QPeriod: Q1 FY2009

AMERICAN ELECTRIC POWER CO INC Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 1, 2009For Securities:AEP

Summary

American Electric Power Co. Inc. (AEP) filed its 10-Q for the period ending March 30, 2009, highlighting several key risks and uncertainties facing its regulated operations and financial stability. The most significant concern revolves around the potential for adverse outcomes in regulatory appeals concerning rate recovery in multiple states, including Ohio, Texas, and Oklahoma. Reversals of approved rate increases could negatively impact future net income, cash flows, and the company's overall financial condition. Additionally, AEP faces risks related to market, economic, and financial volatility, particularly concerning potential downgrades in its credit ratings, which could constrain its access to capital and negatively affect its power trading business.

Financial Highlights

26 data points
Beta

Revenue

$3.46B

Net Income

$360.00M

10.4% Net Margin

EPS (Diluted)

$0.89

Cash & Equivalents

$710.00M

Free Cash Flow

$317.00M

Financial Statements
Beta
Revenue$3.46B
Operating Expenses$2.71B
Operating Income$750.00M
Interest Expense$238.00M
Net Income$360.00M
EPS (Basic)$0.89
EPS (Diluted)$0.89
Shares Outstanding (Basic)406.83M
Shares Outstanding (Diluted)407.38M

Key Highlights

  • 1Multiple ongoing regulatory appeals in Ohio, Texas, and Oklahoma pose a significant risk to AEP's approved rate increases, potentially impacting net income and cash flows.
  • 2AEP's regulated operations in Ohio (CSPCo and OPCo) are subject to potential reversal of rate recovery orders by intervenors, with a cap on revenue increases and a phased-in rate adjustment mechanism.
  • 3In Texas, appeals against a $20 million base rate increase for TCC are ongoing, with the outcome uncertain and the potential for adverse financial effects if reversed.
  • 4PSO in Oklahoma is also facing appeals to its approved $81 million base revenue increase by the Attorney General and intervenors, with a potential negative financial impact.
  • 5A downgrade in AEP's credit ratings, particularly below investment grade, could increase borrowing costs and limit access to capital, significantly harming its financial condition and operations.
  • 6The power trading business is reliant on the investment grade ratings of AEP's subsidiaries; a downgrade could impair its profitability due to counterparty requirements.
  • 7Texas restructuring introduces uncertainty for SWEPCo, with a potential bill requiring reapplication of SFAS 71 for its generation portion, expected to materially and adversely affect net income upon reapplication.

Frequently Asked Questions

The primary risks stem from ongoing appeals and potential reversals of approved rate increases in key states like Ohio, Texas, and Oklahoma. If regulatory bodies or courts overturn or reduce these rate adjustments, it could lead to adverse effects on AEP's future net income, cash flows, and financial condition.

Credit rating downgrades, especially below investment grade, would likely increase AEP's borrowing costs, making it more expensive to access capital. This could constrain its ability to fund operations and growth. Furthermore, it could negatively impact the profitability of its power trading business, as counterparties often require investment-grade creditworthiness.

Uncertainty surrounding Texas restructuring, specifically a potential bill that might require SWEPCo to reapply SFAS 71 for its generation operations, could have a material adverse effect on net income. The initial reapplication of this regulatory accounting is expected to negatively impact earnings.

During the quarter ended March 31, 2009, AEP and its subsidiaries repurchased a small number of shares. Specifically, I&M repurchased 34 shares of its 4.125% cumulative preferred stock, and OPCo repurchased 1 share of its 4.50% cumulative preferred stock. These were privately negotiated transactions outside of any announced plans.