COLUMBUS, Ohio, May 27, 2004 – American Electric Power (NYSE: AEP) subsidiary AEP Texas Central Co. (TCC) today submitted the company’s true-up filing to the Public Utility Commission of Texas (PUCT) for a final determination of stranded costs and other true-up amounts as required by the Texas Electric Choice Act of 1999.
TCC is seeking approval of true-up balances of approximately $2 billion in stranded costs and associated carrying costs since the start of retail choice in 2002 and approximately $400 million in other true-up amounts including carrying costs. Stranded costs are the difference between the book value and actual market value of generation assets.
| Texas Central Company True-up Balance
|TCC stranded costs and carrying costs*
|Other true-up amounts
| Capacity auction true-up including carrying costs
|$ 654 million
| Retail clawback
|$ (61) million
| Fuel over-recovery balance
|$ (177) million
|Total TCC true-up balance
*carrying costs through September 2005
“We’re pleased to be able to quickly move forward after completing the sale of our share of South Texas Project with the final step in our transition from regulation to deregulation in Texas. We worked very closely with the advisors and legal counsel for the PUCT throughout the process of selling all of our TCC generation to determine its market value, and we appreciate their assistance and guidance,” said Michael G. Morris, AEP’s chairman, president and chief executive officer. “We believe that we received fair prices for these assets in the current marketplace and are entering the true-up proceedings with an accurate assessment of our stranded costs and other true-up amounts as provided in the statute.”
AEP offered for sale 4,497 megawatts of TCC generating assets through a competitive bid process that was overseen by the PUCT to determine its market value for calculating stranded costs. The TCC generation assets had a net book value of $1.9 billion and the assets sold for approximately $800 million. Credit Suisse First Boston advised AEP in the sale process. Navigant Consulting Inc., an independent consultant retained by the PUCT, participated in the process on behalf of the PUCT. Legal counsel was provided to Navigant and the PUCT by Brown Rudnick.
TCC has closed the sale of 4,443 MW of the TCC generation including its share of the South Texas Project nuclear plant, eight natural gas plants, one coal-fired plant and one hydro plant. The company continues to work toward completing sale of TCC’s 7.8-percent share of Oklaunion Plant, and received PUCT approval to proceed with its true-up filing while the Oklaunion sale moves toward closing.
When the true-up proceedings are complete and the stranded costs and other true-up amounts are approved by the PUCT, TCC will seek to recover these amounts through securitization or through a competition transition charge added to TCC’s regulated transmission and distribution rates.
Currently, Texas restructuring legislation permits the PUCT to authorize the issuance of low-interest securitization revenue bonds to recover the stranded cost component of the true-up balance and help minimize the overall cost to customers. Legislation being considered by the Texas Legislature would further reduce overall customer costs by allowing the PUCT to authorize issuance of securitization revenue bonds for the total true-up balance.
Principal and interest on the securitization revenue bonds would be recovered over approximately 15 years through a non-bypassable transition charge in TCC’s regulated transmission and distribution rates. AEP will use the proceeds from the bonds to reduce TCC capitalization.
If the PUCT approves TCC’s true-up balance as submitted and TCC securitizes the entire true-up balance at current interest rates, the monthly non-bypassable transition charge applied to TCC’s transmission and distribution rates charged to retail electric providers (REPs) is estimated to be approximately $9.12 for the average residential customer using 1,183 kilowatt-hours per month. The impact on retail customer bills will be determined by how much of the increase is passed on to customers by the REPs.
“Although we understand that no one likes to see increases in their monthly bills, the Texas Legislature, in passing the Electric Choice Act of 1999, found it fair and appropriate to allow utilities to recover previously approved investments in power plants built to meet their obligation to provide electric service to customers. These investments would have been recovered through regulated rates had the industry not been deregulated,” said Charles R. Patton, AEP Texas president and chief operating officer.
“To provide the fairest calculation of our stranded costs, we chose to sell our TCC plants because we believed it would provide the most accurate market valuation possible. In fact, we were able to sell TCC’s non-nuclear generation for approximately $61 million more than its book value. The additional proceeds from those sales help reduce the remaining amount of TCC stranded costs,” Patton said.
“Securitization, or refinancing, of the true-up balance through the sale of transition bonds will help minimize the impact on customers,” Patton said. “Customers will pay less for the eventual recovery of these costs than if the assets had continued to be regulated because of the lower interest rates available on the securitization bonds.”
Since restructuring legislation provides for a PUCT decision in the TCC true-up within 150 days after filing, a final order in the TCC true-up is expected in the fourth quarter of 2005. After a final order is issued, TCC must file within 60 days for recovery of the approved true-up balance through its regulated transmission and distribution rates. TCC will subsequently seek to securitize the true-up balance. Customers could expect to see charges for recovery of true-up balances reflected in their bills in mid-2006.
A general explanation of the Texas true-up process and a copy of testimony related to the true-up filing is available on the AEP website at http://www.aep.com/go/TrueUp.
American Electric Power owns more than 36,000 megawatts of generating capacity in the United States and is the nation´s largest electricity generator. AEP is also one of the largest electric utilities in the United States, with more than 5 million customers linked to AEP’s 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.
This report made by AEP and certain of its subsidiaries contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its registrant subsidiaries believe that their 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 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); oversight and/or investigation of the energy sector or its participants; resolution of litigation (including pending Clean Air Act enforcement actions and disputes arising from the bankruptcy of Enron Corp.); 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 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 and number of 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 membership 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 and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.
Manager, Corporate Media Relations