Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
American Electric Power Company, Inc.
(Exact name of registrant as specified in its charter)
New York 13-4922640
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1 Riverside Plaza
Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 716-1000
SUSAN TOMASKY, Executive Vice President and Chief Financial Officer
JOHN B. KEANE, Senior Vice President and General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza
Columbus, Ohio 43215
(614) 716-2929
(Names, addresses and telephone numbers, including
area code, of agents for service)
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Title of Each Class Offering Maximum Amount of
Of Securities Amount to be Price Aggregate Registration
to be Registered Registered Per Unit(1) Offering Price(1) Fee
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Common Stock,
par value
$6.50 per share 20,000,000 34.29 $685,800,000 $86,891
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(1) Pursuant to Rule 457(c), these prices are estimated solely for the purpose
of calculating the registration fee and are based upon the average of the
high and low sales prices of the Registrant's Common Stock on the New York
Stock Exchange on December 14, 2004.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Subject to completion, dated December 21, 2004
PROSPECTUS
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American Electric Power Company, Inc.
Dividend Reinvestment and Direct Stock Purchase Plan
American Electric Power Company, Inc. offers participation in the Dividend
Reinvestment and Direct Stock Purchase Plan (the Plan), which provides you with
a convenient and economical way to purchase shares of our Common Stock, par
value $6.50 per share, and to reinvest cash dividends.
If you are not already a shareholder, you may become a Participant in the Plan
by making an initial cash investment of at least $250, or by authorizing a
minimum of ten (10) automatic monthly withdrawals of at least $25.
Participants in the Plan may:
o Automatically reinvest cash dividends on all or less than all shares
registered in their names and continue to receive cash dividends on the
remaining shares.
o Receive cash dividends on all shares, including those held in the Plan.
o Invest by making voluntary cash payments at any time for as little as
$25 up to a total of $150,000 per calendar year, whether or not any
dividends are being reinvested. Voluntary cash payments will be invested
as often as practicable, but at least weekly.
o Make automatic monthly investments by electronic funds transfer.
o Establish an Individual Retirement Account (IRA) which invests in our
Common Stock through the Plan.
o Deposit shares for safekeeping with EquiServe Trust Company, N.A.,
(the Agent).
o Transfer shares or make gifts of our Common Stock.
Shares of our Common Stock will be purchased under the Plan, at our option, from
newly issued shares or on the open market. THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Date of this Prospectus is January __, 2005
No person has been authorized to give any information or to make any
representation not contained in this Prospectus. This Prospectus does not
constitute an offer of any securities other than those described on the cover
page or an offer to sell or a solicitation of an offer to buy within any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation within such jurisdiction.
TABLE OF CONTENTS
Page
The Company 3
Advantages of the Plan 3
Company Risk Factors 4
Forward-Looking Statements 24
Description of the Plan 25
o Purpose 25
o Administration 25
o Eligibility 25
o Enrollment Procedures 26
o Reinvestment of Dividends 27
o Initial Investments and Voluntary Cash Payments 28
o Source and Price of Shares 29
o Cost to Participants 30
Individual Retirement Account 30
Account Management 30
o Gift/Transfer of Shares 30
o Sale of Shares 31
o Certificates for Shares 32
o Share Safekeeping 32
o Closing a Plan Account 33
o Reports to Participants 33
Federal Income Tax Information 34
Employee Participation 36
Description of Common Stock 37
Other Information 38
Use of Proceeds 39
Validity of Common Stock 39
Experts 39
Indemnification for Securities Act Liabilities 39
Where You Can Find More Information 40
For Assistance Concerning the Plan 41
THE COMPANY
The Company was incorporated under the laws of the State of New York in 1906 and
reorganized in 1925. Its principal executive office is located at 1 Riverside
Plaza, Columbus, Ohio 43215 and its telephone number at that address is (614)
716-1000.
The Company is a public utility holding company which owns, directly or
indirectly, all of the outstanding common stock of its operating electric
utility subsidiaries. Substantially all of the Company's operating revenues are
derived from the furnishing of electric service. The Company is also referred to
as "AEP" in this Prospectus.
ADVANTAGES OF THE PLAN
o If you do not currently own any shares of our Common Stock, you may
enroll in the Plan by making initial cash investment of at least $250,
or by authorizing a minimum of 10 automatic withdrawals of at least $25
plus, in either case, an initial investment fee of $10.00.
o You may reinvest all or a portion of your cash dividends in our Common
Stock.
o You may receive cash dividends electronically or by check on all or any
shares of our Common Stock, including those held in the Plan.
o You may purchase additional shares of our Common Stock as often as
weekly by making voluntary cash payments up to a maximum of $150,000 per
calendar year. Voluntary investments may be made by check or automated
deduction from a predesignated checking, savings or money market
account.
o Employees may make initial purchases of our Common Stock without an
initial investment fee. The minimum purchase for employees is $5.00.
o You pay no brokerage fees or expenses in connection with purchases of
our Common Stock under the Plan.
o You may establish an IRA which invests in our Common Stock through the
Plan.
o Full investment of funds is possible under the Plan because the Plan
permits fractions of shares, as well as full shares, to be credited to
your account.
o The Plan offers a share "safekeeping" service whereby you may deposit
your Common Stock certificates with the Agent and have your ownership of
our Common Stock maintained on the Agent's records as part of your Plan
account.
o You may make transfers or gifts of our Common Stock at any time and at
no charge to you. When you transfer or give shares to another person, an
account will be opened for the recipient and the recipient will enjoy
full plan benefits.
o Quarterly statements are mailed to you if you reinvest dividends listing
year-to-date transactions in your account. Transaction advices are
mailed after voluntary cash payments unless included in a quarterly
statement. Annual statements are mailed to all Plan Participants who had
activity in the account during that year.
COMPANY RISK FACTORS
You should carefully consider the risks described below as well as other
information contained in this Prospectus before buying the securities registered
herein. These are risks we consider to be material to your decision whether to
invest in our securities at this time. There may be risks that you view in a
different way than we do, and we may omit a risk that we consider immaterial,
but you consider important. If any of the following risks occur, our business,
financial condition or results of operations could be materially harmed. In that
case, the value or trading price of the securities registered herein could
decline, and you may lose all or part of your investment.
Risks Related to Power Trading and Wholesale Businesses
Our revenues and results of operations are subject to market risks that are
beyond our control.
We sell power from our generation facilities into the spot market or other
competitive power markets or on a contractual basis. We also enter into
contracts to purchase and sell electricity, natural gas and coal as part of our
power marketing and energy trading operations. With respect to such
transactions, we are not guaranteed any rate of return on our capital
investments through mandated rates, and our revenues and results of operations
are likely to depend, in large part, upon prevailing market prices for power in
our regional markets and other competitive markets. These market prices may
fluctuate substantially over relatively short periods of time. It is reasonable
to expect that trading margins may erode as markets mature and that there may be
diminished opportunities for gain should volatility decline. In addition, the
Federal Energy Regulatory Commission ("FERC"), which has jurisdiction over
wholesale power rates, as well as independent system operators that oversee some
of these markets, may impose price limitations, bidding rules and other
mechanisms to address some of the volatility in these markets. Fuel prices may
also be volatile, and the price we can obtain for power sales may not change at
the same rate as changes in fuel costs. These factors could reduce our margins
and therefore diminish our revenues and results of operations.
Volatility in market prices for fuel and power may result from:
o weather conditions;
o seasonality;
o power usage;
o illiquid markets;
o transmission or transportation constraints or inefficiencies;
o availability of competitively priced alternative energy sources;
o demand for energy commodities;
o natural gas, crude oil and refined products, and coal production levels;
o natural disasters, wars, embargoes and other catastrophic events; and
o federal, state and foreign energy and environmental regulation and
legislation.
We are unable to predict the course, results or impact, if any, of current or
future energy market investigations or litigation.
AEP received data requests, subpoenas and requests for information from the
FERC, the Securities and Exchange Commission ("SEC"), the Public Utility
Commission of Texas ("PUCT"), the U.S. Commodity Futures Trading Commission
("CFTC"), the U.S. Department of Justice and the California attorney general
during 2002. Management responded to the inquiries and provided the requested
information and has continued to respond to supplemental data requests in 2003
and 2004.
In March 2003, we received a subpoena from the SEC as part of the SEC's ongoing
investigation of energy trading activities. In August 2002, we had received an
informal data request from the SEC asking that we voluntarily provide
information. The subpoena sought additional information and is part of the SEC's
formal investigation. We responded to the subpoena and will continue to
cooperate with the SEC.
On September 30, 2003, the CFTC filed a complaint against AEP and one of its
subsidiaries, AEP Energy Services, Inc. ("AEPES") in federal district court in
Columbus, Ohio. The CFTC alleges that AEP and AEPES provided false or misleading
information about market conditions and prices of natural gas in an attempt to
manipulate the price of natural gas in violation of the Commodity Exchange Act.
The CFTC seeks civil penalties, restitution and disgorgement of benefits. In
2003 we recorded a provision related to these matters. We responded to the
complaint in September 2004. We have engaged in settlement discussions with
several agencies and are evaluating whether to conclude settlements in order to
put these investigations behind us even though we believe we have meritorious
legal positions and defenses. If we elect to settle all matters, the payments
could exceed the 2003 provision and could have a material impact on our 2004
earnings and cash flows.
In January 2004, the CFTC issued a request for documents and other information
in connection with a CFTC investigation of activities affecting the price of
natural gas in the fall of 2003. We responded to that request.
In addition to the foregoing investigations, a number of counterparties and
other market participants have filed various actions naming AEP, among other
unaffiliated entities, as defendant in connection with claims relating to energy
commodity marketing or transactions. Plaintiffs initiating separate lawsuits
include Texas-Ohio Energy, Inc. (alleging natural gas price manipulation in
California) and Cornerstone Propane Partners (alleging manipulation of natural
gas futures and options on the NYMEX). Texas Commercial Energy, LLP, the
plaintiff in a separate suit alleging anticompetitive bidding and withholding
power, is appealing the dismissal of its complaint. We have filed a claim
against the Bank of Montreal alleging it inappropriately terminated trading
contracts with us.
Management is unable to predict the course or outcome of these or any future
energy market investigations and litigation or their impact, if any, on power
commodity trading generally or, more specifically, on our trading operations or
future results of operations and cash flows.
Our power trading (including fuel procurement and power marketing) and risk
management policies cannot eliminate the risk associated with these activities.
Our power trading (including fuel procurement and power marketing) activities
expose us to risks of commodity price movements. We attempt to manage our
exposure through enforcement of established risk limits and risk management
procedures. These risk limits and risk management procedures may not always be
followed or may not work as planned and cannot eliminate the risks associated
with these activities. As a result, we cannot predict the impact that our energy
trading and risk management decisions may have on our business, operating
results or financial position.
We routinely have open trading positions in the market, within established
guidelines, resulting from the management of our trading portfolio. To the
extent open trading positions exist, fluctuating commodity prices can improve or
diminish our financial results and financial position.
Our energy trading and risk management activities, including our power sales
agreements with counterparties, rely on projections that depend heavily on
judgments and assumptions by management of factors such as the future market
prices and demand for power and other energy-related commodities. These factors
become more difficult to predict and the calculations become less reliable the
further into the future these estimates are made. Even when our policies and
procedures are followed and decisions are made based on these estimates, results
of operations may be diminished if the judgments and assumptions underlying
those calculations prove to be wrong or inaccurate. Our policies and procedures
do not typically require us to hedge the new trading positions that we enter
into daily.
Our financial performance may be adversely affected if we are unable to
successfully operate our pooled electric generating facilities.
Our performance depends on the successful operation of our electric generating
facilities. Operating electric generating facilities involves many risks,
including:
o operator error and breakdown or failure of equipment or processes;
o operating limitations that may be imposed by environmental or other
o regulatory requirements; labor disputes; fuel supply interruptions; and
o catastrophic events such as fires, earthquakes, explosions, terrorism,
floods or other similar occurrences.
A decrease or elimination of revenues from power produced by our electric
generating facilities or an increase in the cost of operating the facilities
would adversely affect our results of operations.
Parties with whom we have contracts may fail to perform their obligations, which
could harm our results of operations.
We are exposed to the risk that counterparties that owe us money or power will
breach their obligations. Should the counterparties to these arrangements fail
to perform, we may be forced to enter into alternative hedging arrangements or
honor underlying commitments at then-current market prices that may exceed our
contractual prices, which would cause our financial results to be diminished and
we might incur losses. Although our estimates take into account the expected
probability of default by a counterparty, our actual exposure to a default by a
counterparty may be greater than the estimates predict.
We are contractually required to operate a power generation facility that we
have agreed to lease but the energy sales market for the facility's excess
energy is over-supplied.
We have agreed to lease from Juniper Capital L.P. a non-regulated merchant power
generation facility ("Facility") near Plaquemine, Louisiana. We sublease the
Facility to The Dow Chemical Company ("Dow"). We operate the Facility for Dow.
Dow uses a portion of the energy produced by the Facility and sells the excess
power to us. We have agreed to sell up to all of the excess 800 MW to a third
party at a price that is currently in excess of market. This agreement is now
being litigated. If it is unenforceable, we will be required to find new
purchasers for up to 800 MW. There can be no assurance that this power will be
purchased at prices that will exceed our costs to produce it. If that were the
case, as a result of our obligations to Dow, we would be required to operate the
Facility at a loss.
We rely on electric transmission facilities that we do not own or control. If
these facilities do not provide us with adequate transmission capacity, we may
not be able to deliver our wholesale electric power to the purchasers of our
power.
We depend on transmission facilities owned and operated by other unaffiliated
power companies to deliver the power we sell at wholesale. This dependence
exposes us to a variety of risks. If transmission is disrupted, or transmission
capacity is inadequate, we may not be able to sell and deliver our wholesale
power. If a region's power transmission infrastructure is inadequate, our
recovery of wholesale costs and profits may be limited. If restrictive
transmission price regulation is imposed, the transmission companies may not
have sufficient incentive to invest in expansion of transmission infrastructure.
The FERC has issued electric and gas transmission initiatives that require
electric and gas transmission services to be offered unbundled from commodity
sales. Although these initiatives are designed to encourage wholesale market
transactions for electricity and gas, access to transmission systems may in fact
not be available if transmission capacity is insufficient because of physical
constraints or because it is contractually unavailable. We also cannot predict
whether transmission facilities will be expanded in specific markets to
accommodate competitive access to those markets.
We do not fully hedge against price changes in commodities.
We routinely enter into contracts to purchase and sell electricity, natural gas
and coal as part of our power marketing and energy trading operations and to
procure fuel. In connection with these trading activities, we routinely enter
into financial contracts, including futures and options, over-the counter
options, swaps and other derivative contracts. These activities expose us to
risks from price movements. If the values of the financial contracts change in a
manner we do not anticipate, it could harm our financial position or reduce the
financial contribution of our trading operations.
We manage our exposure by establishing risk limits and entering into contracts
to offset some of our positions (i.e., to hedge our exposure to demand, market
effects of weather and other changes in commodity prices). However, we do not
always hedge the entire exposure of our operations from commodity price
volatility. To the extent we do not hedge against commodity price volatility,
our results of operations and financial position may be improved or diminished
based upon our success in the market.
We are exposed to losses resulting from the bankruptcy of Enron Corp.
In 2002, certain of our subsidiaries filed claims against Enron Corp. ("Enron")
and its subsidiaries in the Enron bankruptcy proceeding pending in the U.S.
Bankruptcy Court for the Southern District of New York. At the date of Enron's
bankruptcy, certain of our subsidiaries had open trading contracts and trading
accounts receivables and payables with Enron. In addition, on June 1, 2001, we
purchased Houston Pipe Line Company ("HPL") from Enron. Various HPL related
contingencies and indemnities from Enron remained unsettled at the date of
Enron's bankruptcy.
Bammel storage facility and HPL indemnification matters - In connection with the
2001 acquisition of HPL, we entered into a prepaid arrangement under which we
acquired exclusive rights to use and operate the underground Bammel gas storage
facility and appurtenant pipelines pursuant to an agreement with BAM Lease
Company. This exclusive right to use the referenced facility is for a term of 30
years, with a renewal right for another 20 years.
In January 2004, we filed an amended lawsuit against Enron and its subsidiaries
in the U.S. Bankruptcy Court claiming that Enron did not have the right to
reject the Bammel storage facility agreement or the cushion gas use agreement,
described below. In April 2004, AEP and Enron entered into a settlement
agreement under which we will acquire title to the Bammel gas storage facility
and related pipeline and compressor assets, plus 10.5 billion cubic feet ("BCF")
of natural gas currently used as cushion gas for $115 million. The settlement
received Bankruptcy Court approval on September 30, 2004 and closed in November
2004. AEP and Enron mutually released each other from all claims associated with
the Bammel facility, including our indemnity claims. The parties' respective
trading claims and Bank of America's ("BOA") purported lien on approximately 55
BCF of natural gas in the Bammel storage reservoir (as described below) are not
covered by the settlement agreement.
Cushion gas use agreements - In connection with the 2001 acquisition of HPL, we
also entered into an agreement with BAM Lease Company, which grants HPL the
exclusive right to use approximately 65 BCF of cushion gas (the 10.5 BCF and 55
BCF described in the preceding paragraph) required for the normal operation of
the Bammel gas storage facility. At the time of our acquisition of HPL, BOA and
certain other banks ("BOA Syndicate") and Enron entered into an agreement
granting HPL the exclusive use of 65 BCF of cushion gas. Also at the time of our
acquisition, Enron and the BOA Syndicate also released HPL from all prior and
future liabilities and obligations in connection with the financing arrangement.
After the Enron bankruptcy, HPL was informed by the BOA Syndicate of a purported
default by Enron under the terms of the financing arrangement. In July 2002, the
BOA Syndicate filed a lawsuit against HPL in the state court of Texas seeking a
declaratory judgment that the BOA Syndicate has a valid and enforceable security
interest in gas purportedly in the Bammel storage reservoir. In December 2003,
the Texas state court granted partial summary judgment in favor of the BOA
Syndicate. In June 2004, BOA filed an amended petition in a separate lawsuit in
Texas state court seeking to obtain possession of up to 55 BCF of storage gas in
the Bammel storage facility or its fair value.
In October 2003, AEP filed a lawsuit against BOA in the United States District
Court for the Southern District of Texas. BOA led a lending syndicate involving
the 1997 gas monetization that Enron and its subsidiaries undertook and the
leasing of the Bammel underground gas storage reservoir to HPL. The lawsuit
asserts that BOA made misrepresentations and engaged in fraud to induce and
promote the stock sale of HPL, that BOA directly benefited from the sale of HPL
and that AEP undertook the stock purchase and entered into the Bammel storage
facility lease arrangement with Enron and the cushion gas arrangement with Enron
and BOA based on misrepresentations that BOA made about Enron's financial
condition that BOA knew or should have known were false including that the 1997
gas monetization did not contravene or constitute a default of any federal,
state, or local statute, rule, regulation, code or any law.
In February 2004, in connection with BOA's dispute, Enron filed Notices of
Rejection regarding the cushion gas use agreement and other incidental
agreements. We have objected to Enron's attempted rejection of these agreements.
Commodity trading settlement disputes - In September 2003, Enron filed a
complaint in the Bankruptcy Court against AEPES challenging AEP's offsetting of
receivables and payables and related collateral across various Enron entities
and seeking payment of approximately $125 million plus interest in connection
with gas related trading transactions. AEP has asserted its right to offset
trading payables owed to various Enron entities against trading receivables due
to several AEP subsidiaries. The parties are currently in non-binding
court-sponsored mediation.
In December 2003, Enron filed a complaint in the Bankruptcy Court against
American Electric Power Service Corporation seeking approximately $93 million
plus interest in connection with a transaction for the sale and purchase of
physical power among Enron, AEP and Allegheny Energy Supply, LLC during November
2001. Enron's claim seeks to unwind the effects of the transaction. AEP believes
it has several defenses to the claims in the action being brought by Enron. The
parties are currently in non-binding court-sponsored mediation. Management is
unable to predict the final resolution of these disputes, however the impact on
results of operations, cash flows and financial condition could be material.
Diminished liquidity in the wholesale power markets could negatively impact our
earnings.
The Enron bankruptcy and enhanced regulatory scrutiny have contributed to more
rigorous credit rating review of wholesale power market participants. Credit
downgrades and financial difficulties of certain other market participants have
significantly reduced such participants' participation in the wholesale power
markets. Likewise, numerous market participants have announced material scaling
back of or exit from the wholesale power market business. These events have
caused a decrease in the number of significant participants in the wholesale
power markets, at least temporarily, which has resulted and could continue to
result in a decrease in the volume and liquidity in the wholesale power markets.
Such decreases have had a negative impact on our results of operations, cash
flows and financial condition. Reduced liquidity in these markets makes risk
management of the assets more difficult and could also hamper our efforts to
exit the transactions not related to risk management of our assets that we
entered into before reducing the scale of our power trading and marketing
operations. We are unable to predict the impact of such developments on our
power marketing and trading business.
Potential for disruption exists if the delay of a FERC market power mitigation
order is lifted.
A FERC order issued in November 2001 on AEP's triennial market-based wholesale
power rate authorization update required certain mitigation actions that AEP
would need to take for sales/purchases within its control area and required AEP
to post information on its website regarding its power system's status. As a
result of a request for rehearing filed by AEP and other market participants,
FERC issued an order delaying the effective date of the mitigation plan until
after a planned technical conference on market power determination. In December
2003, the FERC issued a staff paper discussing alternatives and held a technical
conference in January 2004. In April 2004, the FERC issued two orders concerning
utilities' ability to sell wholesale electricity at market-based rates. In the
first order, the FERC adopted two new interim screens for assessing potential
generation market power of applicants for wholesale market based rates, and
described additional analyses and mitigation measures that could be presented if
an applicant does not pass one of these interim screens. In July 2004, the FERC
issued an order on rehearing affirming its conclusions in the April order and
directing AEP and two unaffiliated utilities to file generation market power
analyses within 30 days. In the second order, the FERC initiated a rulemaking to
consider whether the FERC's current methodology for determining whether a public
utility should be allowed to sell wholesale electricity at market-based rates
should be modified in any way. We have presented evidence to FERC to demonstrate
that we do not possess market power in geographic areas where we sell wholesale
power. In a December 2004 order, FERC found that AEP passed the screens in PJM
and Electric Reliability Council of Texas ("ERCOT"), but not in the Southwest
Power Pool ("SPP") area. AEP has sixty (60) days from the order to demonstrate
that we do not possess market power in SPP or propose mitigation measure.
Management is unable to predict the timing of any further action by the FERC or
its affect on future results of our operations and cash flows.
Risks Related to Our Regulated Business and Evolving Regulation
We operate in a non-uniform and fluid regulatory environment.
AEP is subject to regulation by the SEC under the Public Utility Holding Company
Act of 1935 ("PUHCA"). In most instances and in varying degrees, the rates
charged by the domestic utility subsidiaries are approved by the FERC and the
eleven state utility commissions. FERC regulates wholesale electricity
operations and transmission rates and the state commissions regulate retail
generation and distribution rates. Our investment in Mexico is regulated by the
authorities in that country and is generally subject to price controls. Several
of the eleven state retail jurisdictions in which our domestic electric
utilities operate have enacted restructuring legislation. Restructuring
legislation in Texas requires the legal separation of generation and related
assets from the transmission and distribution assets of the electric utilities
in that state. In Ohio, we are complying with restructuring legislation through
the continued functional separation of the operations of our Ohio utility
subsidiaries. As a result of restructuring legislation in Texas and Ohio, a
significant portion of our domestic generation is no longer directly regulated
by state utility commissions as to rates. AEP Texas Central Company ("TCC")
(formerly, Central Power and Light Company) has sold some of its generation in
Texas and is in the process of selling its remaining generation. Our utility
operations in the remaining state retail jurisdictions that have not enacted any
restructuring legislation currently plan to adhere to the vertically-integrated
utility model with cost recovery through regulated rates.
Our business plan is based on the regulatory framework as described and assumes
that deregulated generation will not be re-regulated. There can be no assurance
that the states that have pursued restructuring will not reverse such policies;
nor can there be assurance that the states that have not enacted restructuring
legislation will not do so in the future. In addition to the multiple levels of
regulation at the state level in which we operate, our business is subject to
extensive federal regulation. There can be no assurance that the federal
legislative and regulatory initiatives (which have occurred over the past few
years and which have generally facilitated competition in the energy sector)
will continue or will not be reversed.
Further alteration of the regulatory landscape in which we operate will impact
the effectiveness of our business plan and may, because of the continued
uncertainty, harm our financial condition and results of operations.
Risks Relating To State Restructuring
We have limited ability to pass on to our customers our costs of production.
We are exposed to risk from changes in the market prices of coal and natural gas
used to generate power where generation is no longer regulated or where existing
fuel clauses are suspended or frozen. The protection afforded by retail fuel
clause recovery mechanisms has been eliminated by the implementation of customer
choice in Ohio (effective January 1, 2001) and, to a lesser degree, in the ERCOT
area of Texas (effective January 1, 2002). We expect that there may be similar
risks should customer choice be similarly implemented in other states. Because
the risk of fuel price increases, increased environmental compliance costs and
generating unit outage cannot be passed through to customers during the
transition period in Ohio and only partially in Texas upon regulatory approval,
we retain these risks.
We continue to be protected against market price changes by active fuel clauses
in Oklahoma, Arkansas, Louisiana, Kentucky, Michigan and Virginia (through the
transition to competition on December 31, 2010) and the SPP area of Texas (until
the implementation of restructuring). A fuel clause in West Virginia has been
suspended per a settlement reached in a state restructuring proceeding. However,
as restructuring has not been implemented in West Virginia, the fuel clause may
be reactivated.
Until the transition to full market competition is complete in Ohio on December
31, 2005, our Ohio regulated utility subsidiaries (Columbus Southern Power
Company ("CSPCo") and Ohio Power Company ("OPCo") are required to provide power
at capped rates, which may be below current market rates, to retail customers
that do not choose an alternative power generation supplier. Following the
transition, it is unclear whether our retail sales of power in Ohio will be at a
market rate or at a rate determined by some level of state utility commission
involvement. Further action by The Public Utilities Commission of Ohio ("PUCO")
may be necessary to resolve this uncertainty.
The PUCO encouraged utilities to file rate stabilization plans to provide rate
certainty and stability for customers who do not choose alternative suppliers,
for the period of January 1, 2006 through December 31, 2008, which is after the
expiration of the current market development period. CSPCo and OPCo filed their
rate stabilization plan with the PUCO addressing rates following the end of the
market development period, which ends December 31, 2005. The plans include
annual fixed increases in the generation component and additional increases upon
PUCO review and approval as well as for deferral of environmental construction
and in-service carrying costs. If approved by the PUCO, rates would be
established pursuant to the plan for the period from January 1, 2006 through
December 31, 2008. Management is unable to predict the ultimate effect of these
proceedings.
Our default service obligations in Ohio do not restrict customers from switching
suppliers of power.
Those default service customers that we serve in Ohio may choose to purchase
power from alternative suppliers. Should they choose to switch from us, our
sales of power may decrease. Customers originally choosing alternative suppliers
may switch to our default service obligations. This may increase demand above
our facilities' available capacity. Thus, any such switching by customers could
have an adverse effect on our results of operations and financial position.
Conversely, to the extent the power sold to meet the default service obligations
could have been sold to third parties at more favorable wholesale prices, we
will have incurred potentially significant lost opportunity costs.
Some laws and regulations governing restructuring of the wholesale generation
market in Michigan and Virginia have not yet been interpreted or adopted and
could harm our business, operating results and financial condition.
While the electric restructuring laws in Michigan and Virginia established the
general framework governing the retail electric market, the laws required the
utility commission in each state to issue rules and determinations implementing
the laws. Some of the regulations governing the retail electric market have not
yet been adopted by the utility commission in each state. These laws, when they
are interpreted and when the regulations are developed and adopted, may harm our
business, results of operations and financial condition. Virginia restructuring
legislation was enacted in 1999 providing for retail choice of generation
suppliers to be phased in over two years beginning January 1, 2002. It required
jurisdictional utilities to unbundle their power supply and energy delivery
rates and to file functional separation plans by January 1, 2002. Our Virginia
subsidiary filed its plan with the Virginia State Corporation Commission
("VSCC") and, following VSCC approval of a settlement agreement, now operates in
Virginia as a functionally separated electric utility charging unbundled rates
for its retail sales of electricity. The settlement agreement addressed
functional separation, leaving decisions related to legal separation for later
VSCC consideration. Legislation in Virginia has been adopted which extends a cap
on electricity rates until 2010.
There is uncertainty as to our recovery of deferred fuel balances and stranded
costs resulting from industry restructuring in Texas.
Restructuring legislation in Texas required utilities with stranded costs to use
market-based methods to value certain generating assets for determining stranded
costs. We have elected to use the sale of assets method to determine the market
value of all of the generation assets of TCC for stranded cost purposes. The
amount of stranded costs under this market valuation methodology will be the
amount by which the book value of TCC's generating assets, including regulatory
assets and liabilities that were not securitized, exceeds the market value of
the generation assets as measured by the net proceeds from the sale of the
assets. TCC's sale of its generating assets will be subject to a review in a
true-up proceeding conducted by the PUCT. TCC's recorded net regulatory asset
for amounts subject to approval in the 2004 true-up proceeding is approximately
$1.3 billion. We estimate that TCC's 2004 true-up filing will exceed the total
of its recorded net regulatory asset. Management expects that the 2004 true-up
proceeding will be contentious and could possibly result in disallowances. In
the event we are unable, after the 2004 true-up proceeding, to recover all or a
portion of our stranded plant costs, generation-related net regulatory assets,
wholesale capacity auction true-up regulatory assets, other restructuring
true-up items and costs, it could have a material adverse effect on results of
operations, cash flows and possibly financial condition.
Collection of our revenues in Texas is concentrated in a limited number of
retail electric providers ("REPs").
Our revenues from the distribution of electricity in Texas are collected from
REPs that supply the electricity we distribute to their customers. Currently, we
do business with approximately thirty REPs. Adverse economic conditions,
structural problems in the new Texas market or financial difficulties of one or
more REPs could impair the ability of these REPs to pay for our services or
could cause them to delay such payments. We depend on these REPs for timely
remittance of payments. Any delay or default in payment could adversely affect
the timing and receipt of our cash flows thereby have an adverse effect on our
liquidity.
We may not be able to respond effectively to competition.
We may not be able to respond in a timely or effective manner to the many
changes in the power industry that may occur as a result of regulatory
initiatives to increase competition. These regulatory initiatives may include
deregulation of the electric utility industry in some markets and privatization
of the electric utility industry in others. To the extent that competition
increases, our profit margins may be negatively affected. Industry deregulation
and privatization may not only continue to facilitate the current trend toward
consolidation in the utility industry but may also encourage the disaggregation
of other vertically integrated utilities into separate generation, transmission
and distribution businesses. As a result, additional competitors in our industry
may be created, and we may not be able to maintain our revenues and earnings
levels or pursue our growth strategy.
While demand for power is generally increasing throughout the United States, the
rate of construction and development of new, more efficient electric generation
facilities may exceed increases in demand in some regional electric markets. The
start-up of new facilities in the regional markets in which we have facilities
could increase competition in the wholesale power market in those regions, which
could harm our business, results of operations and financial condition. Also,
industry restructuring in regions in which we have substantial operations could
affect our operations in a manner that is difficult to predict, since the
effects will depend on the form and timing of the restructuring.
General Risks Of Our Regulated Operations
The rates that certain of our utilities may charge their customers may be
reduced.
On June 26, 2003, the City of McAllen, Texas requested that TCC provide
justification showing that its transmission and distribution rates should not be
reduced. Other municipalities served by TCC passed similar rate review
resolutions. TCC filed the requested support for its rates based on a test year
ending June 30, 2003 with all of its municipalities and the PUCT. In February
2004, eight intervening parties and the PUCT Staff filed testimony recommending
reductions to TCC's requested $67 million rate increase. The recommendations
ranged from a decrease in existing rates of approximately $100 million to an
increase in TCC's current rates of approximately $27 million. In May 2004, TCC
agreed to a non-unanimous settlement on cost of capital including capital
structure and return on equity with all but two parties in the proceeding. The
Administrative Law Judges ("ALJs") that heard the case issued their
recommendations on July 2, 2004. The PUCT ordered TCC to calculate its revenue
requirements based upon the recommendations of the ALJs. On July 21, 2004, TCC
filed its revenue requirements based upon the recommendations of the ALJs.
According to TCC's calculations, the ALJs' recommendations reduce TCC's existing
rates by a range of $33 million to $43 million depending on the final resolution
of the amount of consolidation tax savings and other remanded issues. We
defended vigorously TCC's requested increase and challenged the ALJ's
recommendation. The ALJs issued revised recommendations in November 2004 which
would reduce TCC's existing rates by $51 million. The PUCT is expected to issue
a decision in the first quarter of 2005.
In October 2002, Southwestern Electric Power Company ("SWEPCo") filed with the
Louisiana Public Service Commission ("LPSC") detailed financial information
typically utilized in a revenue requirement filing, including a jurisdictional
cost of service. This filing was required by the LPSC as a result of its order
approving the merger between AEP and Central and South West Corporation ("CSW").
The LPSC's merger order also provides that SWEPCo's base rates are capped at the
present level through mid-2005. In April 2004, SWEPCo filed updated financial
information with a test year ending December 31, 2003 as required by the LPSC.
Both filings indicated that SWEPCo's current rates should not be reduced. If,
after review of the updated information, the LPSC disagrees with our conclusion,
it could order SWEPCo to file all documents for a full cost of service revenue
requirement review in order to determine whether SWEPCo's capped rates should be
reduced, which if a rate reduction is ordered, would adversely impact results of
operations and cash flows.
In 2002, Public Service Company of Oklahoma ("PSO") experienced a $44 million
under-recovery of fuel costs resulting from a reallocation among AEP West
companies of purchased power costs for periods prior to January 1, 2002. In July
2003, PSO filed with the Corporation Commission of the State of Oklahoma ("OCC")
seeking to recover these costs over a period of 18 months. In September 2003,
the OCC expanded the case to include a full review of PSO's 2001 fuel and
purchased power practices. If the OCC determines, as a result of the review that
a portion of PSO's fuel and purchased power costs should not be recovered, there
will be an adverse effect on PSO's results of operations, cash flows and
possibly financial condition.
In February 2003, the OCC filed an application requiring PSO to file all
documents necessary for a general rate review. In October 2003 and June 2004,
PSO filed financial information and supporting testimony in response to the
OCC's requirements. PSO's response indicates that its annual revenues are $41
million less than costs. As a result, PSO is seeking OCC approval to increase
its base rates by that amount, which is a 3.9% increase over PSO's existing
revenues. PSO subsequently filed information with the OCC requesting
consideration of approximately $55 million of additional annual operations and
maintenance expenses and annual capital costs to enhance system reliability. A
decision is not expected until second quarter 2005. Management is unable to
predict the ultimate effect of these proceedings on PSO's revenues, results of
operations, cash flows and financial condition.
The base rates that certain of our utilities charge are currently capped or
frozen.
Base rates charged to customers in Indiana, Michigan, Louisiana and the
distribution and transmission rates in Ohio are currently either frozen or
capped. To the extent our costs in these states exceed the applicable cap or
frozen rate, those costs are not recoverable from customers.
We are exposed to nuclear generation risk.
Through Indiana Michigan Power Company ("I&M") and TCC, we have interests in
four nuclear generating units, which interests equal 2,740 MW, or 7% of our
generation capacity. (TCC has entered an agreement to sell its interest in two
nuclear generating units.) We are, therefore, also subject to the risks of
nuclear generation, which include the following:
o the potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the
storage, handling and disposal of radioactive materials;
o limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with our
nuclear operations or those of others in the United States;
o uncertainties with respect to contingencies and assessment
amounts if insurance coverage is inadequate; and,
o uncertainties with respect to the technological and financial
aspects of decommissioning nuclear plants at the end of their
licensed lives.
The Nuclear Regulatory Commission ("NRC") has broad authority under federal law
to impose licensing and safety-related requirements for the operation of nuclear
generation facilities. In the event of non-compliance, the NRC has the authority
to impose fines or shut down a unit, or both, depending upon its assessment of
the severity of the situation, until compliance is achieved. Revised safety
requirements promulgated by the NRC could necessitate substantial capital
expenditures at nuclear plants such as ours. In addition, although we have no
reason to anticipate a serious nuclear incident at our plants, if an incident
did occur, it could harm our results of operations or financial condition. A
major incident at a nuclear facility anywhere in the world could cause the NRC
to limit or prohibit the operation or licensing of any domestic nuclear unit.
The different regional power markets in which we compete or will compete in the
future have changing transmission regulatory structures, which could affect our
performance in these regions.
Our results are likely to be affected by differences in the market and
transmission regulatory structures in various regional power markets. Problems
or delays that may arise in the formation and operation of new regional
transmission organizations, or "RTOs", may restrict our ability to sell power
produced by our generating capacity to certain markets if there is insufficient
transmission capacity otherwise available. The rules governing the various
regional power markets may also change from time to time which could affect our
costs or revenues. Because it remains unclear which companies will be
participating in the various regional power markets, or how RTOs will develop or
what regions they will cover, we are unable to assess fully the impact that
these power markets may have on our business.
In May 2002, we announced an agreement with the Pennsylvania-New Jersey-Maryland
RTO ("PJM") Interconnection to pursue terms for participation in its RTO. Our
AEP East companies joined PJM RTO on October 1, 2004.
Two of our western subsidiaries are members of SPP. In February 2004, FERC
granted RTO status to the SPP, subject to fulfilling specified requirements. In
October 2004, the FERC issued an order granting final RTO status to SPP subject
to certain filings.
The Louisiana and Arkansas Commissions are concerned about the effect on retail
ratepayers of utilities in Louisiana and Arkansas joining RTOs. The Commissions
have ordered the utilities in those states, including us, to perform and submit
to the Commissions the costs and benefits of RTO options available to the
utilities. The Louisiana Commission has also determined that certain RTO
structures that contemplate legally transferring transmission assets to it are
presumptively not in the public interest.
To the extent we are faced with conflicting state and Federal requirements as to
our participation in RTOs, it could adversely affect our ability to operate and
recover transmission costs from retail customers. Management is unable to
predict the outcome of these transmission regulatory actions and proceedings or
their impact on the timing and operation of RTOs, our transmission operations or
future results of operations and cash flows.
The FERC may reduce the amount we may charge third parties for using our
transmission facilities.
In July 2003, the FERC issued an order directing PJM and the Midwest Independent
System Operator (ISO) to make compliance filings for their respective Open
Access Transmission Tariffs to eliminate the transaction-based charges for
through and out (T&O) transmission service on transactions where the energy is
delivered within the proposed Midwest ISO and PJM expanded regions (Combined
Footprint). The elimination of the T&O rates will reduce the transmission
service revenues collected by the RTOs and thereby reduce the revenues received
by transmission owners under the RTOs' revenue distribution protocols.
AEP and several other utilities in the Combined Footprint filed a proposal for
new rates to become effective December 1, 2004. The AEP East companies received
approximately $157 million of T&O rate revenues for the twelve months ended
December 31, 2003. In November 2004, FERC eliminated the T&O rates and replaced
the rates temporarily through March 2006 with a seams elimination cost
adjustment fees. Effective April 2006, all transmission costs that would
otherwise be defrayed by T&O rates in the Combined Footprint will be subject to
recovery from native load customers of the AEP East Companies. At this time,
management is unable to predict whether any resultant increase in rates
applicable to AEP's internal load will be recoverable on a timely basis from
state retail customers. Unless new replacement rates compensate AEP for its lost
revenues and any increase in AEP East Companies' transmission expenses from
these new rates are fully recovered in retail rates on a timely basis, future
results of operations, cash flows and financial condition will be adversely
affected.
We are subject to regulation under the Public Utility Holding Company Act of
1935.
Our system is subject to the jurisdiction of the SEC under PUHCA. The rules and
regulations under PUHCA impose a number of restrictions on the operations of
registered holding company systems. These restrictions include a requirement
that the SEC approve in advance securities issuances, sales and acquisitions of
utility assets, sales and acquisitions of securities of utility companies and
acquisitions of other businesses. PUHCA also generally limits the operations of
a registered holding company to a single integrated public utility system, plus
additional energy-related businesses. PUHCA rules limit the dividends that our
subsidiaries may pay from unearned surplus.
Our merger with CSW may ultimately be found to violate PUHCA.
We acquired CSW in a merger completed on June 15, 2000. Among the more
significant assets we acquired as a result of the merger were four additional
domestic electric utility companies - PSO, SWEPCo, TCC and TNC. On January 18,
2002, the U.S. Court of Appeals for the District of Columbia ruled that the
SEC's June 14, 2000 order approving the merger failed to properly find that the
merger meets the requirements of PUHCA and sent the case back to the SEC for
further review. Specifically, the court told the SEC to revisit its conclusion
that the merger met PUHCA's requirement that the electric utilities be
"physically interconnected" and confined to a "single area or region." In August
2004, the SEC announced it would conduct hearings on this issue. The hearing is
scheduled for January 2005.
We believe that the merger meets the requirements of PUHCA and expect the matter
to be resolved favorably. We intend to fully cooperate with the staff of the SEC
in supplementing the record, if necessary, to ensure the merger complies with
PUHCA. We can give no assurance, however, that: (i) the SEC or any applicable
court review will find that the merger complies with PUHCA, or (ii) the SEC or
any applicable court review will not impose material adverse conditions on us in
order to find that the merger complies with PUHCA. If the merger were ultimately
found to violate PUHCA, it may require us to take remedial actions or divest
assets which may harm our results of operations or financial condition.
Risks Related to Market, Economic or International Financial Volatility
We are subject to risks associated with a changing economic environment.
In response to the occurrence of several recent events, including the September
11, 2001 terrorist attack on the United States, the ongoing war against
terrorism by the United States, and the bankruptcy of Enron, the financial
markets have been disrupted in general, and the availability and cost of capital
for our business and that of our competitors has been at least temporarily
harmed. In addition, following the bankruptcy of Enron, the credit ratings
agencies initiated a thorough review of the capital structure and earnings power
of energy companies, including us. These events could constrain the capital
available to our industry and could limit our access to funding for our
operations. Our business is capital intensive, and we are dependent upon our
ability to access capital at rates and on terms we determine to be attractive.
If our ability to access capital becomes significantly constrained, our interest
costs will likely increase and our financial condition could be harmed and
future results of operations could be adversely affected.
The insurance industry has also been disrupted by these events. As a result, the
availability of insurance covering risks we and our competitors typically insure
against has decreased. In addition, the insurance we are able to obtain has
higher deductibles, higher premiums and more restrictive policy terms.
Downgrades in our credit ratings could negatively affect our ability to access
capital and/or to operate our power trading businesses.
On February 10, 2003, Moody's downgraded our senior unsecured long-term debt
rating to Baa3 (with stable outlook) from Baa2 and our short-term debt rating to
P-3 (with stable outlook) from P-2. Moody's has subsequently upgraded our stable
outlook to positive outlook. On March 7, 2003, Standard & Poor's Ratings Service
downgraded their rating on our senior unsecured debt to BBB (with stable
outlook) from BBB+ (CreditWatch with negative implications) and confirmed their
rating on our commercial paper of A-2 (with stable outlook). On March 10, 2003,
Fitch Ratings, Inc. downgraded their rating on our senior unsecured debt to BBB
(with stable outlook) from BBB+ and confirmed their rating on our commercial
paper of F2 (with stable outlook). As a result, our access to the commercial
paper market may be limited and our short-term borrowing costs may increase.
AEP's ratings have not been adjusted by any rating agency during 2004.
The underfunding of our retirement plans may require additional significant
contributions.
AEP provides defined benefit pension plans ("Pension Plans") for the employees
of our subsidiaries. In addition, AEP provides health care and life insurance
benefit plans for retired employees.
The recent decreases in applicable interest rates have increased the plan's
liability. The Pension Plans' liabilities based on service and pay to date
("Accumulated Benefit Obligation") exceeded the value of the assets at December
31, 2003. As of December 31, 2003, the fair value of the Pension Plans assets
was $3.18 billion while the Accumulated Benefit Obligation was estimated at
$3.63 billion, an underfunding of approximately $450 million. Because of the
underfunded status of the Pension Plan, $65 million was contributed to the
Pension Plan in 2003. AEP expects to make significant cash contributions to the
Pension Plan in 2004, 2005 and 2006.
AEP also made contributions as of March 5, 2004 of $183 million to
postretirement health care and life insurance benefits trust funds in 2003, and
expects to contribute significant amounts in 2004, 2005 and 2006.
We cannot predict the future performance of the investment markets. A downturn
in the investment markets could have a material negative impact on the net asset
value of the plans' trust accounts and increase the underfunding of the Pension
Plan, net of benefit obligations. This may necessitate significant cash
contributions to the Pension Plan. Changes in interest rates may also materially
affect the pension and postretirement health care and life insurance benefit
liabilities and the cash contributions needed to fund those liabilities. Changes
in the laws and regulations governing the plans may increase or decrease the
required contributions.
Our operating results may fluctuate on a seasonal and quarterly basis.
Electric power generation is generally a seasonal business. In many parts of the
country, demand for power peaks during the hot summer months, with market prices
also peaking at that time. In other areas, power demand peaks during the winter.
As a result, our overall operating results in the future may fluctuate
substantially on a seasonal basis. The pattern of this fluctuation may change
depending on the terms of power sale contracts that we enter into. In addition,
we have historically sold less power, and consequently earned less income, when
weather conditions are milder. We expect that unusually mild weather in the
future could diminish our results of operations and harm our financial
condition.
Changes in technology may significantly affect our business by making our power
plants less competitive.
A key element of our business model is that generating power at central power
plants achieves economies of scale and produces power at relatively low cost.
There are other technologies that produce power, most notably fuel cells,
microturbines, windmills and photovoltaic (solar) cells. It is possible that
advances in technology will reduce the cost of alternative methods of producing
power to a level that is competitive with that of most central power station
electric production. If this were to happen and if these technologies achieved
economies of scale, our market share could be eroded, and the value of our power
plants could be reduced. Changes in technology could also alter the channels
through which retail electric customers buy power, thereby harming our financial
results.
Changes in commodity prices may increase our cost of producing power or decrease
the amount we receive from selling power, harming our financial performance.
We are heavily exposed to changes in the price and availability of coal because
most of our generating capacity is coal-fired. We have contracts of varying
durations for the supply of coal for most of our existing generation capacity,
but as these contracts end, we may not be able to purchase coal on terms as
favorable as the current contracts.
We also own natural gas-fired facilities, which increases our exposure to the
more volatile market prices of natural gas.
Changes in the cost of coal or natural gas and changes in the relationship
between such costs and the market prices of power will affect our financial
results. Since the price we obtain for power may not change at the same rate as
the change in coal or natural gas costs, we may be unable to pass on the changes
in costs to our customers. In addition, the price we can charge our retail
customers in some jurisdictions are capped and our fuel recovery mechanisms in
other states are frozen for various periods of time.
In addition, actual power prices and fuel costs will differ from those assumed
in financial projections used to initially value our trading and marketing
transactions, and those differences may be material. As a result, our financial
results may be diminished in the future as those transactions are marked to
market.
At times, demand for power could exceed our supply capacity.
We are currently obligated to supply power in parts of eleven states. From time
to time the demand for power required to meet these obligations could exceed our
available generation capacity. If this occurs, we would have to buy power on the
market. We may not always have the ability to pass these costs on to our
customers because some of the states we operate in do not allow us to increase
our rates in response to increased fuel cost charges. Since these situations
most often occur during periods of peak demand, it is possible that the market
price for power at that time would be very high. Even if a supply shortage was
brief, we could suffer substantial losses that could diminish our results of
operations.
Risks Related to Environmental Regulation
Our costs of compliance with environmental laws are significant, and the cost of
compliance with future environmental laws could harm our cash flow and
profitability.
Our operations are subject to extensive federal, state and local environmental
statutes, rules and regulations relating to air quality, water quality, waste
management, natural resources and health and safety. Compliance with these legal
requirements requires us to commit significant capital toward environmental
monitoring, installation of pollution control equipment, emission fees and
permits at all of our facilities. These expenditures have been significant in
the past and we expect that they will increase in the future. Costs of
compliance with environmental regulations could harm our industry, our business
and our results of operations and financial position, especially if emission
and/or discharge limits are tightened, more extensive permitting requirements
are imposed, additional substances become regulated and the number and types of
assets we operate increase. Additionally, in July 2004 attorneys general of
eight states and others sued AEP and other utilities alleging that carbon
dioxide emissions from power generating facilities constitute a public nuisance
under federal common law. The suits seek injunctive relief in the form of
specific emission reduction commitments from the defendants. While we believe
the claims are without merit, the costs associated with reducing carbon dioxide
emissions could harm our business and our results of operations and financial
position.
We anticipate that we will incur considerable capital costs for compliance.
Most of our generating capacity is coal burning. We plan to install new
emissions control equipment and may be required to upgrade existing equipment,
purchase emissions allowances or reduce operations. We estimate that we will
invest approximately $600 million to comply with existing federal and state
regulations designed to limit nitrogen oxide ("NOx") emissions and approximately
$1.2 billion to comply with existing federal and state regulations designed to
limit sulfur dioxide ("SO2") emissions. We estimate that we will invest
approximately $1.7 billion (and an additional $150 million in operation and
maintenance expenses) to comply with currently proposed, but as yet unadopted,
federal regulations designed to limit NOx, SO2 and mercury emissions through
2010, assuming certain contingencies. We would expect significant additional
costs after 2010. All of our estimates are subject to significant uncertainties
about the outcome of several interrelated assumptions and variables, including:
timing of implementation, required levels of reductions, allocation requirements
of the new rules, and our selected compliance alternatives. As a result, we
cannot estimate our compliance costs with certainty, and the actual costs to
comply could differ significantly from the estimates. All of the costs are
incremental to our current investment base and operating cost structure. These
expenditures for pollution control technologies, replacement generation and
associated operating costs should be recoverable from customers through
regulated rates (in regulated jurisdictions) and should be recoverable through
market prices (in deregulated jurisdictions). If not, those costs could
adversely affect future results of operations and cash flows, and possibly
financial condition.
Governmental authorities may assess penalties on us for failures to comply with
environmental laws and regulations.
If we fail to comply with environmental laws and regulations, even if caused by
factors beyond our control, that failure may result in the assessment of civil
or criminal penalties and fines against us. Recent lawsuits by the EPA and
various states filed against us highlight the environmental risks faced by
generating facilities, in general, and coal-fired generating facilities, in
particular.
Since 1999, we have been involved in litigation regarding generating plant
emissions under the Clean Air Act. Federal EPA and a number of states alleged
that we and eleven unaffiliated utilities modified certain units at coal-fired
generating plants in violation of the Clean Air Act. Federal EPA filed
complaints against certain AEP subsidiaries in U.S. District Court for the
Southern District of Ohio. A separate lawsuit initiated by certain special
interest groups was consolidated with the Federal EPA case. The alleged
modification of the generating units occurred over a 20-year period.
If these actions are resolved against us, substantial modifications of our
existing coal-fired power plants would be required. In addition, we could be
required to invest significantly in additional emission control equipment,
accelerate the timing of capital expenditures, pay penalties and/or halt
operations. Moreover, our results of operations and financial position could be
reduced due to the timing of recovery of these investments and the expense of
ongoing litigation.
Other parties have settled similar lawsuits. An unaffiliated utility which
operates certain plants jointly owned by CSPCo reached a tentative agreement to
settle litigation regarding generating plant emissions under the Clean Air Act.
Negotiations are continuing and a settlement could impact the operation of
certain of the jointly owned plants. Until a final settlement is reached, CSPCo
will be unable to determine the settlement's impact on its jointly owned
facilities and its future results of operations and cash flows.
FORWARD-LOOKING STATEMENTS
We have included, in the documents incorporated by reference in this Prospectus,
statements containing "forward-looking information," as defined by the Private
Securities Litigation Reform Act of 1995. We have used the words "anticipate,"
"intend," "may," "expect," "believe," "plan," "will," "estimate," "should" or
other comparable and similar expressions in this Prospectus and in the documents
incorporated by reference to identify such forward-looking statements.
Forward-looking information, by its nature, involves estimates, projections,
goals, forecasts, assumptions, risks and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in a statement
that contains forward-looking information. Any statement containing
forward-looking information speaks only as of the date on which it is made, and,
except to fulfill our obligations under the U.S. securities laws, we undertake
no obligation to update any such statement to reflect events or circumstances
after the date on which it is made. Examples of factors that can affect our
expectations, beliefs, plans, goals, objectives and future financial or other
performance are discussed under the heading "Company Risk Factors." All such
factors are difficult to predict, contain uncertainties that may materially
affect actual results, and may be beyond our control. It is not possible for our
management to predict all of such factors or to assess the effect of each such
factor on our business. New factors emerge from time to time, and may be found
in the future SEC filings incorporated by reference in this Prospectus in the
section captioned "Where You can Find More Information."
DESCRIPTION OF THE PLAN
The following is the Plan for our investors, shareholders and employees, which
became effective July 1, 1997.
Purpose
The purpose of the Plan is to provide you with a convenient and economical way
to purchase shares of our Common Stock and to reinvest all or a portion of your
cash dividends in additional shares of our Common Stock. To the extent such
shares of our Common Stock are purchased from us, we will receive additional
funds needed for the repayment of debt, for additional equity investments in our
subsidiaries and for other corporate purposes.
Administration
EquiServe Trust Company, N.A. ("EquiServe"), a federally chartered trust
institution, as Agent, administers the Plan for you, keeps records, sends
statements of account to you and performs other duties relating to the Plan.
EquiServe, Inc., an affiliate of EquiServe and a transfer agent registered with
the SEC, acts as service agent for EquiServe. The Agent purchases shares of our
Common Stock, either on the open market or directly from us, as agent for you
and credits the shares to your individual accounts.
Eligibility
Any person or legal entity, residing in the United States, whether or not a
shareholder of record of our Common Stock, is eligible to participate in the
Plan. Citizens or residents of a country other than the United States, its
territories and possessions, are eligible to participate if such participation
would not violate laws applicable to the Company or the Participant.
Beneficial owners of our Common Stock are owners whose shares are registered in
names other than their own (for instance, in the name of a broker or bank
nominee). In order to participate in the Plan, such beneficial owners must
become shareholders of record by having shares transferred into their own names.
Beneficial owners may direct their broker/dealers to have some or all of their
shares reregistered into their names. The broker/dealer should be instructed to
move some or all of the shares electronically through the Direct Registration
System from the broker/dealer account to a new book-entry account with the
Agent. Please contact the broker/dealer for more information. Once the shares
are moved from the broker/dealer account to a new book-entry account registered
in the owner's name with the Agent, the individual may then participate in the
Plan.
Enrollment Procedures
Shareholders of Record
If you are a shareholder of record you may become a Participant in the Plan by
enrolling through the Internet by going to the Plan Agent's website,
www.equiserve.com, and following the instructions provided, or by sending a
completed Enrollment Authorization Form to the Agent. The initial investment fee
does not apply to shareholders of record.
Investors
After reading a copy of this Prospectus, investors may apply for enrollment in
the Plan by completing all required sections of the Initial Investment Form and
sending it to the Agent. The Initial Investment Form must be accompanied by
either an Authorization Form for Automatic Deductions of at least $25 per month
for a minimum of 10 months, or an initial cash payment in the form of a check
made payable (in U.S. dollars) to EquiServe. Investors may also apply for
enrollment in the Plan through the Agent's website, www.equiserve.com, and
following the instructions provided. The minimum amount for an initial cash
investment is $250 and the amount cannot exceed $150,000 in a calendar year. A
$10 initial investment fee will be deducted from the initial investment payment.
Do not send cash, money orders, traveler's checks or third party checks. No
interest will be paid on investment amounts held by the Agent pending the
purchase of shares.
If the Plan account will be in more than one name, all potential Participants
must sign the Initial Investment Form. The Agent reserves the right to limit or
combine Plan accounts with identical taxpayer identification numbers and legal
registrations.
Employees
Most full or part-time employees or any of our subsidiaries may apply for
enrollment in the Plan by returning a completed Employee Enrollment Form which
is available from the Shareholder Relations office at 1 Riverside Plaza,
Columbus, Ohio 43215. No enrollment fees will be charged to employees. See also
"Employee Participation."
Enrollment Authorization Form
Three options are shown on the Enrollment Authorization Form. You must place an
"X" in the appropriate box to indicate your investment intent. Options are (1)
full reinvestment of dividends, (2) partial reinvestment of dividends (whereby
the number of shares to receive cash dividends is indicated, and the dividends
on all remaining shares are reinvested), and (3) voluntary cash payments only
(no dividend reinvestment). Under each of these options, you may make voluntary
cash payments at any time. You may change reinvestment levels from time to time
by accessing your Plan account at the Agent's website, www.equiserve.com or by
submitting a revised Enrollment Authorization Form to the Agent.
Reinvestment of Dividends
You may elect full reinvestment, partial reinvestment and partial cash, or full
cash payment of all dividends by completing the Enrollment Authorization Form as
described above. If you choose partial reinvestment, you need to designate on
the Enrollment Authorization Form the number of whole shares to receive cash
dividends. Dividends paid on all of the Participant's other shares in the Plan
will be reinvested.
Once you elect full reinvestment, cash dividends paid on all our Common Stock
registered in your name and/or held in your Plan account will be reinvested in
additional shares of our Common Stock on the dividend payment date (Dividend
Payment Investment Date). If the Participant has specified partial reinvestment,
that portion of such dividend payment not reinvested will be sent to you by
check in the usual manner or directly deposited, if you have elected the direct
deposit option (see "Direct Deposit of Dividends Not Reinvested" below).
Direct Deposit of Dividends Not Reinvested. Through the Plan's direct deposit
feature, you may elect to have any cash dividends not reinvested under the Plan
paid by electronic funds transfer to your predesignated bank account. To receive
such dividends by direct deposit, you must first complete and sign the Direct
Deposit Authorization Form and return the form to the Agent. This form is not
part of the Enrollment Authorization Form and must be specifically requested
from the Agent.
Forms will be processed and will become effective promptly. You may change the
designated account for direct deposit or discontinue this feature by written
instruction to the Agent. If you transfer shares or otherwise establish a new
account, a new Direct Deposit Authorization Form must be completed. If you close
or change a bank account number, a new Direct Deposit Authorization Form must be
completed.
Initial Investments and Voluntary Cash Payments
You may make investments by personal check, one-time online bank debit, or
automatic deduction from a predesignated account. Voluntary cash payments must
be a minimum of $25 and may not exceed $150,000 per calendar year. There is no
obligation to make a voluntary cash payment at any time, and the amount of such
payments may vary.
Investment Dates for Initial Investments and Voluntary Cash Payments
Initial investments and voluntary cash payments received by the Agent will be
invested as soon as practicable; but in any event, such investments will be
invested not later than five business days after they are received by the Agent
(Voluntary Cash Investment Date). In order to be entitled to the next dividend
to be paid, such investments must be received by the Voluntary Cash Investment
Date which is prior to the ex-dividend date. The ex-dividend date is currently
three business days prior to, and including, the record date, which record date
historically has been on or about the 10th of February, May, August and
November.
No interest will be paid on amounts held by the Agent pending investment.
Upon your written or telephone request received by the Agent no later than two
business days prior to the Voluntary Cash Investment Date, a cash payment not
already invested under the Plan will be cancelled or returned to you, as
appropriate. However, no refund of a check will be made until the funds have
been actually received and collected by the Agent. Accordingly, such refunds may
be delayed.
Methods of Payments
Check. Voluntary cash payments may be made by check payable in U.S. dollars to
"EquiServe." Voluntary cash payments must be sent to the Agent together with the
Transaction Form attached to each quarterly account statement or the transaction
advice sent to Participants or with a letter indicating the account number. You
should also indicate the Plan account number on your check. Do not send cash,
traveler's checks, money orders, or third party checks for voluntary cash
payments. Additional Transaction Forms are available upon request from the
Agent.
For initial cash investments, see "Enrollment Procedures -- Investors" above.
One-time Bank Debit. At any time, Participants may make voluntary cash payments
by going to the Agent's website, www.equiserve.com, and authorizing a one-time
online bank debit from an account at U.S. bank or financial institution.
One-time online voluntary cash payment funds will be held by the Plan Agent for
three banking business days before they are invested. You should refer to the
online confirmation for the account debit date and investment date.
Automatic Deduction from an Account. You may make automatic investments of a
specified amount (up to $150,000 per calendar year) through an Automated
Clearing House (ACH) withdrawal from a predesignated account at a U.S. bank or
financial institution. To initiate automatic deductions, you may enroll through
the Agent's website, www.equiserve.com, or, complete and sign an Authorization
Form for Automatic Deductions and return it to the Agent together with a voided
blank check or savings account deposit slip for the account from which funds are
to be drawn. Forms will be processed and will become effective as promptly as
practicable; however, you should allow four to six weeks for your first
investment to be initiated. Once automatic deductions are initiated, funds will
be drawn from your account on either the 1st or 15th of each month, or both (as
chosen by you, or the next business day if either the 1st or the 15th is not a
business day, and will normally be invested within five business days).
Automatic deductions will continue at the level you set until you change your
instructions by notifying the Plan Agent.
You may change or terminate automatic deductions through the Agent's website,
www.equiserve.com or by completing and submitting to the Agent a new
Authorization Form for Automatic Deductions. When you transfer shares or
otherwise establish a new account, an Authorization Form must be completed
unique to that account. If you close or change a bank account number, a new
Authorization Form must be completed. To be effective with respect to a
particular Voluntary Cash Investment Date, however, the new Authorization Form
for Automatic Deductions must be received by the Agent at least six business
days preceding the date the funds will be withdrawn.
There is a fee of $25 for any voluntary cash payment returned unpaid, whether
the investment was made by check or by an attempted automatic withdrawal from
your U.S. bank account. By enrolling in the Plan, you authorize the Agent to
deduct this fee by selling shares from your Plan account. More Common Stock may
be sold than was purchased with the returned deposit due to fluctuations in
market price.
Source and Price of Shares
If shares are purchased for the Plan on the open market, the Agent may, at its
sole discretion, begin purchasing shares no earlier than three business days
prior to any Investment Date and complete purchasing shares no later than 30
days after such date except where beginning at an earlier date is permissible,
or where completion at a later date is necessary or advisable, under applicable
federal regulatory and securities laws. The Agent will use its best efforts to
cause all funds received by it to be applied to the purchase of shares within
the above discussed time period. If such shares are purchased directly from us,
such purchase shall take place on the Investment Date.
For an open market purchase, the purchase price for our Common Stock will be the
average price, excluding brokers' commissions, paid by the Agent for all such
shares purchased on the open market with respect to the Investment Date.
The price of shares of our Common Stock purchased directly from us will be the
average of the daily high and low sales prices of our Common Stock (as published
in The Wall Street Journal report of New York Stock Exchange -- Composite
Transactions) for the period of five trading days ending on the Investment Date.
If both open market purchases and purchases directly from us are made with
respect to any Investment Date, the price of the shares purchased will be the
weighted average of both such prices.
The amount of the investment divided by the price per share will determine the
number of shares credited to your account.
Cost to Participants
An initial investment fee of $10 will be charged to all non-shareholders (except
our employees) who elect to participate in the Plan. Brokerage commissions and
other expenses for shares purchased on the open market will be paid by us. These
commissions will be considered as additional income to you for tax purposes and
will be reported on year-end tax statements. There are no brokerage fees for
shares purchased directly from us. You pay a service fee and brokerage
commissions ($5.00 and approximately 12 cents a share) on shares that are sold
through the Plan at your request.
INDIVIDUAL RETIREMENT ACCOUNT
The Agent offers an Individual Retirement Account (Traditional, Roth or
Coverdell Education Savings Account) that invests in our Common Stock through
the Plan. This account is available for new contributions and for roll-overs.
For more information on this service, including IRA enrollment material and
fees, go to www.equiserve.com or call the agent's IRA Department at
1-800-597-7736.
ACCOUNT MANAGEMENT
Once a Plan account is established, you have several other options available to
manage the account, including transfers, sales and certificate issuance. These
options are detailed below.
Gift/Transfer of Shares
If you wish to transfer the ownership of all or part of your shares held under
the Plan to a Plan account for another person, whether by gift, private sale or
otherwise, you may effect such transfer by mailing a properly completed
Gift/Transfer Form, or an executed stock power, to the Agent. There is no
initial investment fee charged to the recipient. Transfers of less than all of
your shares must be made in whole share amounts. Requests for transfer are
subject to the same requirements as the transfer of our Common Stock
certificates, including the requirement of a medallion signature guarantee on
the stock power or Gift/Transfer Form. Gift/Transfer Forms and Stock Power Forms
are available on the Agent's website, www.equiserve.com and upon request from
the Agent.
Shares so transferred will continue to be held by the Agent under the Plan. An
account will be opened in the name of the recipient, if he or she is not already
a Participant, and such recipient will automatically be enrolled in the Plan. If
the recipient is not already a registered shareholder or a Participant, the
account will be enrolled under the full reinvestment option unless the donor
specifies differently. The recipient may change the reinvestment election after
the gift has been made as described under "Reinvestment of Dividends" above.
If a transfer involving all shares in your account is received after a record
date but before the related dividend payment date, the transfer will be
processed when received, and a cash dividend will be paid to you.
The recipient will receive a statement showing the deposit of shares. Upon your
request, the Agent will also send a non-negotiable gift certificate free of
charge.
Sale of Shares
You may request the Agent to sell any number of whole shares held in your Plan
account by accessing your account through the Internet at the Agent's website,
www.equiserve.com, by completing the transaction form attached to your statement
or by giving detailed written instructions to the Agent. Alternatively, you may
call the Agent at 1-800-328-6955. The Agent will initiate the sale as soon as
practicable after receiving the notification. Sales will be made for your
account on the open market through a securities broker designated by the Agent.
You will receive the proceeds, less applicable service fee and brokerage
commissions ($5.00 and approximately 12 cents per share). Proceeds of shares
sold through the Plan will be paid to you by check.
If instructions for the sale of all shares are received on or after an
ex-dividend date, as set by the NYSE, but before the related dividend payment
date, the sale will be processed as described above and a separate check for the
dividend will be mailed following the dividend payment date. A request to sell
all shares held in your account will be treated as a withdrawal from the Plan.
See "Closing a Plan Account" below.
All sales requests having an anticipated market value of $100,000 or more must
be submitted in written form. In addition, all sale receipts received by the
Agent within 30 days of an address change to your Plan account must be submitted
in written form.
Certificates for Shares
Shares purchased and held under the Plan will be held in safekeeping by the
Agent in your name. The number of shares (including fractional shares) upon
which dividends are reinvested and held for each Participant will be shown on
each quarterly statement of account. You may obtain a new certificate for all or
some of the whole shares of our Common Stock held in your Plan account by
completing the transaction form attached to your statement or upon telephone or
written request to the Agent. You may also request a certificate through the
Agent's website, www.equiserve.com. Any remaining whole or fractional shares
will continue to be held by the Agent. Withdrawal of shares in the form of a
certificate in no way affects dividend reinvestment on those shares (see
"Reinvestment of Dividends" above). When issued, certificates for shares will be
registered in the name in which the Plan account is maintained.
Except as described in "Gift/Transfer of Shares" above, shares of our Common
Stock held by the Agent for your Plan account may not be pledged or assigned. If
you wish to pledge or assign any such shares, you must request that a
certificate for such shares be issued in your name.
Share Safekeeping
At the time of enrollment in the Plan, or at any later time, you may use the
Plan's share safekeeping service to deposit any Common Stock certificates in
your possession with the Agent. Shares deposited will be credited to your
account under the Plan. Thereafter, such shares will be treated in the same
manner as shares purchased through the Plan. If a certificate issuance is later
requested, a new, differently numbered certificate will be issued.
By using the Plan's share safekeeping service, you no longer bear the risk
associated with loss, theft or destruction of our Common Stock certificates.
Also, because shares deposited with the Agent are treated in the same manner as
shares purchased through the Plan, they may be transferred or sold through the
Plan in a convenient and efficient manner (see "Closing a Plan Account" below
and "Sale of Shares" and "Gift/Transfer of Shares" above). There is no charge
for this custodial service.
If you wish to deposit your Common Stock certificates with the Agent, you must
mail your request and your certificates to the Agent. The certificates should
not be endorsed.
Certificates mailed to the Agent should be insured for possible mail loss for 3%
of the market value (minimum of $20.00); this represents your replacement cost
if the certificates are lost in transit to the Agent.
Closing a Plan Account
You may close an account in the Plan at any time by accessing your account
through the Internet at the Agent's website, www.equiserve.com, completing the
information on the transaction form attached to the Plan statement or
transaction advice or by giving telephone or written instructions to the Agent.
Upon withdrawal from the Plan, a certificate for the whole shares held in the
Plan for you will be issued. If you close a Plan account, you will receive a
check for the cash value of any fractional share. Alternatively, you may specify
in the withdrawal notice that all or a portion of whole shares be sold. The
Agent will make the sale as soon as practicable after receipt of the withdrawal
notice, and you will receive a check for the proceeds, less a service fee and
any applicable brokerage commissions. If notice of withdrawal is received on or
after an ex-dividend date but before the related dividend payment date, the
withdrawal will be processed as described above and a separate check for the
dividend will be mailed following the dividend payment date.
No voluntary cash payments may be made after participation in the Plan has been
terminated. In order to initiate participation, you must re-enroll.
If you dispose of all certificated shares of our Common Stock, the dividends on
the shares credited to the your Plan account will continue to be distributed as
elected on the Enrollment Authorization Form until the Agent is notified that
you wish to withdraw from the Plan.
Reports to Participants
You will receive a quarterly statement showing the amount invested, purchase
price, the number of shares purchased, deposited, sold, transferred or
withdrawn, total shares accumulated and other year-to-date information. The
quarterly statement will indicate the shares held by the Agent for you and other
shares registered in your name upon which dividends are reinvested. You are
responsible for retaining these statements in order to establish the cost basis
of shares purchased under the Plan for tax purposes. Duplicate statements for
open accounts will be available from the Agent. However, charges may be assessed
for statements for closed accounts. You may also view year-to-date transaction
activity in your Plan account for the current year, as well as activity in prior
years, by accessing your Plan account through the Internet at the Agent's
website, www.equiserve.com.
You will be sent the same communications sent to all other registered holders of
shares of our Common Stock, including the Company's annual report to
shareholders, a notice of the annual meeting and accompanying proxy statement.
In addition, you will receive an Internal Revenue Service information return for
reporting dividend income received and/or shares sold, if so required.
All notices, statements and reports from the Agent to a Participant will be
addressed to you at the latest address of record with the Agent. Therefore, you
must promptly notify the Agent of any change of address. Failure to do so may
result in escheatment of the account to the state of your last known address, in
accordance with applicable state laws.
FEDERAL INCOME TAX INFORMATION
We believe the following is an accurate summary of the tax consequences of
participation in the Plan as of the date of this Prospectus. This summary may
not reflect every possible situation that could result from participation in the
Plan, and, therefore, you are advised to consult your tax advisor with respect
to the tax consequences (including federal, state, local and other tax laws and
U.S. tax withholding laws) applicable to your particular situation.
Taxable Income and Tax Basis
Reinvested Dividends. In the case of reinvested dividends, when the Agent
acquires shares for your account directly from us, you must include in gross
income a dividend equal to the number of shares purchased with your reinvested
dividends multiplied by the fair market value of our Common Stock on the
relevant dividend payment date. The fair market value is based on 100% of the
average of the high and low market prices on the dividend payment date. Your tax
basis in those shares will also equal the fair market value of the shares on the
relevant dividend payment date.
Alternatively, when the Agent purchases our Common Stock for your account on the
open market with reinvested dividends, you must include in gross income an
amount equal to the cash dividends reinvested plus that portion of any brokerage
commissions paid by us which are attributable to the purchase of your shares.
Your tax basis in Plan shares will be equal to the purchase price plus allocable
brokerage commissions.
Voluntary Cash Payments. In the case of shares purchased on the open market with
voluntary cash payments, shareholders will be in receipt of a dividend to be
included in gross income to the extent of any brokerage commissions paid by us.
Your tax basis in the shares acquired with voluntary cash payments will be the
cost of the shares to the Agent plus an allocable share of any brokerage
commissions paid by us.
The above rules are based on an Internal Revenue Service (IRS) ruling we
obtained with respect to the Plan. These rules may not be applicable to certain
Participants in the Plan, such as tax-exempt entities (e.g., IRA accounts and
pension funds) and foreign shareholders. You should consult your tax advisor
concerning the tax consequences applicable to your situation.
Gain/Loss Recognition. You will not realize any taxable income when a
certificate is received for whole shares credited to the account, either upon
request for such certificates or upon withdrawal from or termination of the
Plan. However, a gain or loss will be recognized by you when whole shares
acquired under the Plan are sold or exchanged -- either by the Agent at your
request when withdrawing from the Plan or by your own action after withdrawal
from or termination of the Plan. You also will recognize gain or loss when
receiving a cash payment for a fractional share credited to your account is sold
upon withdrawal from or termination of the Plan. The amount of the gain or loss
will be the difference between the amount of cash received for the shares or
fractional shares and the tax basis of those shares.
Information Returns
You will receive a Form 1099-DIV at the end of each year, or shortly thereafter,
which provides the amount of dividend income that is reportable to the IRS,
including, where applicable, an amount for brokerage commissions paid on your
behalf, and an adjustment to reflect the difference between fair market value
price and purchase price with respect to shares purchased from us with
reinvested dividends.
A Form 1099-B will be provided if you sold shares through the Plan.
A copy of each information return is also furnished to the IRS.
Withholding Provisions
Federal law requires the Agent to withhold an amount at the current applicable
rates from the amount of dividends and the proceeds of any sale of shares if:
(i) you fail to certify to the Agent that you are not subject to backup
withholding, (ii) that you fail to certify that the taxpayer identification
number provided is correct or (iii) the IRS notifies us that you are subject to
backup withholding. The withheld amounts will be deducted from the amount of
dividends and the remaining amount will be reinvested. The withheld amounts also
will be deducted from the proceeds of any sale of shares and the remaining
amount will be sent to you.
In the case of those foreign shareholders whose dividends are subject to United
States income tax withholding, the amount of tax to be withheld will be deducted
from the amount of dividends and the remaining amount of dividends will be
reinvested. In the case of those foreign shareholders whose sale proceeds are
subject to withholding, the amount of tax to be withheld will be deducted from
the proceeds of the sale of shares.
EMPLOYEE PARTICIPATION
Rights of Employees Under the Plan. Our employees have the same rights under the
Plan, and are governed by the same terms and limitations, as our shareholders,
except that employees (i) may enroll in the Plan to purchase shares with
voluntary cash payments without paying an enrollment fee and (ii) may arrange
with their employers to make such voluntary cash payments through regular
payroll deductions. Voluntary cash payments by employees, including payroll
deductions, have a minimum investment of $5.00 and may not exceed $150,000 per
calendar year.
Enrollment. An employee may enroll in the Plan at any time to purchase shares of
our Common Stock with voluntary cash payments by completing an Employee
Enrollment Form and returning it to the Shareholder Relations Department.
Employee Enrollment Forms and withholding authorization forms may be obtained
from the Human Resources Department or administrator of the employee's company
or by request to the Shareholder Relations Department, American Electric Power
Service Corporation, 1 Riverside Plaza, Columbus, Ohio 43215. If an employee
elects to make voluntary cash payments directly to the Agent and does not
authorize payroll deductions, the Enrollment Form must be accompanied by a check
for the initial payment.
Employees who, as record holders of our Common Stock, are already participating
in the Plan do not need to complete an Employee Enrollment Form; however, they
must complete a withholding authorization form if they wish to make voluntary
cash payments through payroll deductions. Any employee who is or becomes a
holder of record of our Common Stock may obtain from the Agent and execute a
shareholder Enrollment Authorization Form in order to provide for the
reinvestment of cash dividends on those shares.
Payroll Deductions. An employee may authorize the deduction of a specified whole
dollar amount from each month's pay. The minimum monthly deduction is $5. Once
authorized, payroll deductions will continue until changed or terminated by the
employee.
An employee may change the amount of a payroll deduction or terminate payroll
deductions by giving written notice to the employer's Human Resources Department
or administrator. Employees should allow at least 15 days' processing time prior
to the end of the pay period in which the deduction is made for any change or
termination to become effective. Employees may terminate payroll deductions
without withdrawing from the Plan and continue to invest by making voluntary
cash payments directly to the Agent.
Withdrawal From the Plan. In order to withdraw from the Plan,
Employee-Participants must notify the Agent by telephone or in writing of their
intent to withdraw, and employees making voluntary cash payments through payroll
deductions must also notify their employer of such intent to withdraw.
If an Employee-Participant ceases to be employed by an American Electric Power
System company, the Agent will continue dividend distribution as elected for the
account on the shares credited to the Participant's Plan account until the
Participant withdraws from the Plan. Participation in the Plan may continue as
long as there are shares credited to the Participant's Plan account or
registered in the Participant's name.
DESCRIPTION OF COMMON STOCK
The Company's capital stock currently consists of 600,000,000 shares of common
stock, par value $6.50 per share. 395,704,805 shares of our common stock were
issued and outstanding as of October 31, 2004. Our Common Stock is listed on the
New York Stock Exchange. EquiServe is the transfer agent and registrar for our
Common Stock.
Dividend Rights. The holders of our Common Stock are entitled to receive the
dividends declared by our board of directors provided funds are legally
available for such dividends. Our income derives from our Common Stock equity in
the earnings of our subsidiaries. Various financing arrangements, charter
provisions and regulating requirements may impose certain restrictions on the
ability of our subsidiaries to transfer funds to us in the form of cash
dividends, loans or advances.
Stock Split, Stock Dividend or Rights Offering. Any stock dividends or split
shares of our Common Stock distributed by us on shares held by the Agent for
your Plan account or held by you in the form of stock certificates will be added
to your account.
In the events of a rights offering, you will receive rights based upon the total
number of whole shares owned, that is, the total number of shares registered in
your name and the total number of whole shares held in your Plan account.
Rights upon Liquidation. If we are liquidated, holders of our Common Stock will
be entitled to receive pro rata all assets available for distribution to our
shareholders after payment of our liabilities, including liquidation expenses.
Preemptive Rights. The holders of our Common Stock generally do not have the
right to subscribe for or purchase any part of any new or additional issue of
our Common Stock. If, however, our board of directors determines to issue and
sell any Common Stock solely for money and not by (1) a public offering, (2) an
offering to or through underwriters or dealers who have agreed to promptly make
a public offering, or (3) any other offering which the holders of a majority of
our outstanding Common Stock have authorized; then such Common Stock must first
be offered pro rata to our existing shareholders on terms no less favorable than
those offered to persons other than our existing shareholders.
Voting of Plan Shares. The holders of our Common Stock are entitled to one vote
for each share of common stock held. The holders of our Common Stock are
entitled to cumulate their votes when voting for the election of directors. For
each meeting of shareholders, you will receive a proxy for the total number of
whole shares held -- both the shares registered in your name directly and those
credited to your Plan account. Fractions of shares will not be voted. If the
proxy is not returned, or if it is returned unsigned, none of the shares will be
voted unless you vote in person.
Restrictions on Dealing with Existing Shareholders. We are subject to Section
513 of New York's Business Corporation Law, which provides that no domestic
corporation may purchase or agree to purchase more than 10% of its stock from a
shareholder who has held the shares for less than two years at any price that is
higher than the market price unless the transaction is approved by both the
corporation's board of directors and a majority of the votes of all outstanding
shares entitled to vote thereon at a meeting of shareholders, unless the
certificate of incorporation requires a greater percentage or the corporation
offers to purchase shares from all the holders on the same terms. Our
certificate of incorporation does not currently provide for a higher percentage.
OTHER INFORMATION
Limitation of Liability. Neither we nor the Agent (nor any of their respective
agents, representatives, employees, officers, directors or subcontractors) will
be liable in administering the Plan for any act done in good faith or for any
good faith omission to act, including, without limitation, any claim of
liability arising from failure to terminate your account upon your death, or
with respect to the prices or times at which shares are purchased or sold for
you. The foregoing does not represent a waiver of any rights you may have under
applicable securities laws. Neither we nor the Agent can assure a profit or
protect against a loss on shares purchased under the Plan.
Change or Termination of Plan. We reserve the right to modify the Plan
(consistent with any applicable shareholder resolutions and subject to any
requisite authorization or approval by regulatory agencies having jurisdiction),
or to suspend or terminate the Plan, at any time. You will be sent notice of any
such action. Any such modification, suspension or termination will not, of
course, affect previously executed transactions. We also reserve the right to
adopt, and from time to time to change, such administrative rules and
regulations (not inconsistent in substance with the basic provisions of the Plan
then in effect) as it deems desirable or appropriate for the administration of
the Plan. The Agent reserves the right to resign at any time upon reasonable
written notice to us.
USE OF PROCEEDS
We have no basis for estimating precisely either the number of shares of our
Common Stock that ultimately may be sold pursuant to the Plan, or the prices at
which such shares will be sold. However, we propose to use the net proceeds from
the sale of shares of our Common Stock by us pursuant to the Plan, when and as
received, to pay at maturity unsecured debt outstanding at the time, to make,
subject to the receipt of any necessary authorizations from regulatory agencies,
additional investments in our Common Stock equities of our subsidiaries, and for
other corporate purposes.
VALIDITY OF COMMON STOCK
Simpson Thacher & Bartlett LLP, New York, New York, our counsel, will pass upon
the validity of the shares of our Common Stock offered hereby for us.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 2003 have
been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports (which reports express an
unqualified opinion and include explanatory paragraphs concerning the adoption
of new accounting pronouncements in 2002 and 2003), which are incorporated
herein by reference and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Article 7, Sections 721-725 of the New York Business Corporation Law and the
Company's By-Laws provide for indemnification of the Company's directors and
officers in a variety of circumstances, which may include liabilities under the
Securities Act of 1933 (the 1933 Act). In addition, the Company has purchased
insurance, as permitted by Section 726 of the same New York statute, on behalf
of directors, officers, employees or agents, which may cover liabilities under
the 1933 Act.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the SEC such indemnification is against public policy as expressed in the 1933
Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the 1934 Act) and in accordance therewith files reports
and other information with the Securities and Exchange Commission ("SEC"). Such
reports and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The SEC maintains a Website at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including the
Company. Our Common Stock is listed on the New York Stock Exchange, Inc., where
reports, information statements and other information concerning the Company may
also be inspected.
The SEC allows us to "incorporate by reference" the information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is an important
part of this Prospectus and should be read with the same care. Information that
we file later with the SEC will automatically update and supersede that
information.
The following documents filed by the Company with the SEC are incorporated in
this Prospectus by reference:
o The Company's Annual Report on Form 10-K for the year ended December 31, 2003.
o The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 2004.
o The description of our Common Stock contained in its Registration
Statement on Form S-3, File No. 333-105532, filed under the Securities
Act of 1933, as amended, dated May 23, 2003, including any amendment or
report filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior
to the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
We will provide without charge to each person to whom a copy of this Prospectus
has been delivered, upon the written or oral request of any such person, a copy
of any or all of the documents described above which have been incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for copies of such documents should be addressed to Financial
Reporting, American Electric Power Service Corporation, 1 Riverside Plaza,
Columbus, Ohio 43215 (telephone number (614) 716-1000). The information relating
to the Company contained in this Prospectus does not purport to be comprehensive
and should be read together with the information contained in the documents
incorporated by reference.
===============================================================================
FOR ASSISTANCE CONCERNING THE PLAN ...
Correspondence concerning the Plan:
EquiServe Trust Company, N.A.
AEP Dividend Reinvestment Plan
P. O. Box 43081 Providence, Rhode Island 02940-3081
Voluntary cash investments of checks should be mailed to the address listed on
your Plan Statement:
Be sure to reference American Electric Power Co., Inc. and your account number
if applicable, in all correspondence.
Telephone:
EquiServe Trust Company, N.A.: 1-800-328-6955. An automated phone system is
available 24 hours a day, 7 days a week. Customer service representatives are
available from 9:00 a.m. to 5:00 p.m. Eastern time each business day.
Non-shareholder requests for information about the Plan:
1-866-238-5345 24 hours a day, 7 days a week.
For IRA information: 1-800-597-7736
TDD: 1-800-952-9245 Telecommunications Device for the hearing impaired.
Foreign Language Translation Service for more than **140** foreign languages
is available.
Internet: Messages forwarded on the Internet will be responded to promptly.
EquiServe Trust Company, N.A. is "http://www.equiserve.com".
The Company's Internet address is "http://www.aep.com".
If you wish to contact the Company directly, you may write to:
American Electric Power Company, Inc.
Shareholder Relations Department
1 Riverside Plaza
Columbus, Ohio 43215.
The telephone number is 1-800-AEPCOMP (1-800-237-2667)
===============================================================================
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
Securities and Exchange Commission Filing Fees $86,891
Printing Registration Statement, Prospectus, etc. 33,000
Independent Auditors' Fees 10,000
Legal Fees and Expenses 33,000
Listing Fees of New York Stock Exchange 2,500
Blue Sky Fees and Expenses 1,000
Miscellaneous Expenses 10,000
------
Total $176,391
* Estimated, except for filing fees.
Item 15. Indemnification of Directors and Officers.
The New York Business Corporation Law ("BCL"), Article 7, Sections
721-726 provide for the indemnification and advancement of expenses to officers
and directors. Section 721 provides that indemnification and advancement
pursuant to the BCL are not exclusive of any other rights an officer or director
may be entitled to, provided that no indemnification may be made to or on behalf
of any director or officer if a judgment or other final adjudication adverse to
the director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that the director personally gained a
financial profit or other advantage to which he or she was not legally entitled.
Section 722 of the BCL provides that a corporation may indemnify an
officer or director, in the case of third party actions, against judgments,
fines, amounts paid in settlement and reasonable expenses and, in the case of
derivative actions, against amounts paid in settlement and reasonable expenses,
provided that the director or officer acted in good faith, for a purpose which
he or she reasonably believed to be in the best interests of the corporation
and, in the case of criminal actions, had no reasonable cause to believe his
conduct was unlawful. In addition, statutory indemnification may not be provided
in derivative actions (i) which are settled or otherwise disposed of or (ii) in
which the director or officer is adjudged liable to the corporation, unless and
only to the extent a court determines that the person is fairly and reasonably
entitled to indemnity.
Section 723 of the BCL provides that statutory indemnification is
mandatory where the director or officer has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or proceeding. Section
723 also provides that expenses of defending a civil or criminal action or
proceeding may be advanced by the corporation upon receipt of an undertaking to
repay them if and to the extent the recipient is ultimately found not to be
entitled to indemnification. Section 725 provides for repayment of such expenses
when the recipient is ultimately found not to be entitled to indemnification.
Section 726 provides that a corporation may obtain indemnification insurance
indemnifying itself and its directors and officers.
II-1
Section 402(b) of the BCL provides that a corporation may include in its
certificate of incorporation a provision limiting or eliminating, with certain
exceptions, the personal liability of directors to a corporation or its
shareholders for damages for any breach of duty in such capacity. The
certificate of incorporation of the registrant contains provisions eliminating
the personal liability of directors to the extent permitted by New York law. The
bylaws of the registrant provide for the indemnification of directors and
officers of the registrant to the full extent permitted by law.
The above is a general summary of certain provisions of the registrant's
bylaws and the BCL and is subject in all respects to the specific and detailed
provisions of the registrant's bylaws and the BCL.
Item 16. Exhibits.
Reference is made to the information contained in the Exhibit Index
filed as part of this Registration Statement.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) of the Securities Act of 1933
if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that (i) and (ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
II-2
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering thereof at that time shall be deemed to be the initial bona fide
offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the laws of the State of New York, the
registrant's bylaws, or otherwise, the registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
said Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in said Act and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Columbus and State of Ohio, on the 20th day of
December, 2004.
AMERICAN ELECTRIC POWER COMPANY, INC.
/s/ Michael G. Morris
Michael G. Morris
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
(i) Principal Executive Officer:
Chairman of the Board and
/s/ Michael G. Morris Chief Executive Officer December 20, 2004
---------------------
Michael G. Morris
(ii) Principal Financial Officer:
Executive Vice President and
/s/ Susan Tomasky Chief Financial Officer December 20, 2004
-----------------
Susan Tomasky
(iii) Principal Accounting Officer:
/s/ J. M. Buonaiuto Controller December 20, 2004
-------------------
J. M. Buonaiuto
(iv) A Majority of the Directors:
*E. R. Brooks *Lester A. Hudson, Jr.
*Donald M. Carlton *Leonard J. Kujawa
*John P. DesBarres *Richard L. Sandor
*Robert W. Fri *Donald G. Smith
*William R. Howell *Kathryn D. Sullivan
December 20, 2004
*By: /s/ Susan Tomasky
Susan Tomasky, Attorney-in-Fact
II-4
EXHIBIT INDEX
The following exhibits are filed herewith:
Exhibit
No. Description
**3(a) Restated Certificate of Incorporation [File No. 1-3525, Exhibit 3(a)]
**3(b) Bylaws, as amended January 28, 1998 [File No. 1-3525, Exhibit 3(d)]
*5 Opinion of Simpson Thacher & Bartlett LLP
*23(a) Consent of Deloitte & Touche LLP
23(b) Consent of Simpson Thacher & Bartlett LLP (included in Exhibit 5
filed herewith)
*24 Powers of Attorney and resolutions of the Board of Directors
of the Company
* Filed herewith
**Incorporated by reference herein as indicated