COLUMBUS, Ohio, Oct. 29, 2002 — American Electric Power (AEP) reported 2002 third-quarter ongoing earnings of $409 million, or $1.21 per share, down from $459 million, or $1.43 per share in third-quarter 2001.
“The ongoing earnings for the third quarter were better than the $1.05 per share that we had anticipated because of stronger wholesale and retail sales due to favorable weather, and improved margins due to lower-than-anticipated fuel costs,” said E. Linn Draper Jr., AEP’s chairman, president and chief executive officer. “We still expect earnings for 2002 will be between $2.85 and $3.15 per share.”
Sales from AEP’s regulated integrated utilities and wholesale sales from the company’s power plants showed strong increases in earnings when compared with the same period last year. But lower earnings from energy trading and a loss from power generation in the United Kingdom offset the positives and led to the decline in earnings from last year’s third quarter. The earnings per share comparison was also affected by an increase in the number of shares outstanding for 2002.
“Our business portfolio includes a fairly predictable stream of earnings from traditional utility and marketing operations: our regulated integrated utilities, our unregulated generation under contract in Ohio and Texas, wholesale sales of power from our plants, transmission, and our unbundled distribution system in unregulated states,” Draper said. “This fundamental strength of our company is often overlooked, but it provides liquidity and stability of earnings.”
Earnings from system sales, the sale of wholesale power from AEP’s plants, improved significantly over the same period last year because of higher margins. Lower fuel costs and favorable weather brought improved earnings from the regulated integrated utilities, although increased operating expenses over the prior period offset the increase in gross margins. Earnings from natural gas trading, while positive for the quarter, were lower when compared to the same period last year and were the primary reason for the significant reduction in earnings from energy trading.
“We have announced a significant downsizing of our trading operation in the U.S. and Europe to focus only on managing the value of our own assets,” Draper said. “Simply put, we will be involved in wholesale markets where we own assets – primarily the power markets in the Midwest, Texas and England, and gas markets in the Gulf Coast.
“We’ve seen a significant drop in volumes since Oct. 10 when we announced plans to reduce our exposure to speculative trading,” Draper said. “We are flattening our positions in an orderly way and not liquidating positions just to get out. We have reduced our risk limits, reduced our value at risk by 50 percent and expect a reduction in overheads as we transform the existing organization to manage risk around our assets in the regions we serve.”
Memco, AEP Coal and AEP’s two power plants in the United Kingdom – Fiddler’s Ferry and Ferrybridge – were acquired after the third quarter last year.
“We are very disappointed with the performance of our UK generation,” Draper said. “The generation has been cash flow positive, but market conditions in the UK have been terrible and power prices continue to be depressed. We expect the UK plants to be profitable in the fourth quarter when electricity demand picks up in England and margins typically improve.”
Earnings from SEEBOARD and CSW International’s sale of its Altamira plant in the prior period were significant contributors in the period-to-period variance.
“Our other investments continue to be a drag on earnings,” Draper said. “We’ve dramatically reduced operations of our communications business, but it continues to show losses. Even in today’s market environment, where communications assets have few buyers, we are evaluating options for exiting this business.”
American Electric Power, an energy company with a balanced portfolio of energy assets, owns and operates more than 42,000 megawatts of generating capacity in the United States and select international markets and is the largest electricity generator in the U.S. AEP is a leading wholesale marketer of energy commodities, utilizing its energy expertise and risk management skills to make optimal use of its generation, natural gas pipeline systems, natural gas storage, coal mines and inland barge fleet. AEP is also one of the largest electric utilities in the United States, with almost 5 million customers linked to AEP’s 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.
More information is at www.aep.com.