American Electric Power Reports 'Typical' Second Quarter for 2013, but Sees Better Conditions Ahead

---

Researched by Industrial Info Resources (Sugar Land, Texas)--American Electric Power (NYSE:AEP) (AEP) (Columbus, Ohio), one of the largest electric utilities in the U.S., reported modest overall results in the second quarter of 2012, as demand only slightly dipped and maintenance and outages proved costlier than the same period last year. Net earnings were reported to be $338 million, a 6.63% decrease from the second quarter of 2012.

Total revenues stood at $3.58 billion, an increase of less than 1% from the same period last year. AEP saw a slight decline in commercial demand during the quarter, while residential demand remained essentially flat. Weaker industrial demand resulted in a load decline in some areas, but did not have a major impact on earnings. AEP also incurred higher operations and maintenance expenses related to storms and plant outages, while weather conditions generally were more detrimental than in the second quarter of 2012. The company also saw a negative impact on earnings following the Public Utilities Commission of Ohio's decision to support full competition in the electric power industry.

During the quarter, AEP incurred at $154 million, pretax impairment charge related to the anticipated retirement of Muskingum River Plant Unit 5 in 2015. This was offset partly by an $80 million windfall profits tax credit in the U.K. (In May, the U.S. Supreme Court ruled that utility companies that paid a windfall tax in the U.K. can claim a foreign tax credit on their U.S. tax returns.)

Capital expenditures were reported to be $794 million for the second quarter and $1.64 billion for 2013 to date. For the first half of 2012, capital expenditures stood at $1.37 billion.

Coal-fired plants account for two-thirds of AEP's generating capacity, while natural gas/oil represents about 22% and nuclear represents 6%.

Industrial Info is tracking more than $4.8 billion in active projects involving AEP, including the $1.7 billion, six-year life-cycle management project at the Donald C. Cook Nuclear Power Station in Bridgman, Michigan. The project seeks to sustain the 20-year life operating license for two 1,077-megawatt (MW) Westinghouse pressurized water reactors, each 14.6 million pounds per hour, and General Electric turbine generators by modernizing and upgrading instrumentation and control systems, four transformers and four auxiliary transformers; replacing the Unit 1 containment spray heat exchanger; replacing the main control room annunciator system for units 1 and 2; replacing the Unit 2 LP/HP feedwater heater and LP/HP steam turbine with a newer model that will add 50 to 62 MW; and replacing the Unit 2 control room ventilation chiller.

"Too many times, we equate only load growth with earnings expectations," said Nick Atkins, the president and chief executive officer of AEP, in a conference call. "While that equation may still be partially true, our business has changed. It is more about optimization, performance improvement, and disciplined capital and operating expense management that is driven by culture of optimism and expectation that we can get the job done--and we will."

AEP executives expect the company to maintain operations and maintenance expenses, net of offsets, roughly at the same level as last year. AEP is expected to continue incurring depreciation expenses from the Muskingum impairment. The harvesting and river conditions are forecasted to be more favorable than those in 2012.

"Overall, the second quarter has been a typical second quarter: weather-dependant, load-dependant," Atkins said in the conference call. "But the third and fourth quarters are where AEP certainly sees the benefits not only of the timing related to [operations and maintenance], but also, from an earnings standpoint, what occurs during the rest of the year during the hot season and the cold season."

For more information, visit Industrial Info's North American Power Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.