<PAGE>
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- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 99.2
AMERICAN ELECTRIC POWER
THE RACE IS ON!
[ILLUSTRATION OF RACE CAR]
SUMMARY REPORT
TO SHAREHOLDERS
<PAGE>
ABOUT OUR COVER THEME
The engine is tuned, the pit crews are primed, everyone is cued. All we're
waiting for is the flag to drop.
When full competition comes to the electric utility industry, AEP plans to be
one of the first off the starting line. We've spent several years preparing by
assessing customer needs and improving service, reducing costs, training our
crew and developing the latest competitive technology. This summary annual
report outlines many of the major activities of the year, highlighted by the
pending merger with Central and South West Corporation, that will position us to
compete in the future.
<TABLE>
<CAPTION>
HIGHLIGHTS OF 1997
- ---------------------------------------------------------------------------------------------------
1997 1996 % Change
<S> <C> <C> <C>
Income Before Extraordinary Items (in millions) $ 620.4 $ 587.4 +5.6
Net Income (in millions) $ 511.0 $ 587.4 -13.0
Earnings Per Share Before Extraordinary Item $ 3.28 $ 3.14 +4.5
Earnings Per Share $ 2.70 $ 3.14 -14.0
Operating Revenues (in billions) $ 6.161 $ 5.849 +5.3
Cash Dividends Per Share $ 2.40 $ 2.40 --
Year-end Closing Stock Price $51 5/8 $41 1/8 +25.5
Book Value at Year End $ 24.62 $ 24.15 +1.9
Total Energy Sales (in millions of kilowatthours) 145,423 132,573 +9.7
Total Assets (in billions) $16.615 $15.883 +4.6
Retail Customers (at year end) 2,980,023 2,943,016 +1.3
Total Employment (at year end) 17,844 17,951 -0.6
</TABLE>
AMERICAN ELECTRIC POWER is one of the nation's largest electric utility holding
companies, providing electricity and related services to customers in parts of
Ohio, Michigan, Indiana, Kentucky, West Virginia and Tennessee. AEP's 38 power
plants have a capacity of 23.8 million kilowatts. The AEP transmission and
distribution system is one of the largest in the world, with 22,000 circuit
miles of transmission lines and 119,000 miles of overhead and underground
distribution lines. In addition to the United States, AEP has operations in the
United Kingdom and China.
American Electric Power is a leading advocate of customer choice in the electric
utility industry. This summary annual report highlights how AEP is positioning
itself to participate in a more competitive energy industry in the United States
and throughout the world. The summary annual report to shareholders contains
financial highlights from 1997. Full disclosure of all financial information is
included in 1997 Financial Statements and Management's Discussion and Analysis
of Results of Operations and Financial Condition. Additional information about
AEP also is available on the internet at http://www.aep.com.
CONTENTS
- -----------------
Message to Shareholders 1
CSW Profile 4
CSW Merger Q&A 6
Preparing 10
Competition 12
Teamwork 14
Succeeding 16
Summary Financial Information 18
State Presidents 25
Leadership 26
Directors 27
Shareowner Information 28
2
<PAGE>
Dear Fellow Shareholders,
Without a doubt, last year was one of the most significant in the history of
AEP. From our purchase of 50 percent of Britain's Yorkshire Electricity
Group to the construction of the Inez project to our pending merger with
Central and South West Corporation, we have moved aggressively into new
countries, new technologies and new territories. Never have we been as poised
for success as we are at the beginning of this dynamic era in the energy
industry.
I couldn't be more pleased with our agreement to merge with Central and
South West, a Dallas-based utility holding company that will make a great fit
with AEP. This is an ideal merger. Both of us are low-cost energy providers
well positioned in our markets to grow; both have a strong and expanding
international presence and complement each other exceedingly well; and both
management teams share a common philosophy about the coming changes in the
energy industry. This is a merger between two strong, well capitalized
companies.
While we made solid progress on many fronts during 1997, it was a mixed year
for us financially. For 1997 we reported that net income, before a one-time
charge, increased 6 percent to $620 million, or $3.28 a share, from $587
million, or $3.14 a share, in 1996. The one-time charge of $109 million was
caused by a windfall tax imposed by the United Kingdom on utilities that have
been privatized. After that non-recurring charge, earnings decreased 13
percent to $511 million, or $2.70 a share.
Operating income declined 2.3 percent, to $984 million, because of mild
weather, unplanned generating outages, and increased wholesale competition.
We achieved total energy sales of 145 billion kilowatthours during 1997, a
record and a 10 percent gain over the 1996 level, mainly due to our wholesale
power marketing efforts. Our Energy Delivery Group expects to complete the
first-of-its-kind transmission control system at the Inez station in Kentucky
this spring. This breakthrough technology promises to give us an
unprecedented ability to manage the quality and quantity of the power we send
over transmission lines.
Our coal-fired and hydro generating facilities had a record year as they
produced 126 billion kilowatthours of power, a 4 percent increase over 1996.
Our affiliated coal mines had another outstanding year of production and
continued their industry-leading safety performance.
3
<PAGE>
On September 9, we took our nuclear power facility, the Donald C. Cook Plant,
off line to address issues raised during a plant inspection about the backup
cooling systems. The action was not the result of any equipment malfunctions
or operational events, but concern about how safety system designs have been
documented and maintained against the original design of the plant. The
result is that approximately 2,100 megawatts, or 9 percent of our capacity,
have not been available for sale. We are working with the Nuclear Regulatory
Commission to resolve these issues and return the plant to production as
quickly as possible.
AEP's stock reached a recent high last year, closing above $50 on Dec. 1 and
then closing at $52 on Dec. 19. Our stock's performance resulted in total
shareholder return of 32.7 percent, assuming dividend reinvestment. For the
fourth consecutive year we met our strategic goal when AEP's three-year total
shareholder return was in the top quartile of the companies in the S&P
Electric Utility Index.
Our stock price obviously benefited from the overall gains in the securities
markets last year. But it also reflects investor response to a year of
distinction. For example, in October we announced two joint ventures with
DuPont's energy subsidiary, Conoco, to purchase and manage industrial and
large commercial energy facilities nationwide. AEP Conoco Energy Capital will
acquire and lease back energy facilities, initially at DuPont sites, and will
provide capital for future energy projects. AEP Conoco Energy Management
Services will manage those sites, bringing to bear the combined energy
expertise of two leaders in the electricity, gas and oil industries.
Our energy trading business, which began in earnest last year, has tremendous
potential to help us utilize our capacity and add profits. We have assembled
a team of experienced traders who have been able to take advantage of AEP's
efficient, low-cost generating capacity to put us in the fast-paced trading
business.
In last year's annual report I was able to tell you about our agreement to
purchase Yorkshire Electricity Group, plc, along with an equal partner,
Public Service Company of Colorado, now known as New Century Energies, Inc.
We completed that purchase in April and have been pleased with its people and
performance. Yorkshire is a well-run, well-positioned utility based near
Leeds, England, that is in the forefront of the industry's move, virtually
worldwide, into competition and customer choice.
[PICTURE]
[PICTURE]
FISCAL 1997 HIGHLIGHTS
January 14.
- -----------
AEP Communications and Sprint agree to build 150-mile-long fiber optic line
between Charleston, West Virginia, and Roanoke, Virginia.
February 24.
- ------------
AEP and New Century Energies, Inc. announce they will purchase Yorkshire
Electricity Group plc in Great Britain.
March 31.
- ---------
Purchase of Yorkshire Electricity passes review of British regulators and
becomes unconditional on the part of AEP and New Century Energies the next
day.
July 23.
- --------
AEP chosen to supply 100 megawatts of electricity to alliance that will serve
an AK Steel plant under construction near Rockport, Indiana.
4
<PAGE>
Among the issues that will demand our attention in the upcoming year are:
- - Our plans to ensure quality transmission service into Virginia and southern
West Virginia via a high-voltage transmission line. Since we constructed the
last major backbone line into that area in 1973, demand for electricity has
increased 136 percent. As growth continues and average household and
commercial use of electricity increases, there is no doubt that additional
transmission capacity is needed.
- - The Year 2000 computer problem, which faces virtually every public and
private organization in the world. We have assembled a task force and
employed one of the world's foremost computer consulting companies to address
the problem. It's our goal to have all critical systems fixed in the first
part of 1999.
As we did last year, we are enclosing in this summary annual report a
response card if you are interested in supporting the company on critical
legislative issues. Please fill out and return this postpaid card and we will
notify you when an issue arises of particular importance to shareholders of
AEP.
Finally, I want to note the approaching retirement of two of our senior
officers. Pete DeMaria and Jerry Maloney, members of the AEP board and both
vice chairmen of the service corporation, have dedicated a combined 80 years
to making AEP a better company. Their knowledge and experience have been
invaluable. Both will retire from the board at our 1998 annual meeting. I
wish them much happiness and success in their new lives.
At AEP, we are always looking toward the future in terms of customer service,
energy supply, transmission, distribution and reliability. We believe we must
continue to perform superbly in our core business if we are to do well in our
new ventures. We approach the year 2000 ready to provide world class energy
products and services with our heritage of efficiency, innovation and cost
effectiveness. Let the race begin!
/s/ E. Linn Draper, Jr.
- -----------------------
E. Linn Draper, Jr.
Chairman of the Board
Chief Executive Officer & President
February 25, 1998
October 2,
- ----------
AEP agrees to form two joint ventures with DuPont/Conoco to finance and
manage energy assets for commercial and industrial users.
November 3,
- -----------
AEP announces plans for gas and electricity trading operation for the western
states, to be based in Houston. The office opens in January.
December 12,
- ------------
Opening of Call Center in Hurricane, West Virginia, to improve customer
service and response time.
December 17,
- ------------
Vice Chairmen Peter J. DeMaria and Gerald P. Maloney, with more than 80 years
of service between them, announce they will retire in 1998.
December 22,
- ------------
Central and South West and AEP announce plan to merge to form the largest
electric utility holding company in North America in terms of customers and
generation.
5
<PAGE>
AEP + CSW [margin]
AEP + CENTRAL AND SOUTH WEST
A PERFECT FIT
Our proposed merger with Central and South West Corporation will bring
together two utilities ideally suited for the competitive environment ahead.
Our size, our market presence, our geographic location and our international
operations present us with opportunities that few other existing companies
will have.
The combined system will operate in 11 states. We'll supply power to 4.7
million customers, making us the largest single electricity supplier in the
nation. Our mix of coal, gas and nuclear facilities will give us a diversity
of low-cost generation. Our global subsidiaries will operate in some of the
fastest growing markets in the world and provide significant opportunities for
growth and expansion.
Our shared commitment to excellence, customer service, customer choice,
technology and employee growth and development provide the synergies
necessary for a company preparing to meet the competition head on.
Combined Service Territory [Map]
[picture]
CSW is a leader in renewable energy projects, such as this wind farm in Fort
Davis, Texas.
[picture]
AEP's expertise, in transmission is renowned throughout the utility industry.
[picture]
CSW's 330-MW Sweeny Cogeneration Project uses what used to be considered
waste gas for fuel.
[picture]
AEP & CSW have a broad reach of business interests, both in the U.S. and
around the world.
[picture]
Yorkshire Electricity Group and SEEBOARD are regional electricity providers
in the United Kingdom. Like AEP and CSW in the United States, each is known
as a low-cost provider of electricity.
6
<PAGE>
AEP + CSW [margin]
FAST FACTS
<TABLE>
<CAPTION>
Central Public
Power Service Southwestern West Texas
and Co. of Electric Utilities
Light Co. Oklahoma Power Co. Co. SEEBOARD CSW AEP* Combined*
- ----------------------------------------------------------------------------------------------------------------------------------
Corpus Crawley
Christi Tulsa Shreveport Abilene W. Sussex Dallas Columbus Columbus
Headquarters TX OK LA TX UK TX OH OH
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KWH Sales US (in millions)... 21,839 15,616 22,533 7,335 -- 63,157 145,423 208,580
KWH Sales UK (in millions)... -- -- -- -- 19,203 19,203 14,756 33,959
- ----------------------------------------------------------------------------------------------------------------------------------
Employees U.S................ 1,668 1,273 1,529 907 -- 7,254 17,844 25,098
Employees U.K................ -- -- -- -- 4,161 4,161 3,977 8,138
- ----------------------------------------------------------------------------------------------------------------------------------
Service Area Size U.S.
(sq. miles)................ 44,000 30,000 25,000 53,000 -- 152,000 45,400 197,400
Service Area Size U.K.
(sq. miles)................ -- -- -- -- 3,000 3,000 3,900 6,900
- ----------------------------------------------------------------------------------------------------------------------------------
Customers U.S. (average)..... 627,900 481,400 415,900 186,700 -- 1,712,000 2,959,000 4,671,000
Customers U.K. (average)..... -- -- -- -- 2,014,000 2,014,000 2,071,000 4,085,000
- ----------------------------------------------------------------------------------------------------------------------------------
Generating Stations U.S...... 12 8 9 11 -- 38** 38 76
Generating Stations U.K...... -- -- -- -- 1 1 10 11
- ----------------------------------------------------------------------------------------------------------------------------------
Generating Capacity U.S. (MW) 4,377 3,660 4,474 1,228 -- 13,739 23,759 37,498
Generating Capacity U.K. (MW) -- -- -- -- 675 675 329 1,004
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues (000's)............. $1,376,282 $712,690 $939,869 $397,778 $ 1,869,584*** $5,268,000 $6,161,000 $11,352,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income for Common
Stock (000's).............. $ 121,350 $ 50,053 $ 92,254 $ 22,402 $ (58,994)*** $ 153,000 $ 511,000 $ 664,000
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Cash Flow (000's).. $ 399,640 $121,654 $200,488 $ 95,246 $ 53,732*** $ 726,000 $1,198,000 $ 1,924,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets (000's)......... $4,813,310 $1,447,681 $2,094,746 $802,148 $2,931,355*** $13,451,000 $16,615,000 $30,066,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
* AEP acquired a 50% interest in Yorkshire Electricity Group plc, a UK
electric distribution company, on April 1, 1997, which is accounted for on an
equity basis. AEP's KWH sales UK are for the nine months ended December 31,
1997.
** Adjusted for joint ownership.
*** At the SEEBOARD USA level which is based on US accounting standards and
includes allocated corporate costs.
The combined company will be the biggest in the country in terms of customers
served.
[picture]
The General James J. Gavin Plant is one of the flagships of AEP's generation
system.
[picture]
Public Service Co. of Oklahoma crews serve an area similar to AEP in its
culture and terrain.
[pie chart]
Combined U.S. Plant Capaciity by Fuel Source
// Coal/Lignite // Hydro // Nuclear // Gas
AEP's Energy Delivery teams provide reliable service in parts of seven states.
7
<PAGE>
AEP + CSW [margin]
BEHIND THE DECISION TO CREATE
AMERICA'S PREMIER ELECTRIC COMPANY
A conversation with Dr. E. Linn Draper, Jr., chairman, president and chief
executive officer of American Electric Power Company, Inc., and E.R. Brooks,
chairman and chief executive officer of Central and South West Corporation:
Q: You both said when announcing this merger that AEP and CSW were ideal
merger partners. Why?
A. Brooks: We had been looking for an opportunity to merge with a
successful company that shared our strategy and our culture. We wanted a
partner that was dedicated to serving our shareholders in the competitive era
ahead by becoming an innovative, diversified leader in global energy
markets and related services -- our strategy. And one that emphasized
low-cost generation and excellent customer service -- our culture. In my 36
years of experience, I've never seen a company that was a more perfect fit
with CSW than AEP.
[PHOTO GOES HERE]
A. Draper: As we've learned more about each other in the past few months,
we've found that our culture is even more compatible than we initially had
realized. Except for the climate, our service areas are very similar. We both
primarily serve large rural areas and small to mid-size cities. When you
think about it, Fort Wayne and Roanoke, in AEP's territory, are a lot like
Tulsa and Shreveport in CSW's. We shouldn't have any trouble adapting to each
other's service territories because, in all of them, the same types of
personal relationships with customers are especially important.
[PHOTO GOES HERE]
A. Brooks: AEP also brings us some important capabilities that we need. We
have been working to develop a significant electric power trading and
marketing business. AEP already has that. Together we will have a name brand
identity that will be a great springboard for marketing electricity and other
products and services throughout the United States.
A. Draper: We have many more similarities than differences, but even many
of the differences are strengths. AEP's industrial customers are largely in
primary metals, like steel and aluminum; CSW's industrial customers are
largely in petrochemicals and refining. AEP is primarily a coal-burning
utility, with a little nuclear power; CSW has a large natural gas capability.
This means that we will have greater diversity in types of customers and in
fuel use, which will be an important competitive advantage.
- -------------------------------------------------------------------------------
We will be a global power with a healthy diversity of fuels, types of
industrial customers and climate patterns, and dynamic industrial operations.
- -------------------------------------------------------------------------------
Q. How will this merger benefit shareholders?
A. Draper: We expect shareholders of both companies to benefit from the
outset. Our studies show that the merger will add to cash flow from Day 1,
and our financial models show that the merger will dilute the earnings per
share of AEP and CSW shareholders only slightly in the early years.
8
<PAGE>
AEP + CSW [margin]
However, the greatest benefit to the shareholder will be the potential of the
new combined company. We will have a diversified portfolio of low-cost power
plants, a presence in 11 states and three power pools, 38,000 megawatts of
generating capacity, and a base of customers approaching 5 million
nationally. We'll be positioned to be a major player in the international
retail energy market, as well.
A. Brooks: Both of these companies have been successful on a stand-alone
basis. Together, they will be even more competitive. And they will have the
financial wherewithal to implement our strategy in bolder ways, around the
world, than either of us could achieve separately. All that should turn into
additional shareholder value.
Q. How well will the international activities fit together?
A. Brooks: CSW and AEP mesh well in our international activities. AEP is
primarily active in Asia, where we have long-term ambitions; CSW is primarily
active in Latin America, where AEP has longer-range ambitions. We overlap
only in the United Kingdom where CSW owns a regional electricity company and
AEP owns 50 percent of another regional electricity company. We believe that
the merger will create a real global powerhouse.
A. Draper: We also complement each other in the capabilities we offer to
other countries. AEP's international work has focused on building efficient
coal-fired facilities. CSW has experience in building and operating gas-fired
generation and Western-U.S.-type-coal plants. So together we will have the
capability to build the type of plant that makes the most sense in any region
where we are working.
- ------------------------------------------------------------------------------
During the merger process, we won't be marking time. We'll be moving forward
aggressively, to assure that when the merger is consummated we can hit the
ground running.
- ------------------------------------------------------------------------------
Q. What kind of obstacles will this merger face?
[PICTURE]
A. Draper: We expect to complete the merger in the first half of 1999. Along
the way we expect two issues to be closely examined. The first is a concern
about whether the merger could create a market-dominant company. We strongly
believe that the proposed merger would not have this effect. AEP and CSW do
not operate in the same states or power pools. Neither company is now
dominant in any state is serves; the combined company will not be dominant in
any state it serves. We'll have more footprints, but none of them will be
bigger in any geographic area.
The second issue revolves around the Public Utility Holding Company Act of
1935, which requires a holding company to operate, or to be capable of
operating as an integrated public utility system. Historically, this has been
interpreted to mean that a holding company system must operate in contiguous
states. We are not contiguous but there is only one energy provider
separating us. We will purchase the right to use the transmission system of
that company to exchange power between the eastern and western operations of
our combined company. We believe that the combined company will be able to
operate as an integrated system in this way.
9
<PAGE>
AEP + CSW [margin]
AMERICAN ELECTRIC POWER
[Picture]
A. Brooks: This will be the biggest merger in the history of U.S. electric
utilities. We expect a lot of regulatory review and a lot of third party
intervention. We will seek the approval of all four states that CSW serves --
and based on our initial communications with them, I believe the response
will be positive. We believe that we do not need formal approval from the
seven states that AEP serves, but some of them are expressing a strong
interest. If the country truly is serious about creating a competitive
electric power industry, we believe, this merger between these two similar
companies should be a model for future transactions. We are confident it will
succeed.
- ------------------------------------------------------------------------------
The merger will provide growing earnings to shareholders, will protect
customers against rising prices, and will offer employees a vibrant, growing
organization with a lot of opportunity.
- ------------------------------------------------------------------------------
Q. How will the operating companies be known?
A. Brooks: One of the strengths of our U.S. electric companies is their
strong relationships and name recognition with their customers. That is a
competitive advantage. So we expect that CSW's 's four operating companies will
continue using their established names and identities, at least in the near
future.
A. Draper: All nonregulated competitive activities will probably operate
under the name of AEP with our brand as America's Energy Partner-SM-. Today
there's an ongoing debate as to what extent regulated electric companies can
use the same names and identities for other services being marketed to their
customers. We probably won't change the names of the CSW electric companies
until that matter has been decided.
[Picture]
Q. How will employees be affected?
A. Draper: The vast majority of employees who are directly involved with
serving customers or producing electricity will not be affected. The jobs
that overlap are largely corporate and administrative functions. We have
identified about 1,100 duplicate positions that we are planning to eliminate.
But we have plenty of time during the regulatory approval process to take
advantage of retirements and other attrition and to find employment
opportunities in our other growing businesses. Therefore, we believe the real
number of job losses will be much fewer than 1,100.
A. Brooks: The employees who lose their jobs will be treated fairly. Both
companies have a strong tradition of treating their employees well. For the
great majority of employees who work for the new combined company, I'm sure
there will be a great sense of pride, because they will be working at one of
the largest and most successful companies in this changing industry and of
excitement because they will see a myriad of opportunities that this new
company will offer.
[Picture]
10
<PAGE>
THE RACE
IS ON!
[illustration of race car]
<PAGE>
Developing a long-term business strategy is a lot like preparing for a race.
You have to carefully study the course, consider your options, match your
resources to the challenge and then begin to check your equipment and plot
your strategy.
At AEP that's what we've been doing for the last several years. We took a
careful look at the future of the electric utility industry by gauging
economic trends, analyzing technology and determining customer needs and
desires. After considering our options and our assets, we made a firm
decision to become an early proponent for full competition. We believe that
is what our customers want and what ultimately is best for AEP and our
shareholders. So we started looking at how we structure our work, how we pay
our bills, how we manage our plants and how we service our customers to find
the best way of doing each. The result has been lower costs, a stronger,
better trained work force and a competitive engine ready for the race.
[PHOTOS]
DEVELOPING OUR RESOURCES
Expanding our minds.
To prepare our team for the challenges ahead, the AEP Institute, formed in
1996 to coordinate the Company's employee development efforts, conducted more
than 1,200 sessions in 1997. Most of the classes dealt with "foundation"
issues, that help employees understand the changing industry.
Taking care of our land.
Our voluntary programs make a difference. Coal-burning technology we are
helping to develop will increase efficiency almost 20 percent. We're adding
to the 47 million trees we've already planted and studying ways to use grass
to better capture carbon dioxide in the atmosphere. And AEP won the U.S.
Environmental Protection Agency's Green Lights Ally of the Year award by
installing high-efficiency lights that lower CO(2) emissions by 29,000 tons a
year.
12
<PAGE>
PREPARING FOR A NEW ERA
[ILLUSTRATION OF RACE CAR AND PIT CREW]
<PAGE>
COMPETITION IS NOT NEW TO US
[ILLUSTRATION OF TWO RACE CARS]
<PAGE>
Competition means more than reducing costs and lowering prices. It means
improving service, enhancing safety, developing new systems and being
prepared to go where the road takes you. We've enhanced our efforts in
customer service by investing in a network of regional call centers, which
allow us to respond to customers faster and more efficiently. The last of the
four centers opened in December 1997 in Hurricane, West Virginia. Customers
get 24-hour-a-day access to customer service representatives while we
maximize productivity of employees. Our ability to manage and use assets like
our call centers was one factor that led to AEP being named as one of the
most respected companies in the electric utility industry in Fortune's annual
corporate reputations survey.
Enhanced competitiveness must not come at the expense of safety. Through
increased training and awareness programs, we recorded our safest year in
recent history in 1997. Recordable accidents declined 5 percent and the
vehicle accident rate decreased 28 percent. Not every safety goal was met,
but the clear improvements show that safety, reduced costs and greater
efficiency are not mutually exclusive.
NOT JUST TO COMPETE, BUT TO WIN
Let's Communicate.
AEP Communications, formed in 1996 to enhance our ability to provide
communications and information to customers, is stringing new fiber optic
lines for its wholesale telecom business and in support of its investment in
new wireless personal communications services. It also is developing a
portfolio of internet-based energy information products to be introduced in
1998 that allows commercial and industrial customers to monitor and analyze
electricity, gas and water usage affordably and accurately.
Generating more.
By upgrading the design of two units at our Smith Mountain hydro plant in
Virginia, we will be able to generate an additional 24 megawatts per unit.
That means more electricity available to sell with marginal capital outlays.
15
<PAGE>
To compete in any race, you have to have the right equipment. At AEP, our
teams don't just use the right equipment, they help invent it. In Inez,
Kentucky, we're completing a first-of-its-kind transmission system that
permits unprecedented control over the quality and quantity of power on that
system.
Developed in conjunction with Westinghouse and the Electric Power Research
Institute, the Unified Power Flow Controller uses advanced electronics to
eliminate electrical disturbances and provide for maximum voltage
transmission. That means higher quality, more reliable power for customers
and more efficient use of our transmission facilities. Once this technology
is widely employed, it will be an important tool in providing enhanced
customer service and greater control over transmission and generating
facilities.
Other technologies we've introduced into our system include integrated
substations and high-speed switches, which both use microprocessor technology
to replace electromechanical devices. These new systems cost less, provide
better reliability and require less maintenance than the devices they replace.
THE TOOLS TO COMPETE
Inez Innovation.
- - The $90 million Inez project, which includes a new substation and 32 miles
of transmission lines from our Big Sandy plant in Kentucky, is the first of
its kind in the world. Besides providing enhanced system control, it will
help handle many years of load growth in the area.
- - To facilitate transmission tower construction in the hills of eastern
Kentucky and western West Virginia, we used a helicopter to deliver 133
pre-assembled towers to their sites. By lifting towers from an assembly area
and placing them by air on pre-built pads, we enhanced job safety and
minimized construction impact on the environment.
16
<PAGE>
TEAMWORK IS ESSENTIAL FOR TOP PERFORMANCE
[ILLUSTRATION OF RACE CAR DURING PIT STOP]
<PAGE>
SUCCEEDING AS NO OTHER
[ILLUSTRATION OF RACECAR AND CHECKERED FLAG]
<PAGE>
Success is never guaranteed before the start of any competition. We know
that. But we also know that by doing things right and doing the right things,
we can at least be sure that we're in the race.
We're actively pursuing new businesses, such as energy trading and energy
financing and management ventures, that fit with our strategies and our core
expertise. To take advantage of opportunities in other parts of the world,
we're beefing up our international presence by opening offices in
high-growth markets, such as Asia and South America. We're learning from our
investment in Yorkshire Electricity Group in Great Britain about competition
in other parts of the world.
There are no secrets to success. Hard work and preparation are crucial
factors between being a contender or just another statistic. By preparing our
team, managing our assets, leading in technology and seeking new
opportunities, we believe we're in the contest to stay. Let the race begin!
NEW MARKETS, NEW OPPORTUNITIES
China plant nears completion.
- - Construction of our coal-fired plant in Henan Province, China, is on
schedule, with the first unit expected to be complete late in 1998. The
China joint venture gives us a foothold in one of the fastest growing
electricity markets in the world.
Yorkshire contributes knowledge.
- - Yorkshire Electricity Group, which we jointly acquired with New Century
Energies in April 1997, will provide valuable lessons about operating in a
competitive environment.
Power Up.
- - Our two energy trading operations, in Columbus and Houston, allow us to
participate in energy markets throughout the country and also take advantage
of our low-cost generating capabilities.
[PICTURE]
[PICTURE]
[PICTURE]
19
<PAGE>
SUMMARY MANAGEMENT DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Introduction
We are continuing our summary approach to the financial section to this
annual report based on favorable comments received from shareholders. This
abbreviated financial presentation is intended to present capsule information in
an easier-to-read format and should not be considered a substitute for the full
financial statements provided to all shareholders as the 1997 Financial
Statements and Management's Discussion and Analysis of Results of Operations and
Financial Condition. A copy of the Form 10K and/or the full financial statements
can be obtained by calling 1-800-551-1AEP. Although this summary should help you
understand AEP's 1997 results of operations and financial condition, we caution
that before making any investment decisions you should review the full financial
statements.
The following discussion contains forward looking statements which reflect
assumptions and involve a number of risks and uncertainties that could cause
actual results to differ materially.
Business Outlook
We are changing as our industry transitions towards customer choice in
power generation. We are building the foundation on which our revenues and
earnings can grow by: working to grow the existing business and customer base;
developing a national energy trading business; building a portfolio of global
investments in energy companies and projects; expanding energy related products
and services to be offered to customers worldwide; and adding incremental
generation, transmission and distribution assets and operations within the U.S.
In December the Company and Central and South West Corporation (CSW), two
low-cost producers of electricity, announced plans to merge. Upon receipt of all
required governmental approvals and the consummation of the exchange of CSW
common stock for AEP's common stock, our new company will become one of the
top-tier players in the emerging global market for electric energy and related
services. We expect the merger to be completed in 12 to 18 months.
AEP has the financial strength, geographic reach, location and low-cost
structure to be an able competitor and partner. However, no assurance can be
given that AEP can maintain this position in the future. The electric industry
has seen and will see mergers and acquisitions as the electric generation
business becomes more competitive. We believe that the proposed strategic
combination with CSW will strengthen our ability to compete and create the kind
of energy provider customers, regulators, legislators, shareholders and
employees want -- a growing company able to produce and deliver low-cost,
reliable energy across a large, geographically diverse region.
The Company's ability to recover its costs as the industry transitions to
competition and as customer choice is more broadly available is probably the
most significant factor affecting its future. Competition in the wholesale
generation market continues to intensify since the adoption of federal
legislation in 1992 that gave wholesale customers the right to choose their
energy supplier. The introduction of competition and customer choice for retail
customers has been slow, although activity has been increasing. Federal
legislation has been proposed to mandate competition and customer choice at the
retail level, and several states have introduced or are considering similar
legislation. All of our states have initiatives to move to customer choice that
will phase-in or allow for a transition to competition, although the timing is
uncertain. The Company supports customer choice and is proactively involved in
discussions at both the state and federal levels regarding how best to structure
and transition to a competitive marketplace.
As the electric energy market evolves from cost-of-service rate-making to
market-based pricing for generation and to customer choice, many complex issues
must be resolved, including what to do about costs that will not be recovered as
a result of going to market rates, i.e. stranded costs. While Federal Energy
Regulato-ry Commission (FERC) orders No. 888
20
<PAGE>
and 889 provide, under certain conditions, for recovery of stranded cost at the
wholesale level, the issue of stranded cost is unresolved at the much larger
state retail level. The amount of any stranded costs we may experience depends
on the timing and extent to which direct competition is introduced to our
business and the then-existing market price of electricity. Under generally
accepted accounting principles, regulatory assets (deferred expenses) and
regulatory liabilities (deferred revenues) are included in the consolidated
balance sheets of regulated utilities in accordance with regulatory actions and
in order to match expenses and revenues with cost-based rates. In order to
maintain net regulatory assets (net expense deferrals) on the balance sheet,
rates charged to customers must be cost-based and provide for their probable
recovery. In the event a portion of AEP's business were no longer cost-based
regulated, net regulatory assets would have to be written off for that portion
of the business, unless they are recoverable in the future.
Although FERC orders No. 888 and 889 provide for competition in the firm
wholesale market, that market is a relatively small part of our business. Many
of our firm wholesale sales are still under cost-of-service contracts. As a
result AEP's generation business is still cost-based regulated and should remain
so for the near future pending the passage of enabling state legislation to
deregulate the generation business. We believe that enabling state legislation
should provide for the recovery of any generation-related net regulatory assets
and other reasonable stranded costs from impaired generation assets. We are
working with regulators, customers and legislators to provide for probable
recovery of these stranded costs during a transition period in which rates are
fixed or frozen and electric utilities would take steps to achieve cost savings
which would be used to reduce or eliminate their stranded costs. However, if in
the future AEP's generation business were to no longer be cost-based regulated
and if it were not possible to demonstrate probability of recovery of resultant
stranded costs including regulatory assets, results of operations, cash flows
and financial condition would be adversely affected.
In 1997 management took several major steps towards its growth-oriented
goal of being America's Energy Partner and a global energy and related services
company. Construction of a 250-megawatt generating station in China progressed
on schedule and within budget. In April, the Company and New Century Energies,
Inc. acquired Yorkshire Electricity Group plc (Yorkshire), a United Kingdom (UK)
distribution company. A new power marketing business was launched in July
contributing significantly to our operating revenues, which surpassed $6 billion
for the first time. A joint venture with Conoco, an energy subsidiary of DuPont,
was announced in October to provide energy management services as well as
financing of steam and electric generating facilities at large commercial and
industrial plant sites including initially 16 of Conoco's and DuPont's sites.
Probably the biggest step took place in December when the Company and CSW
announced plans to merge. The merger, when approved, will increase AEP's annual
revenues by approximately $5 billion and add 14,000 megawatts of generation and
1.7 million domestic customers to AEP. This will bring AEP's total domestic
customers to 4.7 million customers. The merger will also increase AEP's
non-regulated businesses as CSW owns a UKdistribution company and other overseas
and domestic non-regulated investments. More importantly it will expand our
market, add more low-cost generation, contribute to AEP's non-regulated products
and services business and enhance our competitiveness.
In addition to synergy savings from the proposed merger, other efforts
continue to reduce the costs of our products and services in order to maintain
our competitiveness. Prior to 1997 reviews of our major domestic processes led
to decisions to consolidate all management and certain functions and operations.
Although staff reductions and cost savings are presently being achieved as a
result of the consolidation of management and functions, expenses for new
marketing and customer services and efficient management information systems are
increasing to prepare for competition. Process improvement efforts and
expenditures to develop and implement new software should produce further
improvements and efficiencies, enabling AEP to continue to offer its domestic
customers excellent service at competitive prices.
We recognize that we must continue to manage our coal costs to maintain
our competitive position. We are negotiating with unaffiliated suppliers to
lower purchased coal costs. Although we have been working to reduce affiliated
mining costs, we have been unable to reduce the cost of affiliated coal to what
has been a declining market price for coal. With approval of the regulator, the
Company is deferring affiliated coal costs in excess of a predetermined price
cap for future recovery. We intend to continue to prudently supplement our
long-term coal supplies with spot market purchases as long as favorable spot
market prices exist. Competitive pressures, deregulation or Phase II of the
Clean Air Act Amendments could result in the closure of the affiliated coal
mines. Unless the cost of affiliated coal or the cost of any mine closure is
recovered either in regulated rates or as a stranded cost under a plan to
transition the generation business to competition, future earnings, cash flows
and possibly financial condition could be adversely affected.
Significant efforts have been made to enhance our competitiveness in
nuclear power generation and to improve our nuclear organizational efficiency.
In 1997 we continued to receive the "excellence in performance" award from the
Institute of Nuclear Power Operations. Nuclear power plants have a major future
financial commitment to safely dispose of spent nu-clear fuel and radioactive
plant components (i.e. to decommission the plant). It is difficult to reduce
nuclear generation costs since certain major cost components are impacted by
federal laws and Nuclear Regulatory Commission (NRC) regulations.
21
<PAGE>
For example, the cost to store and dispose of spent nuclear fuel continues to
increase, mainly due to the lack of pro-gress by the federal government to
secure and construct a repository. In addition, estimated nuclear
decommissioning costs continue to increase due in part to the delay in securing
an offsite storage site for spent fuel. Presently we are recovering the cost of
on-site nuclear fuel storage and estimated nuclear decommissioning costs over
the plant's remaining life. However, our future earnings, cash flows and
possibly financial condition could be adversely affected if the costs of these
items continue to increase and are not recovered.
Results of Operations
Net income decreased to $511 million or 13% primarily due to an
extraordinary loss of $109 million from the UK's one-time windfall tax which was
based on a retroactive revaluation of the original privatization price of
certain privatized utilities, including Yorkshire. AEP's income before the
extraordinary loss increased 6% in 1997 to $620 million, or $3.28 per share,
from $587 million, or $3.14 per share, in 1996. The increase in earnings before
the extraordinary loss in 1997 is primarily attributable to transmission service
sales, reduced preferred stock dividends and an increase in other income from
the April 1997 investment in Yorkshire exclusive of the extraordinary loss.
Revenues
Total revenues exceeded $6 billion for the first time, increasing over
$300 million from 1996 total revenues of $5.8 billion. The 5% increase in
revenues was mainly due to increased wholesale power sales from AEP's new power
marketing business which began in July of 1997. The power marketing business
makes substantial power purchases from and sales to non affiliated utilities and
power marketers.
Retail revenues declined slightly as revenues from weather-sensitive
residential customers decreased, reflecting lower usage due to mild weather in
1997. The decline in residential sales was completely offset by an increase in
lower priced sales to industrial customers.
An increase in transmission service revenues also contributed to the total
increase in revenues. These revenues, for the transfer of other companies' power
through the AEP transmission system, have increased significantly since the
issuance of the FERC's open access transmission rules in 1996.
Total Expenses
Total expenses increased 7% due primarily to increased purchased power,
fuel and other operation expense. The significant increase in purchased power
expense was mainly due to purchases of electricity for resale by the new power
marketing business. Fuel expense increased primarily due to an increase in the
average cost of fuel consumed as lower cost nuclear generation was less
available in 1997 due to an unplanned outage of both nuclear units beginning on
September 9 and continuing through year-end. New marketing, customer services
and software costs to prepare for competition contributed to the increase in
other operation expense.
Other Income
The increase in other income was due primarily to the Company's share of
equity earnings from the April 1997 investment in Yorkshire. Earnings from
Yorkshire were $34 million inclusive of $10 million of nonrecurring tax benefits
related to the retroactive reduction of the UK corporate income tax rate from
33% to 31%.
Federal Income Taxes
The decrease in federal income taxes is mainly due to income tax benefits
from the non- regulated business activities including foreign tax credits.
Financial Condition
In 1997 AEP maintained its strong financial condition and performance in
shareholder value. The year-end closing stock price of $51-5/8 was 25.5% higher
than the prior year. The Company paid a quarterly dividend in 1997 of 60 cents a
share, maintaining the annual dividend rate at $2.40 per share. The payout ratio
continued to improve, a trend that started in 1994. The 1997 payout ratio,
before extraordinary loss, of 73% was 3% better than 1996's and 15% better than
1994's. Management's objective has been to reduce the payout ratio by increasing
earnings in order to enhance AEP's ability to invest in new business ventures
that complement our core competencies and improve shareholder value. AEP's
three-year total shareholder return ranked fourth among the companies in the
Standard and Poor's Electric Utility Index. This marked
22
<PAGE>
the fourth straight year AEP placed in the top quartile. Management's goal is to
maintain and improve our position in the top quartile of the S&P Electric
Utility Index for total shareholder return.
Capital Resources and Needs
AEP achieved a year-end ratio of common equity to total capitalization of
45.5% for 1997, compared with 45.3% for 1996 and 43.1% for 1995. The Company's
goal is to maintain the common equity ratio at a level of at least 40 percent.
During 1997 the Company and its subsidiaries continued improving their
debt-to-equity position. The Company's regulated subsidiaries redeemed 4.3
million shares of cumulative preferred stock with rates ranging from 4.08% to
7.875% at a total cost of $433 million. The subsidiaries used short-term debt
and junior subordinated deferrable interest debentures to pay for the preferred
stock tendered and to benefit from the tax deductibility of interest.
AEP's construction expenditures are ex-pected to be $2.4 billion over the
next three years, which includes the Donald C. Cook Nuclear Plant Unit 1 steam
generator replacement, generating plant construction in China and the cost of
transmission and distribution projects for the improvement of and addition to
domestic electric energy delivery facilities. Approximately $2.1 billion of
expenditures for the next three years will be financed with internally generated
funds.
Market Risks
The Company as a major power producer and a trader of electricity and gas
has certain financial market risk inherent in its routine business activities.
The trading of electricity and gas related future contracts exposes the Company
to commodity price fluctuations. Market risk represents the risk of loss that
may impact the Company's consolidated financial position, results of operations
or cash flows due to adverse changes in market prices and rates. As trading
activity increases and the markets for power evolve, this risk will become
greater. Various policies and procedures have been established to manage market
risk exposures including the limited usage of energy related derivatives, which
are highly correlated to the underlying commodity exposures. The Company's debt
used to finance plant and other investments exposes the Company to interest rate
fluctuation risk. Investment in two foreign currency denominated joint ventures
in the UK and China exposes the Company to currency translation rate risk. The
Company does not presently utilize derivatives to manage its exposures to
interest rate and foreign currency exchange rate movements.
Other Matters
The Company has exposure to a number of contingencies, including but not
limited to the following matters which are fully discussed in the 1997
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the Notes to the Consolidated Financial Statements contained in
the full financial statements: the recent safety shutdown of the Cook Nuclear
Plant with the restart of the units subject to NRC approval of the resolution of
certain issues; a potential Internal Revenue Service ruling that certain
interest deductions related to a corporate owned life insurance program used to
help fund postretirement benefits for employees should not be allowed in our
federal income tax returns; and the correction of a complex and interdependent
"Year 2000" problem whereby certain existing computer hardware and software
programs will not properly recognize calendar dates beginning in the year 2000.
Recent clean air regulation and proposals could negatively impact fuel costs and
the cost of generation. If these contingencies are not successfully resolved,
they could have an adverse effect on the results of operations, cash flows and
possibly financial condition.
23
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Year Ended December 31
(In Millions-Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 % Change
<S> <C> <C> <C>
Revenues $6,161.4 $5,849.2 5.3
Expenses:
Fuel 1,627.1 1,600.7 1.6
Purchased Power 416.3 86.1 383.5
Maintenance 483.3 502.8 (3.9)
Depreciation and Amortization 591.0 600.8 (1.6)
Taxes Other Than Federal Income Tax 490.6 498.6 (1.6)
Other Operation 1,227.4 1,210.0 1.4
Interest Charges & Preferred Stock Dividends 423.6 422.8 0.2
Total Expenses 5,259.3 4,921.8 6.9
Other Income (Loss) 16.8 (17.4) N.M.
Income Before Federal Income Taxes 918.9 910.0 1.0
Federal Income Taxes 298.5 322.6 (7.5)
Income Before Extraordinary Item 620.4 587.4 5.6
Extraordinary Loss-UK Windfall Tax (109.4) - N.M.
Net Income $ 511.0 $ 587.4 (13.0)
Average Number of Shares Outstanding 189.0 187.3 0.9
Earnings Per Share
Before Extraordinary Item $3.28 $3.14 4.5
Extraordinary Loss-UK Windfall Tax (0.58) - N.M.
Net Income $2.70 $3.14 (14.0)
Cash Dividends Paid Per Share $2.40 $2.40 -
N.M.=Not Meaningful
</TABLE>
24
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
At December 31
(In Millions)
<TABLE>
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Electric Utility Plant $19,596.4 $18,970.1
Accumulated Depreciation and Amortization (7,963.6) (7,549.7)
Net Electric Utility Plant 11,632.8 11,420.4
Other Property and Investments 1,358.8 892.7
Cash and Cash Equivalents 91.5 57.5
Other Current Assets 1,426.7 1,297.3
Regulatory Assets 1,817.5 1,889.5
Deferred Charges 288.0 325.6
Total $16,615.3 $15,883.0
CAPITALIZATION AND LIABILITIES
Common Shareholders' Equity $ 4,677.2 $ 4,545.3
Cumulative Preferred Stocks of Subsidiaries 174.3 600.2
Long Term Debt 5,129.5 4,796.8
Total Capitalization 9,981.0 9,942.3
Current Liabilities 2,083.7 1,496.0
Deferred Income Taxes and Investment Tax Credits 2,937.2 3,044.7
Other Liabilities 1,613.4 1,400.0
Total $16,615.3 $15,883.0
</TABLE>
25
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31
(In Millions)
<TABLE>
<CAPTION>
1997 1996
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 511.0 $ 587.4
Extraordinary Item-UK Windfall Tax 109.4 -
Adjustments for Noncash Items 577.5 649.6
Net Cash Flows from Operating Activities 1,197.9 1,237.0
INVESTING ACTIVITIES:
Construction (760.4) (577.7)
Investment in Yorkshire Electricity Group plc (363.4) -
Proceeds from Sale of Property and Other 2.2 12.3
Net Cash Flows Used for Investing Activities (1,121.6) (565.4)
FINANCING ACTIVITIES:
Issuance of Common Stock 76.7 65.5
Retirement of Cumulative Preferred Stock (433.3) (70.8)
Change in Long-term Debt (net) 532.4 (194.0)
Change in Short-term Debt (net) 235.4 (45.4)
Dividends Paid on Common Stock (453.5) (449.4)
Net Cash Flows Used for Financing Activities (42.3) (694.1)
Net Increase (Decrease) in Cash and Cash Equivalents 34.0 (22.5)
Cash and Cash Equivalents January 1 57.5 80.0
Cash and Cash Equivalents December 31 $ 91.5 $ 57.5
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of American Electric Power Company, Inc.:
We have audited the consolidated balance sheets of American Electric Power
Company, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, retained earnings, and cash flows for
each of the three years in the period ended December 31, 1997. Such consolidated
financial statements and our report thereon dated February 24, 1998, expressing
an unqualified opinion (which are not included herein) are included in the 1997
Financial Statements and Management's Discussion and Analysis of Results of
Operations and Financial Condition. The accompanying condensed consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on such condensed consolidated financial
statements in relation to the complete consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheets as of December 31, 1997 and 1996 and the related
condensed consolidated statements of income and of cash flows for the years then
ended is fairly stated in all material respects in relation to the basic
consolidated financial statements from which it has been derived.
Deloitte & Touche LLP
Columbus, Ohio
February 24, 1998
27
<PAGE>
STATE PRESIDENTS
OUR STATE PRESIDENTS AND THEIR STAFFS ARE AVAILABLE TO HELP CUSTOMERS, CONSUMER
GROUPS, LEGISLATORS AND OTHERS WHO DEAL WITH ENERGY USAGE, SAFETY, CONSERVATION,
EDUCATION, ENVIRONMENTAL MATTERS AND PUBLIC POLICY. THEY CAN BE CONTACTED AT THE
FOLLOWING LOCATIONS:
Coulter R. Boyle III
AEP Indiana
AEP Michigan
One Summit Square
P.O. Box 60
Fort Wayne, IN 46801
(219) 425-2101
Fax (219) 425-2157
R. Daniel Carson, Jr.
AEP Virginia
AEP Tennessee
40 Franklin Road SW
P.O. Box 2021
Roanoke, VA 24022
(540) 985-2900
Fax (540) 985-2340
Timothy C. Mosher
AEP Kentucky
1701 Central Avenue
P.O. Box 1428
Ashland, KY 41105
(606) 327-1261
Fax (606) 327-3128
Marsha P. Ryan
AEP OHIO
1 Riverside Plaza
Columbus, OH 43215
(614) 223-1400
Fax (614) 628-4631
Dana E. Waldo
AEP WEST VIRGINIA
301 Virginia Street East
P.O. Box 1986
Charleston, WV 25327
(304) 348-4710
Fax (304) 348-5744
28
<PAGE>
AEP LEADERSHIP
American Electric Power Company, Inc.
E. Linn Draper, Jr.
Chairman, President and
Chief Executive Officer
Gerald P. Maloney
Vice President and Secretary
Peter J. DeMaria
Controller
Armando A. Pena
Treasurer
American Electric Power Service Corporation
E. Linn Draper, Jr.
Chairman, President and
Chief Executive Officer
Peter J. DeMaria
Vice Chairman
Gerald P. Maloney
Vice Chairman
Paul D. Addis
Executive Vice President
Donald M. Clements, Jr.
Executive Vice President -- Corporate Development
Henry Fayne
Executive Vice President -- Financial Services
Eugene E. Fitzpatrick
Executive Vice President -- Nuclear Generation
William J. Lhota
Executive Vice President
James J. Markowsky
Executive Vice President -- Power Generation
Joseph H. Vipperman
Executive Vice President -- Corporate Services
Charles A. Ebetino, Jr.
Senior Vice President --
Fuel Supply
Luke M. Feck
Senior Vice President --
Corporate Communications
John R. Jones
Senior Vice President --
Fossil/Hydro Production
Raymond M. Maliszewski
Senior Vice President --
System Planning
Michael F. Moore
Senior Vice President --
Information Technology
and Chief Information Officer
Richard E. Munczinski
Senior Vice President --
Corporate Planning
and Budgeting
Armando A. Pena
Senior Vice President -- Finance, Treasurer and
Chief Financial Officer
Rodney B. Plimpton
Senior Vice President -- Human Resources
29
<PAGE>
Peter Splawnyk
Senior Vice President --
Distribution
Andrew P. Varley
Senior Vice President --
Energy Pricing and
Regulatory Services
Leonard V. Assante
Vice President
Chief Accounting Officer
and Controller
J. Craig Baker
Vice President --
Power Marketing and Trading
Bruce M. Barber
Vice President --
Strategic Studies
Bruce A. Beam
Vice President --
Governmental Affairs
David H. Crabtree
Vice President --
Consumer Services
John F. DiLorenzo, Jr.
Vice President
Associate General
Counsel and Secretary
William N. D'Onofrio
Vice President --
Regulatory Affairs
Carl A. Erikson
Vice President --
Energy Delivery
Dale E. Heydlauff
Vice President --
Environmental Affairs
Marshall O. Julien
Vice President --
Communications
W. Robert Kelley
Vice President --
System Operations
Vincent A. Lepore
Vice President --
Power Generation Engineering
Hugh H. Lucas
Vice President --
Mining Operations
Thomas R. McCaffrey
Vice President --
Procurement and Supply
Chain Services
James K. McWilliams
Vice President --Civil
and Mining Engineering
Patrick M. O'Brien
Vice President --
Fuel Procurement
Ron E. Prater
Vice President --
Strategic Planning
Bruce A. Renz
Vice President --
Energy Delivery Support
William L. Scott
Vice President -- Taxes
Joseph A. Valentine
Vice President --
Information Systems
Thomas R. Watkins
Vice President --
Energy Transmission
NEW BUSINESS
SUBSIDIARIES
AEP Communications, Inc.
E. Linn Draper, Jr.
Chairman and Chief
Executive Officer
30
<PAGE>
Gerald P. Maloney
Vice Chairman
Donald M. Clements, Jr.,
President
Peter J. DeMaria
Vice President and Controller
William J. Lhota
Vice President
David Mustine
Vice President
Peter R. Thomas
Vice President
Armando A. Pena
Treasurer
John DiLorenzo, Jr.
Secretary
AEP Energy Services, Inc.
E. Linn Draper, Jr.
Chairman and Chief
Executive Officer
Gerald P. Maloney
Vice Chairman
Paul D. Addis
President
J. Craig Baker
Senior Vice President
Steven Lewis
Senior Vice President
Eric J. van der Walde
Senior Vice President
Bruce H. Braine
Vice President -- Analysis
Joseph A. Curia, Jr.
Vice President --
Energy Marketing
David B. Dunn
Vice President --
Gas Trading
Henry Fayne
Vice President
Douglas K. Penrod
Vice President --
Energy Trading
Glenn Riepl
Vice President
George Rooney
Vice President --
BUSINESS DEVELOPMENT
Peter J. DeMaria
Controller
Armando A. Pena
Treasurer
John F. DiLorenzo, Jr.
Secretary
AEP Investments, Inc.
E. Linn Draper, Jr.
Chairman and Chief
Executive Officer
Gerald P. Maloney
Vice Chairman
Donald M. Clements, Jr.
President
David Mustine
Senior Vice President
Jeffrey D. Cross
Vice President and
General Counsel
Peter J. DeMaria
Vice President and Controller
31
<PAGE>
Dennis A. Lantzy
Vice President
William J. Lhota
Vice President
Armando A. Pena
Treasurer
John F. DiLorenzo, Jr.
Secretary
AEP Resources, Inc.
E. Linn Draper, Jr.
Chairman and Chief
Executive Officer
Gerald P. Maloney
Vice Chairman
Donald M. Clements, Jr.
President
Donald E. Boyd
Senior Vice President --
Asia-Pacific Development
David Mustine
Senior Vice President --
European Development
Peter J. DeMaria
Vice President and Controller
Thomas S. Jobes
Vice President --
Corporate Development
John R. Jones
Vice President
Dennis A. Lantzy
Vice President -- Generation
James H. Sweeney
Vice President --
Latin America Development
Paul J. Wielgus
Vice President --
North American Development
Jeffrey D. Cross
Vice President and
General Counsel
Armando A. Pena
Treasurer
John F. DiLorenzo, Jr.
Secretary
32
<PAGE>
BOARD OF
DIRECTORS
Dr. E. Linn Draper Jr., 56
Chairman, President &
Chief Executive Officer
(1992) E
Angus E. Peyton, 71
Partner, Brown & Peyton
Charleston, West Virginia
(1978) A,E,F,P
Robert M. Duncan, 70
Retired U.S. District Judge
Southern District of Ohio
Columbus, Ohio
(1985) A,D,P
Dr. Lester A. Hudson Jr., 58
Chairman
H&E Associates
Greenville, South Carolina
(1987) A,D,H,P
Dr. Morris Tanenbaum, 69
Vice President,
National Academy
of Engineering
Short Hills, New Jersey
(1989) E,F,H,P
Linda Gillespie Stuntz, 43
Partner, Stuntz & Davis, P.C.
Washington, D.C.
(1993) D,F,P
Peter J. DeMaria, 63
Controller;
Vice Chairman,
AEP Service Corporation
(1993)
Gerald P. Maloney, 64
Vice President
and Secretary;
Vice Chairman,
AEP Service Corporation
(1994)
Donald G. Smith, 62
Chairman, President & Chief Executive Officer
Roanoke Electric
Steel Corporation
Roanoke, Virginia
(1994) F,H,P
Robert W. Fri, 62
Director, National Museum of Natural History
Smithsonian Institution
Washington, D.C.
(1995) A,D,P
Leonard J. Kujawa, 65
International
Energy Consultant
Atlanta, Georgia
(1997) D,F,P
John P. DesBarres, 58
Investor
Rancho Palos Verdes,
California
(1997) A,H,P
Dr. Kathryn D. Sullivan, 46
President & Chief
Executive Officer
COSI Columbus
Columbus, Ohio
(1997) P
33
<PAGE>
Committees of the Board:
The chairman is listed in ( ).
A Audit (Duncan), D Directors (Hudson), E Executive (Draper),
F Finance (Peyton), H Human Resources (Tanenbaum),
P Public Policy (Stuntz)
Dates in parentheses indicate year elected to board
AMERICAN ELECTRIC POWER
SHAREHOLDER
INFORMATION
Annual Meeting -- The 91st annual meeting of shareholders of American Electric
Power Company will be held at 9:30 a.m. Wednesday, May 27, 1998, at The Ohio
State University's Fawcett Center, 2400 Olentangy River Rd., Columbus, Ohio.
Admission is by ticket only. To obtain a ticket, please note the instructions in
the Notice of Annual Meeting to be mailed to shareholders or call the Company.
34
<PAGE>
Shareholder Inquiries -- If you have questions about your account, you can call
the Company toll-free at 800-AEP-COMP (800-237-2667), or write to Bette Jo
Rozsa, Investor Services, American Electric Power Company, 1 Riverside Plaza,
Columbus, Ohio 43215-2373. You should have your Social Security number or
account number ready; we will not speak to third parties about an account
without the shareholder's approval or appropriate documents.
Transfer Agent & Registrar
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
Telephone Response Group: 800-328-6955;
E-Mail Correspondence: FCTC@ em.fcnbd.com
World Wide Web address: http://www.fctc.com
Replacement of Dividend Checks -- If you do not receive your dividend check
within five business days after the dividend payment date, or if your check is
lost, destroyed or stolen, you should notify the transfer agent or Investor
Services for a replacement.
Lost or Stolen Stock Certificates -- If your stock certificate is lost,
destroyed or stolen, you should notify the transfer agent or Investor Services
immediately so a "stop transfer" order can be placed on the missing certificate.
The transfer agent then will send you the required documents to obtain a
replacement certificate.
Address Changes -- It is important that we have your current address on file so
that you do not become a lost shareholder. Please contact Investor Services or
the transfer agent for address changes for both record and dividend mailing
addresses. We also can provide automatic seasonal address changes.
Stock Transfer -- Please contact Investor Services or the transfer agent if you
have questions regarding the transfer of stock and related legal requirements.
Dividend Reinvestment and Direct Stock Purchase Plan -- A Dividend Reinvestment
and Direct Stock Purchase Plan is available to all registered shareholders, AEP
employees and investors who are not already shareholders. It is a simple and
convenient method of purchasing additional shares of AEP common stock or an
economical method of becoming an AEP shareholder. You may obtain the Plan
prospectus and enrollment authorization form by contacting the transfer agent or
Investor Services.
Direct Deposit of Dividends -- The Company does offer electronic deposit of your
dividends. Contact Investor Services or the transfer agent for details.
Stock Held in Brokerage Account ("Street Name") -- When you purchase stock and
it is held for you by your broker, it is listed with the Company in the broker's
name or "street name." AEP does not know the identity of individual shareholders
who hold their shares in this manner; we simply know that a broker holds a
certain number of shares which may be for any number of customers. If you hold
your stock in street name, you receive all dividend payments, annual reports and
proxy materials through your broker. Therefore, if your shares are held in this
manner, any questions you may have about your account should be directed to your
broker.
How To Consolidate Accounts -- If you want to consolidate your separate accounts
into one account, you should contact the transfer agent or the Investor Services
office to obtain the necessary instructions. When accounts are consolidated, it
may be necessary to reissue the stock certificates.
How To Eliminate Duplicate Mailings -- If you want to maintain more than one
account but eliminate additional mailings of annual reports, you may do so by
contacting the transfer agent or Investor Services, indicating the names you
wish to keep on the mailing list for annual reports and the names you wish to
delete. You may also check the box in the upper right-hand corner of the proxy
card labeled "Mark here to discontinue annual report mailing for this account
(for multiple-account holders only)." This will affect only these mailings;
dividend checks and proxy materials will continue to be sent to each account.
Stock Trading -- The Company's common stock is traded principally on the New
York Stock Exchange under the ticker symbol AEP.
Taxes on Dividends-- The Company paid $2.40 in cash dividends in 1997, all of
which are taxable for federal income tax purposes.
Shareholder Direct -- An array of timely recorded messages about AEP, including
dividends and earnings information and recent news releases, is available at AEP
Shareholder Direct at 800-551-1AEP (1237) anytime day or night. Hard copies of
information can be obtained via fax or mail. Requests for annual reports,
10-K's, 10-Q's, Proxy Statements, and Summary Annual Reports should be made
through Shareholder Direct. Also, during normal business hours you can choose to
be transferred to shareholder service representatives at the transfer agent or
the Company.
Financial Community Inquiries -- Institutional investors and securities analysts
should direct inquiries to John Bilacic, Finance Department, American Electric
Power Company, 1 Riverside Plaza, Columbus, Ohio 43215-2373.
35
<PAGE>
Internet Home Page -- Information about AEP, including financial documents, SEC
filings, news releases and customer service information, is available on the
Company's home page on the internet. The World Wide Web address is
http://www.aep.com.
Common Stock Market Price Range:
1997 1996
...............................................................................
High Low High Low
- -------------------------------------------------------------------------------
First Quarter $433/16 $40 $443/4 $401/8
...............................................................................
Second Quarter $421/2 $391/8 $423/4 $385/8
Third Quarter $465/8 $411/2 $431/8 $40
Fourth Quarter $52 $451/4 $421/2 $391/2
...............................................................................
36
<PAGE>
HELP ENSURE FAIR
------------------------------------
AND EQUITABLE COMPETITION
As legislation surfaces that will restructure the electric utility industry,
we want to make sure that our shareholders are kept informed of the changes
that are proposed. Together we can work to ensure that competition is fair
and equitable. If you would like to participate with AEP in the legislative
process, please fill out and return this postage-paid card. When you do,
we'll let you know about issues which may interest you concerning the energy
industry.
By working together, we [AEP LOGO]
can enhance AEP's role as
America's Energy Partner. AEP: AMERICA'S ENERGY PARTNER-SM-
YES! I WANT TO PARTICIPATE IN
- ----------------------------------------------------
SHAPING AMERICA'S ENERGY FUTURE
Please let me know when my help may be needed to write my elected
representatives on legislation that will affect the electric utility industry.
- -------------------------------------------------
NAME
- -------------------------------------------------
ADDRESS
- -------------------------------------------------
CITY
- -------------------------------------------------
STATE ZIP
- -------------------------------------------------
PHONE NUMBER (OPTIONAL)
- --------------------------------------------------- -----------------
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS MAIL PERMIT NO. II COLUMBUS OH NECESSARY
- --------------------------------------------------- IF MAILED
POSTAGE WILL BE PAID BY ADRESSEE IN THE
UNITED STATES
-----------------
AMERICAN ELECTRIC POWER
INVESTOR SERVICES
28TH FLOOR
P.O. BOX 16631
COLUMBUS, OH 43272-2204
<PAGE>
AEP NOW HAS
- ---------------------------------------------
A DIRECT STOCK PURCHASE PLAN
AEP has adopted a direct stock purchase plan that allows individuals to
purchase stock directly from the company on a low-cost basis. You can
purchase AEP stock for as little as $250, or $25 a month for 10 months. For a
prospectus and plan details, call 800 955-4740 or return the attached
post-paid card.
[AEP LOGO]
AEP: AMERICA'S ENERGY PARTNER-SM-
PLEASE SEND ME A PROSPECTUS AND ENROLLMENT INFORMATION ABOUT AEP DIVIDEND
REINVESTMENT AND DIRECT STOCK PURCHASE PLAN.
- -------------------------------------------------
NAME
- -------------------------------------------------
ADDRESS
- -------------------------------------------------
CITY
- -------------------------------------------------
STATE ZIP
ARE YOU AN EXISTING AEP SHAREHOLDER / / YES / / NO
- --------------------------------------------------- -----------------
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS MAIL PERMIT NO. II COLUMBUS OH NECESSARY
- --------------------------------------------------- IF MAILED
POSTAGE WILL BE PAID BY ADRESSEE IN THE
UNITED STATES
-----------------
AMERICAN ELECTRIC POWER
INVESTOR SERVICES
19TH FLOOR
P.O. BOX 16631
COLUMBUS, OH 43272-2204
<PAGE>
COMMON AEP AND ELECTRIC UTILITY
- -----------------------------------------------------
INDUSTRY TERMS
<TABLE>
<CAPTION>
<S> <C> <C>
BOOK VALUE PER SHARE -- FERC Rules 888 and 889 -- Rules NET INCOME -- A company's
The value of each common and code of conduct enacted income after all expenses, taxes
share of stock if all of in 1996 requiring public and preferred dividends have been
a company's assets, after utilities to make their deducted.
all debts are paid, are transmission system available
divided by the number of to anyone on a comparable cost NITROGEN OXIDES -- Gases
common shares outstanding. and service basis. formed from the combustion of
fossil fuels.
COAL CONVERSION -- A service INTEGRATED SUBSTATION -- A
under which AEP converts coal network of intelligent OZONE -- A gas in the atmosphere
owned by others into electronic devices within that occurs naturally and through
electricity for their use. a substation that share a mixture of nitrogen oxides,
information and function volatile organic compounds and
DISTRIBUTION LINE -- Power as a unified system to sunlight.
lines that feed electricity protect, control, monitor,
to customer meters. analyze and maintain that PRICE/EARNINGS RATIO -- The value
station in an economic and of a company's stock price in
DIVIDEND PAYOUT RATIO -- reliable manner. relation to the earnings per share.
Dividends paid as a percentage The P/E ratio is calculated by
of net income. KILOWATT -- A measure of dividing the stock price by the
the rate at which electric earnings per share.
EARNINGS PER SHARE -- The energy is generated or
company's net income divided consumed. A kilowatt is PUHCA -- Public Utility Holding
by the average number of 1,000 watts. Company Act of 1935. Regulates the
common shares outstanding. corporate structure and securities
KILOWATTHOUR -- A measure issuance of electric utilities and
FERC -- Federal Energy of the quantity of electric places limitations on utilities
Regulatory Commission, the energy equal to one kilowatt that are structured as registered
federal agency that regulates of power generated or holding companies. It is enforced
interstate sales and consumed in one hour. by the Securities and Exchange
transmission of electricity. Commission.
MEGAWATT -- One thousand kilowatts.
</TABLE>
PURPA -- Public Utility Regulatory SULFUR DIOXIDE -- A gas of sulfur
Policies Act of 1978. Designed to and oxygen compounds created when
encourage conservation, more fossil fuels, such as coal, are
efficient use of energy sources and burned.
the use of alternative energy
sources. It also requires TOTAL INVESTOR RETURN -- The return
utilities to purchase excess power to common shareholders based on
produced by cogenerators. dividends paid plus changes in the
stock price from the previous year.
RETAIL CUSTOMER -- A customer that
purchases electricity for their own TRANSMISSION LINE -- Power lines
use. used to transmit bulk electricity,
such as from state to state or
RSO -- Regional Service region to region, at high voltages.
Organization, an AEP organization
established to perform scheduled UNIFIED POWER FLOW CONTROLLER -- A
maintenance on AEP power plants. device that uses power electronics
and microcomputers to control the
RETURN ON AVERAGE COMMON EQUITY -- power flow and voltage quality of a
The percentage return a company transmission circuit
generated on the average amount of instantaneously; the coordinated
money that common shareholders have operation of multiple UPFCs will
invested in a company. allow a previously unavailable
degree of control over widespread
transmission grids.
WHOLESALE CUSTOMER -- A customer,
such as a municipal, cooperative or
investor-owned electric company or
power marketer, that buys
electricity for resale.
<PAGE>
[GRAPHIC - TWO RED CHECKERED FLAGS]
[AEP LOGO]
AEP: AMERICA'S ENERGY PARTNER-SM-
American Electric Power
1 Riverside Plaza
Columbus, OH 43215-2373
614-223-1000
www.aep.com
