美國電力 (AEP) 2007 Q1 法說會逐字稿

Welcome to the American Electric Power first quarter 2007 earnings conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would now like to turn the conference over to miss Julie Sloat. Please go ahead.

Good morning, and thank you for joining us today to discuss AEP's 2007 first quarter earnings. If you've not seen the press release issued earlier today, it is available on our web page at aep.com and a podcast will be available on our web page at the conclusion of this call. In addition to the financial schedules included in the press release, the webcast to this call will include visuals of charts and graphics referred to by AEP management during the call. An investor information packet is also available at AEP.com that includes the consolidated balance sheet and statement of cash flows as well as full income statements for our utility operations, gas operations, investments, and parent company.

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 on form 10-Q for discussion of factors that may cause results to differ from management projections, forecast, estimates, and expectations. Also on the call, we'll discuss the measures about company performance. That is ongoing earnings versus reported earnings 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 your questions. Mike?

Thanks a lot, Julie. Thanks to all of you for joining us for the first quarter earnings update in the second century of the existence of American Electric Power Company. That sounds a bit daunting when you think about it. Here we go on our 101st year of operations. Still trying to do what we did probably in year one which is satisfy our investors, continue to deliver cost-effective energy to our customers and find a way to have politicians and probably back then they didn't even have regulators but everybody somewhat satisfied with what we were trying to do. It is an interesting undertaking and one that we do with great joy.

As you know from the press release and the prerelease of a week ago, the quarter came in at $0.68 per share. A bit short of what some had had for their quarterly estimates but somewhat in line with what we had hoped we could accomplish. I think it is safe to say that we're comfortable that the first quarter is off to a reasonable start. As you know, we were in the process of bringing some of our environmentally upgraded units back on-line and synchronized to the system. That took a certain amount of megawatts off of the opportunity board and it also, of course, increased some costs in the process of doing that. But as we said in that release, we feel very, very comfortable about how the plants have performed since that time and we feel very strong about our re-establishment or restatement of our annual forecast of $2.85 to $3.05 as being our guidance.

As you know with the slide in front of you, much of that depends on rate activity. That continues to move along in the give-and-take process of the rate making art game that many of us have played for many, many years. We don't see any of the rate cases that are listed here that are overly concerning to us while at the same time we don't see any of them dancing 100% to what it is that we would have thought and believed that we deserve on a balance treatment by those regulators. We didn't expect much activity in the first quarter in that regard and we will continue to monitor those cases as we go.

We were somewhat surprised and a little bit disappointed in the FERC's treatment of the regional rate design for the PGM RTO. It isn't as much an impact on the overall earnings of the Company but it is a bit of an impact on our customers by the way that they have allocated costs for the historic system versus the way that they will socialize costs for the new backbone system to provide adequate access and remove congestion in the PJM. We have every intention of continuing to push what we think is a much more logical highway byway design which was, of course, supported by the Administrative Law Judge and we'll take those matters up in due course with the FERC in the ongoing process of the orders that have been issued. We feel very comfortable about where we are with our transmission projects. We're quite encouraged by the most recent announcement of an agreement between ourselves and the Allegheny energy folks to go forward in a joint effort as we said we always would on some sections of the interstate 765 transmission undertaking.

We have heard and we will watch with great interest that the Department of Energy may soon designate their national corridors and we would hope and have every confidence that the Eastern seaboard congested area will be among those so designated by the DOE. As you know, the PJM has supported some of those projects and again, we feel good about that. In the not-too-distant future, the Texas Commission will take up the application filed by our Texas transmission partnership of AEP and Mid-American and we feel as though that will move along with some dispatch. All in all, we feel that we're off to a reasonable start, not only with the performance of the utility in 2007 but equally important, we seem to be moving in a reasoned fashioned for the approval of the transmission projects that you've heard us lay out before.

We constantly watch and worry about the need for the base load generation stations that are on the drawing board. The integrated gas combined cycle technology activity with GE Bechtel is moving toward its end. The prices, although not yet final, are, in fact, in that 20 to 30% increase over what would be a typical critical, supercritical coal plant. We feel comfortable with that. The activities out West with the ultra super critical, we feel are moving in exactly the right direction, not that high of a price increase over a super critical coal plant. We'll continue to move on those undertakings as well.

And lastly, and probably as you know, we announced early on that we would take on the post-combustion carbon capture and storage challenge. We feel very good about the '08 time line at Mountaineer, the 2011 time line at Northeastern Station and any of you have had a chance to look at the Journal today, know that there's quite a story about the same kinds of dates with the same kinds of activities with some power production facilities in the European Union. So, we feel very comfortable that as we start our second hundred years, American Electric Power continues to lead the U.S. utilities with those kind of technological breakthroughs. With that, and with much more granularity on the quarter's performance, I'll turn the microphone over to Holly Koeppel, our Chief Financial Officer. Holly?

Thank you very much, Mike. Since much of the detail that I'll be covering is in your package, I'll go over it at a high level and leave time for questions. We turn to our first quarter '07 ongoing earnings. Our GAAP as well as ongoing earnings were $0.68 for the first quarter. That $0.68 is composed of $0.63 from our utility operations, $0.04 from nonutility operations and $0.01 from the parents and other.

Utility operations will be covered in a moment on the next page. So, let me turn now to our nonutility operations which posted an $11 million decrease during the first quarter of '07 when compared with the first quarter of '06. This is primarily due to two factors. The first and larger of the two is a more normal performance from our MEMCO barge operations in line with our expectations. As you know, MEMCO contributed $15 million in the first quarter of '07 when compared with $21 million in the first quarter of '06. (Technical Difficulties)

Okay. First quarter '06 was a bit of an anomaly. We had near perfect river conditions in light of the unusually warm weather in that quarter. And '07 was in line with expectations and a more normal performance. Our nonutility Texas AEP energy partner operation posted a loss for the quarter. This was primarily due, as you all have seen in the press release, due to an extended outage at our Oakley Union power plant which is the only facility that supports that operation. The $16 million improvement at the parent and other is due to a number of factors that are reflected in that line. One of the largest of which is the Plaquemine cogeneration facility which posted a loss in the first quarter of '06. As you know, we sold that plant in the fourth quarter of last year and so we had, we eliminated that loss and had no associated loss in '07.

Turning now to our utility operations, as I mentioned in the discussion of MEMCO, we did have far more normal weather this year. That helped all of the first four lines of our utility operation growth margins with near normal weather both in the East and the West. We also experienced load growth, predominantly associated with two large municipal customers that were added to our East regulated integrated utility operations at INM and Appalachian Power. We added a large industrial customer in Ohio and for our regulated integrated utilities in the West as well as our Texas wires business, we experience load growth across all customer classes.

Rate relief contributed, as you can see in the box to the right on the schedule, a substantial uptick in realized growth margin. That was entirely associated with lines one and two, our Eastern operations, both the regulated utilities as well as the Ohio company. All in all, the performance from our utility operations was in line with expectations. O&M expense was up as expected due in major part to the outages that Mike mentioned associated with our major environmental tie-ins. About 25% of the uplift is due to that. We also experienced substantial storm activity. 80% of which was at PSO and for the quarter about $30 million of storm costs were reflected in our operation and maintenance expenses. On balance, the $0.63 is in-line with where we expect to be for the year and we are on track.

Turning now to cash flows, we ended the first quarter with a cash balance of $259 million versus an ending balance at year end of $301 million. Our forecasted cash balance for the end of this year is $205 million. Cash flows from operations totaled $351 million of which $271 million is associated with continuing earnings. The balance are adjustments associated with depreciation, amortization, deferred taxes, and working capital. Investing activities required cash outlays of $628 million, the vast majority of which is our capital investment program. $907 million of CapEx in the first quarter. Again, associated with those major environmental programs that Mike mentioned. We'll also be closing on two power plants that we announced last year. That will be reflected in the second quarter of this year which will contribute to or will constitute our $3.9 billion CapEx program for the year.

Financing activities year-to-date, provided us with a net cash increase of $235 million related to the issuance of long-term debt. And cash from the issuance of common shares. Associated both with stock option activity as well as the activation of our dividend reinvestment plan.

Turning now to capitalization, we're in line with where we expected to be. We ended the quarter at 59.4% on a debt to cap basis. On a GAAP basis. On a credit adjusted basis, we're at 56.9%. As you'll recall, our goal is to stay at or below the 60% target on a credit adjusted basis.

The adjustments we make are detailed on the bottom of the schedule. We add back our off balance sheet Rockport lease which is about $1.2 billion. And we subtract from our debt the TCC securitization bonds at $2.3 million since they're serviced by Texas customers. The nuclear spent fuel trust of $251 million since it is fully funded with cash that is unavailable to the Company and our fully diffused Texas first mortgage bonds which are only $27 million. With that, it pretty well wraps up where we're standing at the end of the first quarter, Mike. I'll turn it back to you.

I guess we're ready for the question-and-answer session. Thank you.

We're ready for questions.

Thank you very much. (OPERATOR INSTRUCTIONS) We'll go to the line of Dan Eggers of Credit Suisse First Boston. Please go ahead.

Good morning. You guys have done a fantastic job this quarter as far as locking in some of your partnerships for transmission projects. Are you guys getting to the point where you're going to be comfortable laying out which projects are getting put into CapEx and should we be thinking about maybe some CapEx spending increase as we look out over the next couple of years as we get more clarity and as these budgets continue to rise?

I think it is safe to say, Dan, that coming into the partnership arrangements, it is critically important, most of the projects, particularly if you think of I-765, we said all along that we would pick up partners all along the way and in fact, have done that. That might well move those projects forward in a reasonable sense. But the real investment opportunity for transmission in the near term continues to be the partnership with Mid American and we've really kind of built that into our longer term forecast of capital requirements.

The designation, if, in fact, it occurs by the Department of Energy, will allow us to continue more aggressively on the planning process of that phase of the I-765 highway, if you will. But not really a near-term call for massive capital investments because it would be pretty mature to continue to order equipment and those kinds of things. As you know, American Electric Power does most of its own transmission design and activity in house and planning so it is still a ways off before you'll begin to see capital being required in large volume.

Given -- yes, your history with the 765 lines, are you seeing more appetite as you guys look at other markets or, you know, as that -- as that type of technology is getting better buy in on the regulators?

Well, I think you've had the opportunity to see some of the information we laid out last year about 765. When you think about right away width -- and you think about the potential environmental impact, whether it is visual or whether it is something more than that in an EMF sense or whatever the issue might be, it is, by far, the best technology to use, to allow for a greater capacity and therefore, an ease of movement and competition in the wholesale market. The other thing that we continue to push is the technological enhancement of the energy delivery system and I think that Commissioner Wellinghoff if no other at the FERC has been a real champion of that and so I think we're seeing more and more acceptance of that.

I would tell you, however, that there are some who would rather see smaller facilities built. They are not as electrically efficient. They clearly are not as economically efficient. But what we don't want is for everyone to think well, if AEP is in on a project, it has to be 765. We just are convinced to an engineering, economic, electric efficiency certainty that it is the best way to go and although some of our friends aren't as comfortable with that technology as we are, we aren't solely wedded to that. So when we look at, for instance, the plan that the Southwest power pool asked people to submit much of what we submitted was based on a 765 grid that could easily be moved to 500 KB if that were more suitable to the regulators inside of the SPP. But we continue to be encouraged by the opportunities that we see and we will continue to push the envelope as hard as we can on this issue.

Okay. Then I guess just one last one. A lot of activity in Ohio at the regulatory side this quarter. Any update there as negotiations or conversations go with the Chairman?

Well, we continue to have what we think are meaningful communications with PUCO. As you know, we went through a bit of a flap as to whether or not those folks would be sitting as Commissioners near and long-term. Fortunately, the Governor took that with a grain of salt and simply accepted resignations, accepted renominations and in fact, everyone is back where they should be. We continued to begin the dialogue with the Executive branch as well as the House and the Senate. So I would argue that things are moving along reasonably well there. We were a bit disappointed that the reliability enhancement program we had laid out didn't find the support that we thought that it might in the market place. It is an intriguing issue that we constantly see and we see it all over the country where people are concerned about reliability and security of power supply but we, as a company, and we as an industry have not done a very good job of educating our customers of what that takes. And when you tell a customer we're going to increase your bill by $2 a month to enhance your reliability, they say well, I already paid for 100% reliability, why should you ask for more? And as it turned out, we felt we came to a very, very amicable settlement with all of the other parties to withdraw and we'll come back at it another day and another time with another fashion.

Got it. Thank you.

You bet.

Thank you. We'll go to the line of Paul Patterson with Glenrock Associates. Please go ahead.

Good morning, Paul.

Good morning. Congratulations. Listen, I wanted to touch base with you guys on the all systems sales. It looks to me like you guys came in pretty strong. When you look at slide 9, the price per megawatt hour seems considerably higher. Now, I know there's less volume but on slide 10, which is your full outlook for the year, you guys have the price per megawatt hour going down. I was just wondering if you could maybe give us a little bit more of a flavor for what you're seeing out there in the market, how this quarter's results sort of relate to what the market activity that you're seeing out there and if you could just sort of give us a little more flavor on that.

Well, Paul, as you know, when we put together our budgets and our forecast and most importantly, when we go out with our guidance on how we feel the year will unfold, we try to be realistic about not only the volume that we'll have for the marketplace but also the pricing, what that energy might look like. And we looked at forward gas strips and other activities to try to come to that conclusion. What we saw in the first quarter as you surely point out and as we explained, we hope, with enough clarity in our press release, we had plants off-line longer than we thought that they would be on some of the tie-ins. But we also had the opportunity of being very capable on the production side during some parts of the first quarter where the weather bounced all over the place and there were other outages throughout PJM. That gave us a real advantage on the price side for the few megawatts that we had to put into the market place.

Trying to take that first quarter margin and strap that on to the full year sales volume, we think, would be overly aggressive for what we might see. But I would say, as you know in the PJM auction of a week ago, capacity came in at a much higher rate than people thought that it would. So, we're comfortable with where we are. And it surely is premature to change the margin spread on the off system sales for the remaining three quarters. But I would surely be in your camp and cheer for that to happen. I can promise you that.

Okay. And then with respect to Dan's question on the Ohio outlook, is there any move afoot or thought about the potential for legislation, something other than just sort of a PUCO kind of deal? If you could give us a little more feeling for what might be happening there or might not be happening there?

We're convinced that there will more than likely be some legislative activity even if one were to do a rate stabilization extension and part of that, quite honestly, Paul, goes to the issue of those of us who might want to go forward with a generation security plan approach that has in it utility-owned generation. And for that to be much more robust than the current matter in front of the Ohio Supreme Court as to whether the Commission does or doesn't still retain that authority in a provider of last resort role as they so far have approved but, as you know, is on appeal, it might be worth cleaning that up so that those who want to, as I suggest, go forward and own and build generation, would have the opportunity to do that and I think, as you know, you're seeing that all over the country. Maine, yesterday, started speaking in terms of letting utilities build generation, as you know, California some years ago said to the three operating companies, build or buy, whatever you would like. So it may well go that way so that there are options so that the longer term view of the economic development opportunities in a state like Ohio are not crimped by the unavailability of in state generation. I think it would be very difficult for an economic development officer and in Ohio, that typically is the Lieutenant Governor, to say to a Honda or a General Motors or someone gee, we love you to come to our state. We'll just buy the electricity from Indiana. I don't think that's a good marketing tool as you go forward.

So when you saw what we did in Virginia, with the reregulation, it was really driven by the notion of Governor Kain, the Virginia Legislature not wanting to find themselves in a net import electricity model going forward. So I think there may be some legislative action. It may that narrow but I've been in that machine many times and not always at the outfall do you get what you hope for at the input. So we'll see what happens. But it is possible.

Do you think we'll see, like timing on what we might see? Sort of like when do you think we might be hearing more about that?

Well, I think it is ripe right now. I'm sure that this activity will be engaged calendar year 2007.

Okay. Thanks a lot.

You bet, Paul. Thank you.

We'll go to the line of John Kiani with Deutsche Bank.

Good morning.

Good morning, John.

Mike, can you talk a little bit about, just ballpark and remind us what the G or generation rates are at Ohio Power and Columbus Southern Power, please?

They're on the order of about $0.04 a kilowatt hour.

Do you have an estimate as to what the hypothetical market price would be on a fully-shaped basis, not that that's obviously occurring today, but just so we can get a perspective of the discount or disconnect between those rates and market?

Well, that's as much speculation as I would be comfortable with. I'll tell you that as we look at it, it is in the $0.05 to $0.06 range. Could be higher. Could be lower. It will be intriguing if and when we all go to market trying to satisfy those demands at the same time. I don't see -- I don't see us getting the kinds of power prices that we see on the East Coast. I don't see any $0.10 bids coming in that would be successful. I would hope there would be a couple of people that bid $0.10 but I can't imagine that would be the outcome. But it is clear that there's a delta between our current G cost or G price to the marketplace and the market price itself and as you know, we continue to work as hard as we can toward a method that will allow our shareholders and customers to experience the benefit of a process of getting to those numbers.

Thank you. That's very helpful.

You bet. Thanks, John.

We'll go to the line of Greg Gordon with Citigroup Investment Research. Please go ahead.

Thanks, good morning.

Good morning, Greg.

I'm not sure that I actually fully understand the benefits that accrue to certain types of investment decisions as it pertains to the Virginia Legislation. My understanding, please illuminate a little bit more for me, is that certain types of capital investments would get premium returns and can you go through how that legislation works and whether or not you actually have a meaningful participation in those types of investments in the forecast Horizon?

We -- in the forecast Horizon, quite honestly, I don't think we've got anything built in. The most important aspect that came out of the Virginia regulation and legislation which is now, of course, the law that will come to pass in the middle of this calendar year, or come to be the law of the land, does have incentive rates of return for clean coal plants that would serve customers in Virginia and, as you know, our Appalachian Power Plant is intended to be built in West Virginia but will serve customers in Virginia through APCO Virginia and therefore it would receive those enhanced rates of return. We're very encouraged by that and again, it was driven by a very sober look by the Legislature and the Executive office in Virginia to see to it that there would be adequate energy available for the continued demand growth and development that they see in the commonwealth. So we felt very good about that. Some of the other projects have potential to have small kickers as well and the returns on equity.

Some of the things that are most important to us, Greg, was also the basket of ROEs that would set the floor going forward for the regulated rate of return which would be reviewed on a biannual basis to see where you are in an earnings sense. We thought that was very balanced and very supportive and we were strong proponents of what ultimately came forward. We're encouraged, not discouraged by the Governor's amendments. As you know, we just announced 1,000 megawatts of wind we would like to add to our Eastern footprint and I can tell you in my preannouncement to Governor Kain just after he had added the renewable concept to the law, he was quite encouraged by what we're doing. So we feel good about Virginia. We feel very, very strong about the support that the integrated gas plant has already gotten from Governor Manchin in West Virginia and now of course we think we'll work equally well in Virginia. As you know, that bifurcated state review was always an issue on the integrated gas plant for APCO and now we think that it is very supportive rather than somewhat questionable.

Okay. So just to make sure I understand, to the extent there is a portion of that IGCC, if it gets built, that's jurisdictional to Virginia, we would think about the sustainable return on that -- the equity portion of that investment based on this basket of ROEs processed plus the incentive.

Exactly. And the incentive can range up to 200 basis points.

Thank you, Mike.

You bet, Greg. Thanks for the question.

We'll go to the line of Elizabeth Parrella with Merrill Lynch. Please go ahead.

Thank you. Your O&M expense is up. $111 million in the quarter. It sounded like there was $30 million since Q1 except maybe this wasn't originally anticipated. For the year, I think sort of implies that based on your guidance that you would only be up like another $40 million for the remaining three quarters. How comfortable are you that you can constrain on that expense growth for that kind of rate?

Elizabeth, I will tell you that I'm absolutely comfortable but I'll ask Holly to give you a little more granularity on where we are and why we feel that way. As you know, one of the other areas where we really authorized some overspend in the first quarter in conjunction with the things Holly mentioned was aggressively get after tree trimming because it is always more dollar per mile trimmed cost-effective when the leaves are where they belong in the winter rather than where they are when we enjoy them in the summer. I'll let Holly give you a little more flavor on that.

So, in direct answer to your question, I'm very comfortable that we're right on track. We do forecast a certain amount for storm damage. We don't necessarily time it out by quarter. But we can comfortably handle what we've experienced. We fully expect to go in and seek rate recovery for that which would be a further positive on that. As you know, we are recovering in that $30 million that I was speaking of, about $7 million associated with the Ohio ice storms from '04, '05 that we're now recovering through rates in Ohio. We're hoping for a similar outcome in Oklahoma. Again, even that is well within line of what we expected.

The 25 or so million of generation expenditures associated with those major tie-in was expected but obviously isn't going to be recurring through the balance of the year, Elizabeth. As Mike mentioned, we did have between 10 and $15 million of accelerated vegetation management tree trimming type expenses that was very productive work we could get done in the first quarter. All in all, it was a timing issue. We're comfortably on track.

Okay. Can you just give us an idea on coal costs, are they coming in relative to your assumption I think on the last call, you said for the year, you're assuming 38.80 a ton.

The first quarter was very productive for us in coal costs. The escalations were not near as high as we thought that they might be. However, we are not changing our 7 to 9% range for the full year because we, again, had some advantages by some events that happened on the river, as you know, we also, because of the ultimate tie-in and the performance of the now environmentally upgraded stations, we're trading high sulfur -- excuse me, low sulfur compliance coal for much cheaper high sulfur coal which now can be handled at those stations and we actually are seeing benefits there, Elizabeth, a little bit better than we thought that we would. But Chuck would shoot me if I said that we now look at the overall year being a little less -- I would argue that we're trending on the downside of the 7 to 9% and if I go beyond that, portal Chuck will jump off the building and I don't want to have that happen. I continue to say, and every time I see an announcement of somebody buying coal at X or Y price, I send it off to Chuck and say so, where are we? I don't think there's -- and obviously this sounds extremely parochial but there is no better coal buying team than the American Electric Power team, period.

Thanks very much.

You're welcome.

We'll go to the line of Ashar Khan with SAC Capital.

Ashar, good morning.

Good morning, Mike. Mike, can I just ask you as a regulatory strategy, doesn't it make sense as you try to negotiate your next Ohio move that you go through an auction process to determine what the prices are? Which FE might do it and hence put yourself in a position to bargain with the regulator in terms of being able to quantify what you're giving up as part of a process and secondly, don't you have to do that as part of the Supreme Court decision on your case?

No, Ashar, the latter part of your question, let me make sure we're clear on that. The issue with the Supreme Court was a bit of a misread of what the customer's options were on the AP Ohio system versus the FE system.

Okay.

And in fact, the customers were free to select a different provider if they so wanted. I think that we have cleaned that up by way of a settlement with all of the parties and that should be being addressed by the Commission in the very near term and we'll have that entire point behind us.

Now, as to your creative idea, that's why we always love to do these earnings calls. We're liable to learn more than we give, that might well be a great way to establish the delta between A and B and as the discussions that we shared with Paul in answer to a more robust answer to one of the questions Dan had asked, that might welcome into the picture itself. So that you can verify what it is. Now, there are two schools of thoughts there. You might do better in negotiating the frightening number that might come in or you might do worse by finding a real number that is more on the low side of that $0.05 to $0.06 and $0.06 plus that we tried to forecast before. So it is an issue that we thought long and hard on. And it will become part of the discussion because, for us, the real challenge will be how to identify the rate that we think would happen and this concept might well give you a much more concrete view of what the rate really is. The naysayers would come in and say well, the bidding at American Electric Power was a bit of false bidding because everyone knows they intend to satisfy that with an extension of a rate stabilization plan. So they would argue that maybe those aren't real numbers.

Okay. Because I just think of a market price forced into your arguments, I understand what the negatives and the positives are. But I just think it makes for much, from the Company's perspective, a much more stronger case going into a negotiating posture.

No argument with you. You've already thought through the pluses and the minuses as have we. Thanks for the idea.

Thank you.

That's the idea.

Thank you. We'll go to the line of Michael Lapides with Goldman Sachs.

Hi, guys. Mike, how are you?

I'm well, thanks, how are you today?

I'm great. Question for you really on the projects at SWEPCO, at PSO. You've got a number of generation projects kind of in the pipeline or in the development phase. And you're actively talking with your regulators. Can you go talk about the larger projects down there? And give us an update on where they are and what the next milestones we need to pay attention to are?

Actually, as you know, there are almost two sets of projects going on in the Western footprint. The gas-fired facilities are moving along quite nicely with what we believe to be very solid regulatory support. The two ultra super critical plants are moving along on the engineering design and EPC front quite nicely. In fact, we've got some prices locked in on one of the facilities that we're awfully encouraged by. But unfortunately, the regulatory process is moving a bit more slowly than we thought that it would. We have applications in front of all of the areas and we just had our annual meeting in Shreveport earlier in the week and Venita McCellon-Allen who is the President of SWEPCO reports that out of 11 ultimate approvals that we need, five or six are in hand and the others are moving along.

As you know, these are very, very important decisions for in state regulators and although we would wish that they would do these things more rapidly, we will simply stay the course and continue to push forward and answer all questions asked. But I would say the gas plants are moving along quickly. The 24/7 base load plants which are really essential to the overall needs in SBP are going at a regulatory pace that is okay, but not near as robust as we would like it to be.

And can you -- on that kind of the regulatory process for the base load plants, what is the -- for each one, what is the procedural schedule or what is kind of the time line we ought to think about in terms of when staff testimony might come and when a final -- really a final yea or nay answer from the Commissions may occur?

That unfortunately, Michael, is beyond my pay grade. I'll have Julie or someone from the IR group get back to you because we know those dates. I just don't have them in my head.

Right. Thank you.

Thanks for the question.

Thank you. We'll go to the line of Daniele Seitz of Dahlman Rose. Please go ahead.

Thank you. I just was wondering, has there been any new estimates on the IGCC plans and because we saw new estimates from other companies and I was wondering if your estimates were still okay.

Daniele, good morning.

Hi.

Thanks a lot for that question. That's really, as I mentioned in my own remarks, we are in the final give-and-take between the -- what we call the GE Bechtel team and our folks. The numbers are coming in very comfortably where we thought that they would 20 to 30% higher than a typical pulverized coal plant would be in today's marketplace. Now, realize that the overall cost of a typical pulverized coal plant have escalated some as well. Our point has always been that the delta between the two needs to be in that range. I would complement both GE and Bechtel for being very aware of the challenge and very proactive about the process and in that process, making sure that we didn't lose what we consider to be very important commitments on behalf of the vendors to stand behind the performance of their equipment once in place and once running.

So we hope to be in the public arena with that data in the first or second week of May. We'll make a regulatory filing in the Appalachian power case, sometime early May and then we'll make a more perfunctory filing in Ohio also in that sense because while the Ohio matter pends before the Supreme Court, we will simply share with them the data that we have today. But we're still very much encouraged by what we see, particularly when we think in terms of the activity going on in Washington as it addresses all of the Clean Air Act Amendments as well as the potential global warming issues. So we're still comfortable. We've seen some of the other numbers. They may look a little stronger than ours. But that has a lot to do with us being the first mover.

And basically, the design is going to be state-of-the-art, whatever Washington wants it to be?

Well, it will be, but we all need to be sober about the reality of what one can do with carbon capture and the time line that the technologies are needed. Even in integrated gas, as you capture the carbon, you introduce to the gas turbine machine a fuel that is considerably more hydrogen rich than it would be when you don't sequester or capture and store the carbon coming out of the fuel stream. And there are technological changes that General Electric is working on every day that need to ultimately be available. There again is not much worry about will it work. It is just a matter of how can you do that and still leave the output at the end of the turbine electrically as high as it can be based on the fuel input at the front of that turbine. So, those are technological challenges. I can tell you from -- I was really quite encouraged by the opportunity to testify at the House and [Mike Renchak] is going to be, in fact is testifying today at the Senate in front of Senator Kerry's panel on this very issue.

I think that the collective Legislative learning curve is substantial on these issues. And so long as whatever comes out of Washington is technologically feasible on a time line that is accomplishable, we feel very comfortable that integrated gas will be there. We also feel our post combustion carbon capture and storage technology moves are critically important in that regard as is the oxyfuel undertaking that we and others are doing with Babcock Wilcox. So, I'm encouraged by the balance that we're beginning to see in Washington and if someone is simply looking for a political spin, they could pass a law that would never come to reality only because technology and time wouldn't allow it to happen. And I think what we're seeing is a much more balanced approach, particularly by Congressman Dingle and Congressman Boucher.

Thank you very much.

(OPERATOR INSTRUCTIONS) That will go to the line of David Frank with Catapult Partners.

Good morning, Mike. How are you?

I'm fine.

Just to go back, you had a couple of questions on strategy in Ohio, I guess. And it was my take and I just want to confirm that the strategy is -- you're just going to basically be an opportunist and whatever the best deal that's presented out there you can follow and I mean is the goal to let other people perhaps rattle the cages and push for going to market but that doesn't necessarily mean you wouldn't go to market if given the opportunity.

I think that's a very accurate analysis of where we find ourselves. If the process that unfolds simply doesn't allow for us to be as opportunistic and respectful of the customers as we would like, the law in Ohio to date remains go to market and we would take full advantage of that.

So, there's no reason why one company would be given a preferential outcome to another company in this state?

I can't imagine that that would happen. And I think it would be -- it would be the wrong approach for us to take. In the discussions to date, there has been an effort to accommodate either approach and as we have shared with all of you before, it could well be that we would implement market prices yet we would stage the implementation of those market prices into the market place itself. With a stair step so that we would be maintaining a regulatory asset between what's collected versus what the actual market price is. We're not certain how this will unfold but we feel very comfortable that we'll have an opportunity to make certain that we are as respectful of the Ohio economy as we can be while at the same time not losing sight of our overall obligation to ensure that our shareholders receive the full opportunity that our incredibly cost-effective generation provides to them.

Great. Last question, do you have any sense of timing on when legislative activities might pick up?

No, Paul asked that question, too. I'm comfortable that it has to be '07. I think that the governor continues to, as you know, there are two overriding issues, very important in this state. One his budget which he put in front of the House and Senate some time ago. It is in full debate. And very balanced, I might add. Secondly, the challenge like all other of the 49 states in our beautiful 50 bouquet, education needs to be fully funded and needs to be adequately recovered in the tax basis and the executive office, new to the challenge, continues to struggle with that. The third issue on his platform continues to be energy, energy technology breakthroughs. He constantly speaks very supportively of advanced clean coal technologies. So, I think this is, the time is ripe and it will be in '07 activity. I think we're all in agreement with that.

Thanks a lot.

You bet, David. Thank you.

Our next question comes from Vikas Dwivedi with Morgan Stanley.

Good morning, Vikas.

Just a quick question on the PJM capacity markets. You guys chose the fixed resource requirement opt out. Are there any options given the strength of the other region results, the other part of PJM which you guys are in, the kind of extra strong result we saw and your ability to sell some capacity even though you've kind of -- you're obligated to the native load.

Again, what an excellent question. And typically, that means that I think I've got an excellent answer so let me roll that out for you. When we decided to opt out of the capacity program, it had everything to do with what we believe is a long-term obligation to our customers to see to it that we have adequate supply to satisfy their demands and not put them in harm's way of accepting whatever the market dictates costs to be. That worked out perfectly for us in this PJM auction undertaking and we're really, really pleased on behalf of our customers how that worked.

That also gave us the ability to your suggestion, to go forward and put additional capacity into that marketplace, that which we would not need for our native load. We did that. And we were quite pleased with the capacity pricing that came forward. We find that to have worked almost perfectly to the way that we hoped that it would. And then as Holly mentioned earlier, we'll be bringing some additional capacity with both Darby and Lawrenceburg into the fold in the very, very near future and we will be the recipients of the capacity bids that those particular current owners put in to that PJM system. So, in today's sports vernacular, to us, this whole thing looked like about a six run home run.

Got it. Thank you. And then the last question I had was just coming back to construction costs, are you guys seeing them level off now? Are there still some cost factors that are moving around whether it is materials or labor or kind of what have you. It seems like a lot of companies are still talking about fairly fast rising costs or maybe that info is now starting to get stale and they're actually kind of leveling off. Just your thoughts on that, Mike.

Well, we're not seeing any leveling off in that regard at all. The worldwide demand for the kinds of equipment that we all need continue to escalate. The worldwide demand for the physical labor force to build these facilities continues to be short and therefore those prices escalate as we go forward as well. But when you look at the AEP portfolio, we actually have, on many of our undertakings, a tied down firm pricing and our vendors are simply performing as you would expect them to. These are very large organizations who have done business with us for years and intend to do business with us for years going forward.

That really goes back to my comment earlier on, in one of the plants out West, we already have very handsome prices locked in for labor, for equipment, and for all of the other things and of course, that locked in period does have a time line on it and we're trying to encourage the state regulators to take full advantage of what really is a price break for our customers as we go forward in that regard. So, two things. As to your question, no, there is no leveling off but secondly and very importantly, as to the early moving on the environmental ads, as to the early moving on buying in the gray market for the gas facilities and tying down vendors and suppliers on the 24/7 plants, we're seeing ourselves at a price advantage that we would love our customers to ultimately experience.

Got it. Thank you.

You bet, Vikas, thank you.

Thank you. We'll go to the line of Margaret Jones with Citigroup. Please go ahead.

Good morning, Margaret.

Good morning. I had a question following up on what you were talking about on the Ohio process. What definitions have been advanced so far of what it means to go to market? Are you envisioning an auction of some sort? Or some other process and what's going on to determine how this would happen? I mean assuming, of course, that at the end of the day, anything along those lines does happen.

Sure. I guess, Margaret, I said that the time was ripe for these discussions. I didn't mean that the fruit was ripe for picking. It is really premature to offer how we think that might all unfold. The definition of what it means to go to market is up in the air and in vibrant discussion. And it would really be premature for us to try to forecast how that might end.

The point that we have made and continue very strongly to try to make is that we understand our obligation to our shareholders to make certain we capture as much of the value that we can in this process while our obligation is more than two quarters or two years, our obligation is really a long-term commitment to see to it that investments at American Electric Power reward the investor for being there and not just for tomorrow but for a much longer play and to that end, what we do not want to do and what we continue to strive to accomplish is not shocking the Ohio economy, such that we lose industrial followed by commercial, followed by residential load and have a dramatic impact on the overall strongest and largest portfolio of the 11 states where AEP does business. We'll continue to discuss as openly as we can with others in that regard. But to offer you today a definition of what it means to go to market would be surely premature.

Thank you.

You bet.

We'll didn't to the line of Phyllis Gray with Dwight Asset Management. Please go ahead.

Good morning, Phyllis.

Good morning. I was wondering if you could comment on some speculation that's taken place by CEOs of the big nuclear operators that the price of an IGC plant and a new nuclear plant appear to be converging?

It would be better for you to get their numbers from them and we're very comfortable with our 20% to 30% above pulverized coal for the integrated gas plant. But I appreciate the question as we all try to sort out the tail end of the question that Vikas asked us. Just think about this though. Think about one individual company in the world that makes the most important component part for a nuclear station. Understand that there are 70 some units on order by that one manufacturer worldwide. None of them currently U.S. except maybe Areva has one or two on order. You can speculate for yourself.

Thank you.

We have no further questions.

Well, let us thank all of you. The hour is up and I know this is a busy day and others are announcing. We'll close by simply saying thanks for the support. We're very comfortable about our guidance for the year. And we hope to see you not at the second quarter update but many times in between. Bye-bye.

Thank you. Ladies and gentlemen, this conference will be available for replay after 12:30 p.m. today through midnight, May 3, 2007. You may access the AT&T Teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 868925. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844 and enter the access code 868925. That does conclude our conference for today. Thank you for your participation, and for using AT&T Executive Teleconference. You may now disconnect.