What is the financial impact of the disclosed write-off on AEP?

The write-off of the regulatory asset by APCo resulted in a $36 million pretax reduction to earnings. While this negatively impacts Generally Accepted Accounting Principles (GAAP) earnings for the third quarter of 2006, it is considered a special item and is excluded from AEP's 'ongoing earnings' metric, which the company uses to communicate performance.

Why did APCo write off this regulatory asset?

APCo wrote off the regulatory asset because of a negative recommendation from a Hearing Examiner regarding the recovery of environmental compliance and reliability (E&R) costs incurred between July 2004 and September 2006. APCo had deferred these costs as a regulatory asset, expecting to recover them under Virginia's restructuring law, but the recommendation suggests these past costs may not be recoverable.

What is AEP's guidance for 2006, and how does this write-off affect it?

AEP reaffirms its previously issued guidance for full-year 2006 ongoing earnings, which are expected to be in the range of $2.65 to $2.80 per share. The company's management considers ongoing earnings (which exclude special items like this write-off) to be a more meaningful measure of AEP's performance and uses it for investor communications.

What are the next steps regarding the disputed E&R costs?

The Virginia State Corporation Commission's final order on the E&R cost recovery is pending. If the Commission adopts the Hearing Examiner's recommendation to disallow the costs, APCo, based on legal advice, plans to appeal the decision vigorously. AEP believes it should be able to recover these costs if the Commission properly implements the statute as interpreted in prior orders.

AEP 8-K: Regulation FD — Oct 20, 2006

Summary

This 8-K filing from American Electric Power Company, Inc. (AEP) on October 20, 2006, primarily discloses a significant write-off of a regulatory asset by its subsidiary, Appalachian Power Company (APCo). This write-off, totaling $36 million pretax, relates to environmental compliance and reliability (E&R) costs incurred in Virginia between July 2004 and September 2006. APCo had previously deferred these costs, expecting recovery under Virginia's restructuring act, but a recent recommendation from a Hearing Examiner suggests disallowance of these past costs, contrary to APCo's interpretation of the law. The company is providing this update in connection with its third-quarter financial statement preparation. While this write-off negatively impacted GAAP earnings, AEP reaffirmed its full-year 2006 ongoing earnings guidance. Management emphasizes that ongoing earnings, which exclude special items like this write-off, offer a more meaningful measure of performance and are used for investor communications and internal assessments. The final decision from the Virginia State Corporation Commission is pending, and AEP indicates it will vigorously appeal if the Hearing Examiner's recommendation is adopted.

Key Highlights

1Appalachian Power Company (APCo) wrote off a $36 million (pretax) regulatory asset related to environmental and reliability (E&R) costs.
2The write-off impacts the third quarter of 2006 and is a result of potential disallowance of E&R costs incurred from July 2004 through September 2006 by the Virginia State Corporation Commission.
3APCo disagrees with the Hearing Examiner's recommendation to disallow these deferred costs and plans to appeal if the Commission adopts it.
4The write-off will negatively affect GAAP earnings but is excluded from AEP's 'ongoing earnings' measure.
5AEP reaffirms its 2006 ongoing earnings guidance of $2.65 to $2.80 per share.
6Management believes ongoing earnings provide a more meaningful representation of AEP's performance for investors.
7The final decision from the Virginia State Corporation Commission is still pending.

AMERICAN ELECTRIC POWER CO INC 8-K Report, Regulation FD Disclosure (Oct 20, 2006)

Summary

Key Highlights

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