Business Performance

Fleet Transformation Plan

AEP's generating fleet transformation plan is being driven by changing environmental regulations, changing fuel supply opportunities and changing customer demand. As the operating environment has evolved, so has our plan to address these issues. By investigating more cost-effective alternative compliance options, we have reduced by $1 billion to $2 billion our original estimated cost of compliance with regulations. Our plan is designed to meet the needs of our customers, maintain the reliability of the grid, diversify our fuel portfolio and comply with new regulations. By reducing our estimated capital investment for environmental compliance, we are able to divert resources to other growth areas of the company.

Historical And Projected AEP Enviornmental Investments

We reviewed options for every affected coal unit, which led to our ability to lower our original estimated cost to comply. The solutions we are pursuing are cost-effective. For example, our current plan to transfer a 50 percent interest in the Mitchell Generating Station will allow for the retirement of the 800-MW Unit 2 of KPCo’s Big Sandy Plant in 2015, the same year that the 278-MW Unit 1 is scheduled to be retired as a coal-fired generator. A future option for Unit 1 may be to burn natural gas; however, a final decision has not been made. Originally, we had planned to install environmental controls on Big Sandy Unit 2, but after further review of emerging options (such as the availability of the Mitchell Units) we decided to pursue the Mitchell plant transfer, which will have a lesser rate impact on customers.

Our transformation plan will result in carbon dioxide reductions from the existing coal fleet, as natural gas and renewables account for a larger portion of our fuel mix and as we retire coal units. In addition, we are continually seeking opportunities to improve the overall efficiency of generating units. Higher unit efficiencies will lead to reduced CO2 emissions on a normalized output basis.

At this time, we expect to retire approximately 5,500 MW of generation by the end of 2016. In addition, we plan to either install or upgrade emissions control systems, or complete natural gas conversions, on nearly 11,000 MW of capacity between now and 2020. In 2012, we retired approximately 615 MW of coal generation. We estimate the total cost of meeting current, pending and proposed environmental requirements at $4 billion to $5 billion from 2012 through 2020 – on top of the $7 billion spent on compliance since 1990. This does not include the cost to operate and maintain the units once the controls are installed, or future costs of building additional replacement generation and incremental fuel cost increases.

A number of factors have contributed to significant reductions in AEP's SO2, NOx and mercury emissions. Since 1990, SO2 and NOx emissions have each been reduced by about 80 percent while mercury emissions have declined by nearly 60 percent since 2001. Among the factors that led to decreased emissions include the installation of controls, such as scrubbers and SCRs, on coal units that also remove mercury; the installation of activated carbon injection at the Rockport Plant in Indiana, specifically to reduce mercury; changes in the types of coal we used during that time; retirement of coal units; and reduced overall generation from coal plants due to economic conditions and low natural gas prices. Mercury emissions information is reported to the EPA under the Toxics Release Inventory program.

Customers who saw their electricity bills increase in the past decade to pay for environmental regulations face additional rate increases resulting from AEP’s actions to comply with the new regulations. The effect will be felt the most in our eastern service territory. Regulators and customers have become increasingly vocal in their resistance to additional rate increases. We continue to work closely with our operating companies, regulators, communities and individual customers to address their concerns and to assure that decisions are made collaboratively.

AEP Generating Unit Retirements

Closing Bell at the NYSE

AEP CEO Nick Akins was among a group of executives to ring the closing bell at the NYSE at the close of 2012 COMMIT!Forum in New York City.

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