AEPCO Form 8-K, Item 7.01
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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Date
of report (Date
of earliest event reported)
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October
20, 2006
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AMERICAN
ELECTRIC POWER COMPANY,
INC.
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(Exact
Name of Registrant as Specified in Its Charter)
(State
or
Other Jurisdiction of Incorporation)
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1-3525
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13-4922640
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(Commission
File Number)
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(IRS
Employer Identification No.)
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1
Riverside Plaza, Columbus, OH
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43215
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(Registrant’s
Telephone Number, Including Area Code)
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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[
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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[
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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[
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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ITEM
7.01
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REGULATION
FD DISCLOSURE
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In
connection with the preparation of financial statements of American Electric
Power Company, Inc. (“AEP”) required to be included in the third quarter
Quarterly Report on Form 10-Q, Appalachian Power Company (“APCo”) wrote off a
regulatory asset relating to developments previously disclosed in Note 3, RATE
MATTERS, to the financial statements of AEP and APCo under “APCo Virginia
Environmental and Reliability Costs” in the Quarterly Report on Form 10-Q for
the period ended June 30, 2006 (“Note 3”). This write-off was reflected in the
preannouncement of AEP’s third quarter earnings released in the Current Report
on Form 8-K issued October 10, 2006 which stated that AEP expects
third-quarter 2006 earnings, prepared in accordance with Generally Accepted
Accounting Principles (GAAP), of approximately $0.67 per share and third-quarter
2006 ongoing earnings (earnings excluding special items) of approximately $0.99
per share. AEP reaffirms its prior guidance of ongoing earnings of $2.65 to
$2.80 per share for 2006. AEP’s management believes that AEP’s ongoing earnings,
or GAAP earnings adjusted for certain items, provide a more meaningful
representation of AEP’s performance. AEP uses ongoing earnings as the primary
performance measurement when communicating with analysts and investors regarding
its earnings outlook and results. AEP also uses ongoing earnings data internally
to measure performance against budget and to report to AEP’s board of
directors.
As
described in Note 3, the Virginia
Electric Restructuring Act (the “Statute”) includes a provision that permits
recovery of incremental environmental compliance and transmission and
distribution system reliability (“E&R”) costs prudently incurred on and
after July 1, 2004. In 2005, APCo filed a request with the Virginia State
Corporation Commission (the “Commission”) and updated it through supplemental
testimony seeking recovery of $21 million of incremental E&R costs incurred
from July 2004 through September 2005. Through August 31, 2006, APCo deferred
as
a regulatory asset $47 million of incremental E&R costs incurred since July
1, 2004 based on a legal opinion that such costs were probable of recovery
under
the law.
In
January 2006, the Commission staff proposed that APCo be allowed to increase
its
electric rates at an ongoing level of $20 million to recover current, rather
than past, incremental E&R costs. The staff proposal would effectively
disallow the recovery of costs incurred prior to the authorization and
implementation of new rates, including all incremental E&R costs that were
deferred as a regulatory asset. At the E&R hearings, which concluded in
March 2006, the staff amended its testimony to recommend a $24 million increase
in APCo’s ongoing rates. In September 2006, the Hearing Examiner issued a report
recommending adoption of the staff proposal with minor modifications, which
would result in (a) an on-going level of E&R cost recovery of $29 million
only if the Commission decides that any rate increase from the base rate case
(a
separate proceeding) does not include the $29 million ongoing level of E&R
costs, and (b) the disallowance of all previously deferred incremental E&R
costs. In the third quarter of 2006, APCo concluded that the Commission might
not grant recovery of actual incremental E&R costs incurred during the
period from July 2004 through September 30, 2006. Accordingly, APCo wrote off
all of the E&R regulatory asset, adversely affecting pretax earnings by $36
million, net of the reinstatement of related allowance for funds used during
construction and interest capitalized. APCo believes that the staff’s proposal
and the Hearing Examiner’s recommendation are contrary to the Statute. The
Commission’s final order in this proceeding is pending.
If
the
Commission properly implements the Statute as interpreted in its October 2005
order and as supported by the Virginia Attorney General’s office, APCo should be
able to recover all of the incremental E&R costs prudently incurred since
July 1, 2004. If the Commission adopts the Hearing Examiner's findings, based
on
advice of counsel, APCo will appeal the decision vigorously.
This
report made by AEP contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. Although AEP believes that
its expectations are based on reasonable assumptions, any such statements may
be
influenced by factors that could cause actual outcomes and results to be
materially different from those projected. Among the factors that could cause
actual results to differ materially from those in the forward-looking statements
are: electric load and customer growth; weather conditions, including storms;
available sources and costs of, and transportation for, fuels and the
creditworthiness of fuel suppliers and transporters; availability of generating
capacity and the performance of AEP’s generating plants; the ability to recover
regulatory assets and stranded costs in connection with deregulation; the
ability to build or acquire generating capacity when needed at acceptable prices
and terms and to recover those costs through applicable rate cases or
competitive rates; the ability to recover increases in fuel and other energy
costs through regulated or competitive electric rates; new legislation,
litigation and government regulation including requirements for reduced
emissions of sulfur, nitrogen, mercury, carbon and other substances; timing
and
resolution of pending and future rate cases, negotiations and other regulatory
decisions (including rate or other recovery for new investments, transmission
service and environmental compliance);resolution of litigation (including
pending Clean Air Act enforcement actions and disputes arising from the
bankruptcy of Enron Corp. and related matters); AEP's ability to constrain
its
operation and maintenance costs; AEP's ability to sell assets at acceptable
prices and on other acceptable terms, including rights to share in earnings
derived from the assets subsequent to their sale; the economic climate and
growth in AEP's service territory and changes in market demand and demographic
patterns; inflationary and interest rate trends; AEP's ability to develop and
execute a strategy based on a view regarding prices of electricity, natural
gas,
and other energy-related commodities; changes in the creditworthiness of the
counterparties with whom AEP has contractual arrangements, including
participants in the energy trading market; changes in the financial markets,
particularly those affecting the availability of capital and AEP's ability
to
refinance existing debt at attractive rates; actions of rating agencies,
including changes in the ratings of debt; volatility and changes in markets
for
electricity, natural gas, and other energy-related commodities; changes in
utility regulation, including implementation of EPACT and membership in and
integration into regional transmission structures; accounting pronouncements
periodically issued by accounting standard-setting bodies; the performance
of
AEP's pension and other postretirement benefit plans; prices for power that
AEP
generates and sells at wholesale; changes in technology, particularly with
respect to new, developing or alternative sources of generation, and other
risks
and unforeseen events, including wars, the effects of terrorism (including
increased security costs), embargoes and other catastrophic events.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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AMERICAN
ELECTRIC POWER COMPANY, INC.
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By:
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/s/
Thomas G. Berkemeyer
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Name:
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Thomas
G. Berkemeyer
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October
20, 2006