8-KFinancial Events

AMERICAN ELECTRIC POWER CO INC 8-K Report, Material Impairment (Jan 17, 2006)

Filed January 17, 2006For Securities:AEP

Summary

This 8-K filing from AMERICAN ELECTRIC POWER CO INC (AEP) and its subsidiary AEP Texas Central Company (TCC) announces a significant anticipated charge to earnings due to a decision by the Public Utility Commission of Texas (Texas Commission) regarding TCC's true-up application. The Texas Commission is expected to disallow a substantial portion of TCC's requested recovery for wholesale capacity auction true-up and stranded costs associated with the sale of its interest in the South Texas Project nuclear plant. Specifically, AEP anticipates recording a charge of approximately $384 million ($250 million after-tax) in the fourth quarter of 2005. This will reduce TCC's recorded net true-up regulatory asset from roughly $1.7 billion to $1.3 billion. While the formal written order is not expected until February 2006, AEP believes the Commission's deliberations indicate this outcome. TCC may challenge the Commission's rulings, which it believes are contrary to Texas's electric industry restructuring laws.

Key Highlights

  • 1AEP and AEP Texas Central Company (TCC) anticipate a significant charge to earnings due to a Texas Commission ruling.
  • 2The anticipated charge is approximately $384 million ($250 million after-tax) for the fourth quarter of 2005.
  • 3The charge stems from the Texas Commission's disallowance of a large portion of TCC's wholesale capacity auction true-up request.
  • 4Recovery of stranded costs related to the sale of TCC's interest in the South Texas Project nuclear plant is also expected to be reduced.
  • 5TCC's net true-up regulatory asset will be reduced from approximately $1.7 billion to $1.3 billion.
  • 6TCC believes the Texas Commission's decisions may be contrary to existing statutes and regulations and may pursue rehearing or appeals.
  • 7The formal written order from the Texas Commission is expected in February 2006.

Frequently Asked Questions

The primary reason for the anticipated charge is the expected decision by the Public Utility Commission of Texas (Texas Commission) to disallow a significant portion of AEP Texas Central Company's (TCC) true-up application. This includes disallowing about 90% of its proposed wholesale capacity auction true-up and associated carrying costs, as well as reducing stranded generation costs.

AEP anticipates recording a charge of approximately $384 million ($250 million after-tax) in the fourth quarter of 2005. This charge will reduce TCC's net true-up regulatory asset, including carrying costs, from approximately $1.7 billion to approximately $1.3 billion as of December 31, 2005.

TCC believes that significant aspects of the Texas Commission's decisions are contrary to state statute and regulations. Once the formal written order is issued in February 2006, TCC will evaluate whether to seek a rehearing of the Commission's rulings or contest certain decisions through appeals to Texas state courts.

The Public Utility Commission of Texas is not expected to issue its formal written decision until February 2006. It is possible that the Commission could modify its views prior to issuing this final written order.