AEP 4Q earnings fall 34 percent on charge

COLUMBUS, Ohio - American Electric Power said Thursday that its fourth quarter earnings fell 34 percent because of a federal ruling and warned that the economic picture for industrial clients is worsening.

AEP, one of the nation's largest power generators, maintained its recently adjusted 2009 profit outlook of $3 to $3.40 a share, even amid declining industrial sales and softening residential demand due to the recession.

AEP said it made $152 million, or 38 cents a share, for the quarter ended Dec. 31 compared with profit of $231 million, or 58 cents a share, in the year ago-quarter. Revenue rose to $3.5 billion in the quarter from $3.3 billion.

Discounting charges for the quarter and the year-ago quarter, AEP made $237 million, or 59 cents a share, in the quarter compared with $209 million, or 52 cents a share, a year ago.

Analysts surveyed by Thomson Reuters expected profit of 53 cents a share on revenue $3.1 billion. Such estimates typically exclude charge.

AEP shares rose nearly 3 percent, or 94 cents, to close at $32.70 Thursday. The stock has ranged from $25.54 to $45.95 over the past 52-weeks.

While electricity production for 2008 and for January is up slightly, Michael Morris, AEP's chairman, president and chief executive told analysts that economic conditions are worsening.

"It is clear that we are beginning to see and continue to see announcements by our industrial customers that they will be lowering the output of their products as the recession or the current economic conditions send them very negative signals," he said.

Because of where the company operates, "we are slow to see recessions. Unfortunately, we are slow to come out of them," he said.

Consumption by commercial customers looks to be flat or up slightly even with problems in retail, such as the bankruptcy filing by Circuit City and the store closings by Starbucks, he said.

"It is still too early for me to give you much comfort of where we think '09 total output will be," he said. "We don't think it will be as robust as 2008."

U.S. electricity demand fell 1 percent in the fourth quarter and it will likely fall 0.5 percent in 2009 before rebounding in 2010, according to the Energy Information Administration.

Like other companies and utilities, AEP has been cutting capital expense budgets, drawing on credit lines and hoarding cash to make sure it has adequate amounts of money on hand. AEP has said it plans to reduce its 2009 capital expense budget by $750 million.

AEP recorded charges of $85 million in the quarter, mostly because of an order by the Federal Energy Regulatory Commission issued in November that requires AEP to issue refunds to some of its subsidiaries for sales from June 2000 to March 2006. The refunds go to AEP subsidiaries in Arkansas, Louisiana, Oklahoma and northeast Texas.

Some of the money will go back to customers. AEP is appealing the order.

For 2008, AEP made $1.4 billion, or $3.43 per share, compared with $1.1 billion, or $2.73 per share, in 2007. Discounting charges, AEP made $1.3 billion, or $3.24 a share, in 2008 compared with $1.2 billion, or $3 a share, in 2007.

Revenue rose to $14.6 billion, up from $13.4 billion in 2007.

Morris said in a statement that the company benefited from new rates in five jurisdictions in 2008 and another one for Oklahoma this year. New contracts with municipal and rural electric cooperatives and the full-year benefit of serving a large aluminum producer in Ohio.

He told analysts that he expects the company to be able to more narrowly define its profit expectation for the year once Ohio rules on its pending rate case. The company is seeking increases of 15 percent a year over the next three years.

Morris also told analysts that he expects a reactor at the Donald C. Cook Nuclear Plant in Michigan to return to service toward the end of 2009. The reactor shut down in September because of a fire.

AEP serves 5 million customers in 11 states.

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