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At AEP, we believe sustainability is a key business strategy and opportunity. Incorporating sustainability throughout our business enhances our ability to deliver profits to shareholders, meet our obligations to lenders, and fulfills our environmental and social commitments. Improving our environmental and social performance, in turn, contributes to our financial well-being. We have governance and management systems in place that embed sustainability in our operations, integrate sustainability with risk management, and promote sustainable practices within our business, and to our customers, shareholders and the public. AEP is undergoing major changes in its business operations, but the actions we have taken during the past several years position us well for future success.

Comparison of 5-year cumulative total return

Our balance sheet is the strongest it has been in many years. We believe investments in our regulated businesses will support annual earnings growth of 4 percent to 6 percent on average. This growth, coupled with our stable and attractive dividend and combined with our business strategy and fiscal discipline, positions an investment in AEP as a 9 percent to 10 percent total return proposition.

Many of our challenges are related to compliance with new environmental regulations that deal with burning coal and to Ohio’s shift to market-based generation. However, we are more than a coal-dependent utility, and our identity extends well beyond Ohio’s borders. We are a diverse, regulated utility that operates in 11 states, each with very different needs, rate structures and utility commissions. The diversity of our companies, from weather variations to types of rate recovery frameworks, helps maintain stable returns on equity for the AEP system. This is critical to having the cash flow necessary to reinvest in the company and earn reasonable returns for our shareholders. It also ensures we can meet our environmental and social commitments.

Our challenge is to manage our financial performance in a regulatory environment with so many diverse jurisdictions. We have reduced costs and will continue to do so while being disciplined in our capital and operations and maintenance (O&M) spending. We have efficiently invested capital in our regulated utilities, resulting in higher earnings. Our cash flow and liquidity are stable; we replaced and upsized one of our credit facilities in 2011 and extended the maturity of another.

Competition among AEP’s operating companies for capital investment is increasingly intense. Environmental compliance and transmission will be claiming an ever-larger share of the capital pie, and this leaves areas such as operations and new business development vying for a smaller pool of dollars.

A new Investment Review Committee consisting of the chief operating officer and chief financial officer meets regularly with the operating company presidents to discuss their spending and regulatory plans and the health of their balance sheets. This committee will work with the companies to develop short- and long-term plans that address operational and compliance needs as well as their ability to gain regulatory support and grow earnings. We believe the operating company model is the basis of the financial strength of our company because it gives us line of sight from the customer and regulator to the shareholder.

Because AEP’s credit ratings are investment-grade (BBB from Standard & Poor’s and Fitch Ratings, Baa2 from Moody’s Investors Service), we expect to continue to access the debt capital  markets at a reasonable cost. Maintaining these ratings requires strict attention to spending decisions and a stable outlook in the state regulatory jurisdictions we serve.

Dividend historyWe rewarded our shareholders in the fourth quarter of 2011 with a dividend increase of 2.2 percent. This closely followed two dividend increases in 2010 that totaled 12 percent. AEP was among the stable, regulated, dividend-paying utilities with strong balance sheets that were rewarded by the market during 2011. AEP shareholders received a return of nearly 21 percent on their investment for the year, including dividends, slightly exceeding the total composite return of our peer companies and far outperforming the broader market. 

AEP has paid dividends for more than a century, a testament to the historic commitment of AEP management and the board of directors to rewarding shareholders for their investment. Very few American corporations can claim such a record.

  • For more data, please see Economic (EC) section of AEP’s Global Reporting Initiative G3 questionnaire.

Operating organizational Governance