美國電力 (AEP) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by approximately welcome to the fourth quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to test turn the conference over to your host, Ms. Julie Sloat.

Thanks, Greg. Good morning and thank you for joining us today to discuss AEP's 4th quarter and 12 month year-to-date earnings. I expect that you've seen the press release issued earlier today. It's also available on our web page at AEP.com. In addition to the financial schedules included in the press release package, the webcast of this call will include visuals of charts and graphics referred to by AEP management during the call. An investor information packet will also be available at AEP.com today at approximately 10:00 a.m. That will include the consolidated balance sheet and statement of cash flows, as well as the full income statements for our business segments. The earnings release and other matters that may be discussed on the call today contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to the SEC filings, including the most recent annual reports on form 10-K and quarter reports Form 10-Q for a discussion of factors that may cause results to differ from management projections, forecasts, estimates and expectations. Also we will discuss the measures about company performance. That is ongoing earnings versus reported earning that differ from those recognized by Generally Accepted Accounting Principles or GAAP. You can find a reconciliation of these non-GAAP measures on our investor relations website at AEP.com. I'll now turn the proceedings over to Mike Morris, Chairman, President and CEO of the company to lead an opening presentation, and then there will be time for questions. Mike?

Thanks a lot, Julie, and thanks to all of you for joining us. 2006 has been -- in fact was an excellent year for American Electric Power American Electric by almost any measure. For a company that's 100 years old we're pretty proud of what we are able to accomplish at that advanced age. Let me try to take you through some of those highlights in a somewhat segmented fashion, talk a bit about 2007, and then turn for much more technical and deep dive detail over to Holly Koeppel.

The total shareholder return in 2006 was 18.8%, which we feel was extremely good performance. Not as good as some, but surely a very solid performance for a utility that's very much trying to refocus itself on the regulated model. As you know, we had a 5.4% increase in the dividend to $0.39 per quarter per share. And of course we had solid earnings of $2.77 a share, which is reflective of our mid-year up ward adjust independent our guidance range that we started the year out with. Our credit adjusted view of the balance sheet leaves us with what we think is the best position that we've been in at least five years or more. So financially, I think 2006 was very solid year for the shareholders of American electric power company.

Regulatorily, which as you know is extremely important for a company with the dedicated assets and the plan that we intend to execute over the next few years, was equally constructive in 2006. As you know, we had what we consider to be an extremely rewarding year, receiving rate adjustments on the order of $450-plus million dollars from what was an early year forecast of some $500 million. By any measure, extremely successful in the regulatory front, which tells us that the operating company model that we put in place in 2004 continues to yield the benefits that we expected it to do. We had significant progress in reducing the regulatory lag in many of our jurisdictions, so that there are riders and trackers and other means which allow for much more current recovery of dollars as spent, either capital or ROM. Examples include Kentucky, West Virginia, Virginia, Oklahoma, and we continue to work in many other jurisdictions to accomplish the same. I don't think there's any question that the work that our finance team did on the Texas securitization ranks among maybe the best and clearly, according to commissioner Smitherman, the singularly best Texas securitization process in that great state, and we're proud of our team and what was accomplished there. Not only in the process but in the amount of dollars that were allowed to be securitized versus those that we sought for securitization. As you know that whole story isn't yet over with, because there are a couple of very important appeals that have been taken that may yield even better benefits for our shareholders, and ultimately our customers as we go forward.

Clearly the Ohio Public Utility Commission approving the very first phase of the the integrated gas combined cycle early in the 2006 timeline was very important. As you know, that is on appeal. We think it's very important that that appeal run its course with the Supreme Court here in Ohio. We expect that to happen sometime hopefully by mid-year if not before in 2007, which we think will give us the green light to continue to move forward on not only an AEP Ohio Power Columbus Southern important project, but quite honestly on a U.S. and worldwide important project. Clearly we had solid FERC administrative law judge order -- or opinion, I should say - on a rate and design issue that is so important to the entire process across the country for rate allocation and rate recovery of an interstate transmission grid.

On the negative side, a couple of outliers. Unfortunately the Indiana commission did not see the logic behind changing the depreciation rate, simply because they would much rather have a total rate review, and we continue to work with them, but to say that we were disappointed in that would be an understatement. And lastly of course we had what we consider to be a disappointing administrative law judge opinion as it pertains to the SEC A case.

Operationally again 2006 was a very good year on the distribution side we reduced our customer outage duration time to 126 minutes. I know that might sound like a long time for the lights to be out, but when you think of the breadth and the depth of our service territory, that is considerable progress. Just a as recent as a few years ago, that number was in in the 150-minute range. We really invested millions of dollars in extending our distribution grid to serve new customers throughout all of the 11 state service territory. And of course that will yield solid earnings for us as we go forward to serve those customers and process that through the regulatory undertakings that are well under way and we'll talk to in a minute. We completed two of the most cost effect serve time efficient environmental interties and retrofits on our Mitchell and Mountaineer station Mitchell is back on-line, Mountaineer will be shortly.

We are really quite pleased with the results we see from Mike [Renshak] and his team in that undertaking, and as you know that will allow us to continue to produce very cost effective environmentally responsible megawatt hours to be put to use for our retail customers and our offsystem sales mark as well. We are moving very successfully toward the completion of a couple of other environmental retrofit projects at the Amos station, Cardinal plant and others, and will continue to do that. And that really will bring us to the end of the major CapEx on the environmental program that we spoke to you about a few years ago. And it is already proving rewards to us in the marketplace, as well as the the regulated view of our projects as well as in the regulated review of our projects as well. We entered the project -- or the year with what we think are two very important acquisitions in the generation fleet. The Darby and Lawrenceburg capacity plants, and we also ended the year with the ultimate sale and closing of the Dow Plaquemine Plant in Louisiana, which continued to be a drag on earnings not only in '07 but was forecasted to be the same going forward, quite honestly because of the failure of the tractable U.S. marketing company to live up to their contractual obligations. So on an operational sense, we feel really very, very good about what we were doing, and of course we're in the final phases of constructing what we consider to be one of the most technologically advanced interfaces between IRCOT and the Mexico grid down in the greater Laredo area in Texas. One of the first, in fact the first, such equipment to be installed here in the United States, our friends in Canada were the first in the world to use this time of technology.

On the project side of things, we announced and began the process of getting approval for our second integrated gas combined cycle plant in West Virginia. We announced and began the approval process in what we think is one of the most important projects undertaken by any utility, ours included, and that's the I-765 interstate transmission grid which will save customers in the PGL market place something on the order of $1billion a year in congestion. We'll begin the process of allowing a very wholesome competition among different power plants in very different regions that would be served by that undertaking.

We announced and began the approval process for two ultra super critical coal fired plants. One to serve our ever growing needs at SWEPCO in the Arkansas, Louisiana, and SPP Texas market area, and again announced and began the process to approval on an ultra super critical plant in partnership with OG&E and OMPA to satisfy public services in Oklahoma's ever growing needs. Lastly and maybe most importantly, we announced and formed what we think is one of the most important partnerships with Mid-American Energy to continue to build out the Texas transmission grid to satisfy not only that wholesome competition among power plants, but to make certain that distant renewable energy sources have a path to get to marketplace in Texas, and we're quite encouraged by that. And as you know, also announced the potential of a partnership, should the project be found to be needed, to build out a 765 grid in the state of Michigan to serve all of the customers in the lower peninsula of that state by not only removing congestion, but increasing the reliability of that system considerably for the next few years. You know, these projects will actually begin to pay benefits to the shareholders as early as 2007, for much of the Texas undertaking, and ultimately will fill our pipeline for regulated rates of return and customer reliability and service through without the rest of this decade and beyond.

So, again, any way we look at 2006 financially, regulatorily, operationally, projects announced and underway, we feel very, very good about what we all did as a team, and what we delivered to you as shareholders, and we thank you for your continued support in that regard.

Now, no different than my own team, when I asked them what have you done for me lately, I expect that's what you would ask of Holly and I, so let me touch on a I few of the things that we hope to do and intend to accomplish in calendar year 2007. Clearly the first and most important is to achieve the earnings target, our guidance range of $2.85 to $3.05 a share. We do reaffirm our '08 and '09 guidance as laid out to you in our October session, and we have ever comfort to believe that we'll be able to hit those numbers not only with appropriate regulatory recognition of many of the things that we're doing, but some of the projects I just ticked off for you earlier on. We expect and hope to receive rate adjustments on the order of $340 million in calendar year '07. We already have got just about 50% of that in hand. Most recently, receiving approval by the Kentucky commission to implement the nonregulatory lag surcharge for the environmental investments serving our customers in Kentucky. We continue to review and evaluate the potential for a dividend increase in calendar year 2007, and we'll do that with as much respect for the balance sheet and the requirements that we have to put capital to work.

As I said earlier, we'll finish the bulk of the environmental retrofits, and of course that will allow us to continue to put very cost-effective environmentally responsible megawatt hours into not only our retail market, but into that PJM and other off system sales opportunities as we go forward. We will manage our CapEx on ongoing projects not to exceed the $3.5 billion target that we talked to you about before, and we will continue to manage our O&M spending at or below $3.3 billion, which is about $100 million than we actually experienced in 2006. We have set out both on the utilities side and on the generations side a process where by the two principal officers for those areas, Nick Akins and Carl English have a list of projects that would allow them to overspend O&M by some 10% if in fact the weather were cooperative and revenues continued to be strong, and to underspend O&M from budget by about that same 10% to the extent that weather proves not to be supportive of our cash flow and revenue needs as well. We think this is a very creative way to insure that we find our way inside of that $2.85 to $3.05 guidance that we gave you.

I view that pretty much as our day job. And let me share with you couple of dreams that we have for '07 and what we hope to get done there as well. We will continue to pursue the regulatory approval for the four very important power projects, the two integrated gas plants here in the east, the two ultra super critical coal plants out west. We intend to create the AEP electric transmission company to continue to expand our physical footprint with projects that will continue to serve customers, not only in our 11 state region, but beyond, should good projects come our way. We think that that not only allows for that wholesome competition among power plants that I spoke to earlier, but more importantly, and very important in the various states, it allows a path for renewable energy, which so frequently is distant from the load pockets, to find its way to those markets, as well.

And, of course, we have every intent to be very active not only in influencing but directing three important legislative regulatory matters that are in front of us. Two at the state level, here in Ohio, at what we do come 2009, whether it's an extension of the rate stabilization plans of some years ago, or whether in fact it is a move to market, and in one way, shape, or form, American Electric Power will be in the middle of the discussion, will be in the middle of the debate, and will find what we think is a balanced approach not only for our shareholders, but our customers as well. The ongoing discussions for reregulation in the state of Virginia have been joined by our Appalachia Virginia team. We continue to work with the Attorney General, other intervenors, Dominion Virginia and other players in that dialogue, and we have every reason to believe that that should come to a very reasoned conclusion that will serve the Commonwealth of Virginia and our customers in that state very well going forward.

And lastly, we too will enter the current feeding frenzy going on in Washington over what to do about greenhouse gases, what to do about the eventual addressing of global warming, and I underline for you, as we have many times before, that it isn't AEP warming, it isn't U.S. warming, it is in fact global warming, and we will continue to try to move from the middle and begin bringing forward a central concept that will allow for an addressing of that issue, but will not simply take the manufacturing marketplace of not only AEP but the United States, and put it in great jeopardy by having our country commit to something that others simply won't do and therefore not affect global warming in a constructive way, but only effect the U.S. economy and the great U.S. middle class in a very negative way.

So we've got much in front of us for '07. We're eager for the opportunity to prove to you one more time that this team not only can perform inside of that range, but hopefully with appropriate regulatory treatment and commercial operations activity, come in at the higher end of that range as the year unfolds. Holly?

Well, thanks Mike. I'm give you brief recap of the fourth quarter of '04 as well as the year. Hitting it at a high level so we have adequate time to answer questions at the end. In the fourth quarter, our GAAP earnings of $0.46 relate to ongoing earnings of $0.38. The difference is primarily associated with the gains realized from our sale of interest in ICE. Ongoing earnings of $0.38 are composed of $0.32 from utility operations, $0.05 from investments, and $0.01 from the parent.

Investment segments showed continued improvement in the fourth quarter on a year on year basis. Due once again to strong performance of our MEMCO barge operations. We continue to see higher freight rates in the year on year comparison, as well as strong demand. The $13 million improvement at the parent is attributable to both lower interest expense resulting from the retirement of global notes, as well as increased interest income.

In our utility operations, despite the less than favorable weather, it was more than offset by higher rate release and load growth as Mike outlined. Offsystem sales were flat year on year, and we did see a continued decline in transmission revenue year on year associated with the elimination of the seams elimination cost adjustment at the FERC in April of this year. No surprises in O&M, depreciation, or any of the other expense items. And so on a year on year comparison fourth quarter earnings are up $0.05 per share to a total of $0.32.

Moving to the year on year comparisons. Reported earnings for '06, on a GAAP basis, were $2.54. Ongoing earnings of $2.77. The $0.23 difference is related primarily to the divestiture of our Dow facility, as Mike touched on earlier. Our year-to-date ongoing earnings of $2.77 are composed of $2.61 from utility operations and $0.16 from investments. Once again in investments, it;s the continued strong performance at MEMCO. The parent company year to date reflects a 13 million improvement over last year, due to both lower interest expense in '06, as well as higher interest income in '06, and we also incurred a bond buy back cost in '05, which had expenses up a bit last year. For utility operations, the full year performance of $2.61 compares with $2.80 last year, or $0.19 lower. That $60 million decline is associated in major part with weather, a year on year comparison we were off $0.16, due to weather alone. Retail sales revenue and load growth, revenue driven primarily by rate release, served to more than offset the weather impact. We did experience higher expenses across the board that contributed to the decline.

Turning quickly to cash flow. Once again, as expected, we ended the year with $300 million in cash balance. You may recall that we were a little higher than normal last year at $400 million due though sale of HP L. Our cash flow from operations of $2.7 billion was in line with expectations. Probably the biggest swing there that I would call your attention to was a change in our deferred fuel. This is due to the reactivation of fuel causes in a number of jurisdictions. As Mike recapped, our investing and cash outlays driven primarily by our CapEx program which proceeded on pace. Financing activities were also as expected for the year. And in conclusion, our capitalization is right in line with expected. Our adjusted debt to cap of 56.6% at the end of the year is in line, and actually very, very strong. The two principal adjustments to that, just to refresh everybody's memory, is adding back the proceeds that we received from the Texas securitization bond issuance, and subtracting out the TCC bond issuance, and adding back our Rockport recent $1.2 billion. So in summary, at 56.6% we are well within our targeted range of 60%. Mike?

We'll open for questions and answers, should anyone have any.

Thank you. [OPERATOR INSTRUCTIONS] Your first question comes from the line of Ashar Khan. Please go ahead.

Good morning and congratulations.

Thank you very much, Ashar.

Mike, I don't know, if you could. I guess one thing different in the chart this morning is the rate relief numbers for '07, that was there in the analyst presentation four months back, and what you have for '07. Could you just tell us what the differences are?

Well, let me try to rack up the big numbers for you. Most importantly, we've moved out of that number. The Indiana depreciation case, because we are just absolutely convinced that they do not want to address that as a stand alone single point issue. We have also adjusted the numbers to be reflective of the final applications that were put in front of the Oklahoma commission and the Texas commission, as well. So well inside of the range that we have for 2007. Again, it's a substantial reduction in the rate relief that we need to get to that goal line. And, as I minced in my comments, just about half of it, about $160 odd million is already in hand, particularly with the approval of Kentucky last week, it takes us up to almost $170 million in hand.

Okay. Thanks Mike. and Mike you mentioned regarding the dividend. When you did it late last year, then, something late, or could it happen earlier?

Well, we will have to see how the year unfolds, Ashar. As you know, the one thing that we've tried to do is reward people who have invested in the company, and it just -- I would like to see more of the year unfold, but it is always our intent to continue to move into that 55%, 60% payout range, and if we can make a dividend increase and the board thinks it's a good utilization of the capital, we will do that.

And if I could just end up, Holly, one change in gain is that you have a higher sales numbers for the Ohio companies, and integrated these companies from what you presented. Is that just the economy is looking better, or I'm just trying to understand what's behind the sales numbers in your revised forecast.

It's in part due to that. We've refined the numbers since October, but we also have secured an additional major industrial customer reflected in that line, Ormet Aluminum.

Okay. I appreciate it. Thank you.

Your next question comes from the line of Paul Patterson. Please go ahead.

Hi, good morning. Can you hear me?

Yeah, we can hear you fine, Paul, thanks. Good morning to you.

O & M spend. I see you what guys are projecting for 2007. Is that a normalized number? Or is there an additional O & M spend if you fol low me?

Yeah, I would argue that it's a bit about above the normal O & M spend. We have involved in that some of the O&M and dollars that are already in front of the commissions most importantly here in Ohio with the $160 odd reliability filing that's in front of them, obviously part of that is on the O&M side, and it will not be spent if it isn't granted. And the same is true -- some of it, of course, will become more run of the mill as we continue to incur additional costs, operating the environmental retrofits, and of course the capacity gas machines that were purchased to satisfy the PJM capacity requirements. Those are really money making O&M investments, though, Paul, so it's probably a bit high compared to what would be considered to be anormal run. I know my team doesn't like to hear that, but that's the way I see this opinion

So although we see a higher than normal O & M spend, there are also higher revenues that you guys are expecting?

Oh, absolutely. Absolutely. And as I mentioned before, something that Susan began last year, and Holly and I have tried to perfect this year, we're really trying to put discipline in the utilities and the generation, as well as corporate center, for everybody to rack up some projects that if things go well, these are the things we would like to do, and if things don't go well revenue wise, these are the things that will simply lay over for another year.

Okay. And then in terms of the ongoing tax, I see what you guys are projecting for 2007. Is that a normalized sort of a effective tax rate that we're looking at, at least for the utility operation?

Yes. For '07.

Okay. And then finally, with MEMCO, it looks like you guys are expecting MEMCO to decrease a bit. Could you just go over a little bit what you're seeing in terms of -- you mentioned how it's been very favorable. What are you seeing in terms of demand, and also in terms of supply industrywide. Are people building more barges, or if you would just sort of elaborate a little more on that, given us a little more flavor on that.

Well, I can assure you that MEMCO is building more barges and boats. We see this as an on going solid operational add to the overall requirement of ensuring that we have adequate fuel supplies at all of our generating stations to satisfy the demand as we see it. To the actual activities themselves, we are barge year to year the same amount of barges on the rivers. We will add a couple of boats so that we aren't leasing straightforward, but we'll have our own controlled boats to move those barges, as well. The difference between what we realized in '06 versus what we're forecasting for '07, Paul, really was the phenomenon of the first quarter of '06, where we were coming out of huge pent up movement requirements post Katrina. And also 2006 was probably one of the most calm years in a weather sense on the river system itself, and we don't try to build calmness into the river system, because over the years, it has shown us high water levels and low water levels that have a real impact on the ability to move freight. So we think we've got a very realistic number. And as we said before, the competition, many of the smaller entities have simply gone out of business. MEMCO continues to be on a customer rated basis seen as one of the most effective ways to move commerce on the interstate river system, and we want to maintain that and have the opportunity not only to grow that business if it's there, but, again, utilize it for its principal purpose, which is to serve our own coal requirements as we go forward.

Thanks a lot, guys, excellent.

Thanks, Pau.

Your next question comes from the line of Dan Eggers. Please go ahead.

Hi. Good morning.

Good morning, Dan.

Could we talk a little more about the transmission projects by way of timing when we could start to look for announcements and when dollars start going to work? On the next $9 billion, I guess.

I appreciate that very much. The most important and nearest term projects will be the continued build out of the Texas partnership with Greg Able, David Sokol, the Mid-american Team. The way that's the unfolding, as you know, Dan, we made a rate filing last week which will cause us to become a public utility, subject to the PUCT. We think that's a very important undertaking. It will establish the rates and also will establish the early projects that will fall into that partnership and cause Mid-american to fund their side of the partnership, which will allow us to build considerable other assets already approved in a more regional sense inside of the ERCOT planning process. So you'll begin to see, we hope, earnings impacts in a constructive way in '07 from the Texas partnership.

Probably the next most logical project that may come to bear toward the end of the decade would be the ITC partnership in Michigan, should it be found by MISO and the Michigan commission to be a project that saves customers and serves our reliability requirements in the state of Michigan as well. And we think that's an important undertaking for MISO and the PJM, and one that, if approved, is S mostly a long existing rights of way, and probably in a permit sense would be easier to do.

SPP, as you know, we have a project in front of them that would be a later in the decade approval to be built and go into not only a cash position, but ultimately an earnings position, probably early in the next decade. The interstate 765 system awaits the corridor designation from the DOE, which we continue to believe will be early '07, and then lastly, awaits the final resolution by the PJM transmission planning process, which we also would expect sometime early '07. As you know, we've talked to the idea of picking up partners on the I-765 project. We have begun those discusses with those who might like to join in that endeavor.

And as I mentioned before, we continue to be in discussions with governor Rendell and the great state of Pennsylvania, Commonwealth of Pennsylvania, about the notion -- state of Pennsylvania, I guess, about the notion -- common wealth as Susan reminds me, about the notion of adding their western wind renewable assets to their eastern demand centers of the greater Philadelphia area. So these projects will fill in very nicely, some of them earning yet this decade, others of them adding strongly to earnings as the decade moves into the teens.

Perfect. Thank you. On the legislative activity, or I guess activity in Ohio in total, as far as RSP, or market is concerned, what is the level of dialogue right now, and what do you see needing to happen this year to move that forward?

Well, as you know, because chairman Schriber was down in New York the other day, and I'm sure you or someone from your team sat in on those sessions, he is convinced that something can be done that will address the diverse nature of issues that many of us have, and it's something that he believes will ultimately need some legislative support, as well. So I would expect the early part of '07 will be dedicated to the how, or the what, I should say, and then mid-'07, I would hope we move into the legislative approval process to get that done. And, remember, as I have shared with you before, and I'm sure Chairman Schriber shared with you, Governor Strickland, our new governor here in the state of Ohio, sees this as a very important center stage issue in the early part of his administration.. The Speaker and the President of the Senate have both made it quite clear that they do not want to have a state battle as we witnessed in other states on the eastern seaboard and here in the upper Midwest. So I expect that we'll find some reasonable way for people to take various approaches that will serve the customers, as well as serve the shareholders of these operating companies sometime early in '07, hopefully codified later mid-'07. And then filing and whatever has to be done to allow the commission hearing process and the due process requirements of the Ohio regulatory laws to go forward, so that we'll all know toward the latter part of in the year what '09 is going to look like . As you know, when we talk to you about our '08-'09 numbers, '09 in particular, all we built in was an extension of what we have to date. That would be the floor, if you would, of a program from the way that we see it.

Great. Thank you guys.

You bet, Dan. Thank you.

Your next question comes from the line of John Kiani. Please go ahead.

Good morning.

Good morning, John.

Mike, along the lines of the Ohio RSP extension, I know it's still in the -- you know, more in the preliminary stages, as you mentioned. But hypothetically speaking if there was an RSP extension post 2008, do you have an idea of how many years that could be for?

Boy, that's really a good question. What would be most logical would be another implementation of a stair step toward market, or maybe moving to market but stair stepping in the impact of that over maybe a three-year cycle. That seems most logical to us as one were to to go forward. And that would say that by 2012 Ohio would be fully integrated into a market choice opportunity, and reflective of market prices in the electric marketplace. Again, different people will have different views of that. We continue to strongly believe in the notion that a flash to market in 1/1/09 would have a potential impact on the manufacturing base here in Ohio, which, of course, would have a ripple impact on the commercial residential demand on Columbus Southern and Ohio Power System. Something we're not truly interested in. We want to get to market. That is the goal, but don't want to do it at the expense of the Ohio economy, and there are ways to work our way around that, but as I've said many times before, if we don't find a resolution, Ohio already has a law, and we'll simply follow the Ohio law.

At the helpful. So maybe net income of it in term of a several year, multi-year phase-in to market that could be, you know, in excess of two years, maybe closer to three?

I think that's fair. And again, remember, you could step to market pricing in year one, and just simply not collect all of those market prices from the customers in year one, but spread them out over that timeline. That might be another constructive way to the shareholder's benefit get to the market pricing to the customer's benefit, use it as a regulatory flow in over that period of time.

Thanks. That's helpful.

You bet, John. And thanks.

Your next question comes from the line of Leslie Rich. Please go ahead.

My questions have all been asked and answered. Thank you.

That's great, Leslie. Thanks.

Your next question comes from the line of Vikas Dwivedi. Please go ahead.

Yes, hi, Mike.

Vikas, that's all right if he can't say your last name. He gave it a good shot.

He did. Mike, quick question. On Virginia, you guys did get the ENR recovery going your way, and my question is how does that affect the general rate case, given there were ENR items in that case as well?

Well, that, again, it shows the depth of your comprehension of how these things unfold. We were very pleased with the way ENR turned out. It is the law in Virginia, and I'm really happy that the commission ultimately implemented the law as it was written. That's exactly the way we would hope regulatory legal interface works. To your point, one could argue that if the Virginia rate case were to come out in a relatively negative way, much of what's required probably on the order of about half of the current request, would fall under the ENR requirements as well. So I don't want to make it sound like we've got two bites at the apple, but in essence, if the case were to come out very negatively, I wouldn't over react to it, I would simply turn around and file under the ENR provisions as well.

Okay. Got it. And on SWEPCo, can you give a sense for either the timing and or the size of the requests that you guys are building there?

I would shy away from the requests. The timing is under current review. I would expect more on the mid-year cycle range for SWEPCo. We are, as you know, putting together the cost structure, evaluating the current rates of return, and preparing ourselves for that kind of a filing by about mid-year.

Okay got it. Thank you, Mike.

You bet, Vikas.

Your next question comes from the line of Elizabeth Parrella. Please go ahead.

Thank you. Can you update us on the two IGCC projects? I guess maybe a month or so ago, you delayed it a bit in the sense that I think the cost estimates came back a little higher, or somewhat higher than you had thought. Can you talk about, you know, what those cost estimates are coming in at relative to expectations, where you go from here, does it still make sense to kind of pursue these until you see maybe what is contained in legislation on carbon?

Well, Elizabeth, let me try to touch that. Look, the facts remain there is no question integrated gas combine cycle plant with an avenue for carbon capture and storage, is essential to AEP, to our customers here in Ohio and West Virginia, and, as I said earlier on, and I don't want to sound too preacher-like on this, it's important for this country and important for the world that that technology go forward. We're very comfortable with the design, with the operability, with the guarantees and warranties that GE are willing to give us on the project. We're quite encouraged by all of that.

The fact remains, to your point, and to our admission with the extension of the feed process, that the prices are higher than we would have thought that they would have been, but remember the price of general construction is much higher than was to when we started into this. Our need and what we're hoping to be able to demonstrate through this process to the Ohio and West Virginia Virginia regulator is a project that would be on the order of 20 odd percent more costly than a simple pulverized coal plant. I think we all know the difficulty, seeing our friends in Texas who have great demands and every intent to go forward, but a very, very huge challenge to build a more traditional pulverized coal plant, and they have of course now moved on to other technologies as well. If we can come in that range, we think that the Ohio commission, the West Virginia Virginia commissions, will see the logic behind a 50-year plant that will never get more cost effective than 2008, '09, 10, whenever we get the authority to go forward and build that. So we continue to work on that.

We are close to a final final number for our team, and we have what we call a plan B that we're working on, which would be a different project management undertaking, which we think might be more cost effective. And we might well put in front of the commission plan A, which would be the vendors with an overall project manager. Plan B, which would be the vendors with the project management done by American Electric Power on subcontractors at different islands within the footprint of the plant. We will not give up, and we will put in front of the regulator an opportunity for them to say yes or no. But these plants, which are needed, will ultimately get built and approvals in 2007 will yield lower cost plants than approvals in 2009, so we hope that they see the wisdom of all of that in those three jurisdictions.

Okay. And if I could just ask you for the fourth what the coal cost increases were, and also for the full year, where your delivered cost of coal per minute, and also just refresh for us your expectations on the degree of increase you expect for '07?

I'll ask Holly to give you some of that granular data. I will tell you that Chuck Zebula and his team did better than he thought they would do by really quite a wide margin in '06 as prices began to soften. The '07 numbers are looking reasonably good, only because, as you know, now, with Mitchell Mountaineer being able to burn some of the other coals, even though all coals have gone up in price, we'll see some softening of the impact of that as we go forward. Holly?

Just to give you bit more detail around that, Elizabeth, on a fourth quarter comparison, it was up 6% across the company. Year on year, for the full year, it's up 8%. The split, the west was up about 10% due to continued strong pricing from PRB. In the east, we were up about 5%, less than the uplift in the market due to that fuel switching that Mike outlined for you. In terms of the outlook for next year, or actually for this year, we're still forecasting in the range of a 7% to 9% increase, which takes into account the continued switch between low sulfur and high sulfur at some of the eastern plants subsequent to the environmental retrofit.

And I think that hopefully demonstrates what we said to you as '06 unfolded, there was a time when we thought the increases might be north of 10%, but because of the bulk buying that we do, because of the blend and extend contracts that Chuck and his team have negotiated, we feel very confident with our coal buying strategies. And remember one more of our frozen fuels in fact unthaws mid-'07, as Indiana fuel clause will adjust come July 1.

Okay. Thank you.

Your next question comes from the line of Daniele Seitz. Please go ahead.

Thank you. Most of my questions have been answered. But I was wondering, could you comment on the likelihood that the Virginia legislature will decide in this?

Daniele. I would leave that up to my good friend Tom Farrell. I say that somewhat tongue in cheek. It appears as though the Virginia legislature, the Virginia Attorney General's office, the Virginia executive leadership, is very interested in avoiding the kinds of impacts that we see on the Atlantic seacoast, particularly in Maryland, I think yesterday or the day before, the headline was that the Maryland increase really wasn't 72%, it was 67%, and I think that's what they would love to avoid. So I expect that what's been put in front of them is a reasonable way to be fair to not only the customers in the Commonwealth, but also to be equally supportive of the capital investment that's required. We, as you know, with the integrated gas plant, intend to serve our Appalachia Virginia customers. Dominion has in front of the commission a power plant that they believe is very essential, coal-fired, that would be built in exactly the right part of the state. You're seeing continued growth in energy demand in Virginia, and the fear is that the competing southern states, the Carolinas, Georgia, Alabama and beyond would attract that capital if Virginia utilities don't have reasonable rates of return, and I think the Virginia legislature is being I extremely dutiful and balanced about how to go about doing that. So I to feel confident by this week there will be a piece of legislation that will come out of conference and hopefully be signed by the government.

Great. And on another subject, if you were to get a permit for a IGCC plant, what is the length of construction? What is the timing that it takes to get the whole plant built?

We're looking at a four-year construction cycle. But remember, in a financial sense, with that authority from the commission will come a cash compensation as we go and build through [KWIP] or AFUDC or one of those processes that's in front of the commissions.

Great. And going back to Virginia, you said --

I thought we answered all your questions.

[laughter] A better rate of return for construction, and you say -- did I understand right that you said you are optimistic that this might be understood.

Yes. Yes, very much so.

Thanks.

You bet. Thanks.

Your next question cops from the line of Michael Lapides.

Hi guys. Michael Lapides of Goldman here.

Morning, Michael.

Good morning. On the Oklahoma and Texas rate cases, can you give a brief overview of both the timeline and procedural schedules, and what you have actually requested in terms of rate increases allowed hourly and rate basis?

I sure can. In Oklahoma, it's on the order of $50 million. And in Texas, combining TCC and TNC, it's on the order of $107 million. Rates of return are in the -- Holly, 10 and 11?

10.5 to 11.

10.5% to 11%. Timeline. Texas probably sometime mid-year. Oklahoma --

A little bit later in the year.

Lit bit later in the year, mid to third quarter.

Third quarter.

When do you expect staff testimony in those?

I don't know. Tom [Hagen] is here with us. I might as well put Tom on the spot.

I think May in Texas, perhaps a little bit earlier than that. And I don't recall the schedule in Oklahoma, but we can get back.

Yeah, I'll make sure to get back to you and give you those actually dates, okay Michael?

Great, thanks.

You bet.

Your next question comes from the line of Phyllis Gray. Please go ahead.

Good morning, Phyllis.

Miss Gray, your line is open. Please go ahead.

As they say in the legal profession, asked and answered. Next?

We'll move on to the line of Elizabeth Parrella. Please go ahead.

I just wanted to clarify and not trying to be too picky on this, but I thought at your analysts meeting, you had indicated the coal cost increase for '07 was 6% to 8%, has that changed now to 7% to 9%?

Yes. In part because we saw a lower cost at year end than we had previously forecasted, Elizabeth, because we came in lower in '06, the baseline comparison would be 7% to 9% to get back to the exact same starting point.

So in terms of like the dollar, the average dollar price per ton for '07

Same as we were before.

Right where we were, but because of the way math works, the percentages are a bit higher.

Do you have what the average delivery price was in 2006?

I do.

$35.10.

$35.10.

Isn't that good that I had it before Holly?

Thank you.

We're still looking at the $38.80 for next year.

Okay.

This year.

2007. Thanks.

Thank you.

And at this time there are no further questions.

Great. Well, this is Julie Sloat. Thank you for joining us this morning. The investor relations staff will be available for all of your research needs. So give us a call later today. And Greg if you could remind everyone of the replay information That would be fantastic.

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