SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14c-5(d)(2))
[X] Definitive Information Statement
APPALACHIAN POWER COMPANY
(Name of Registrant As Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
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applies:______________________________________________
2) Aggregate number of securities to which transaction
applies:______________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
______________________________________________________
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______________________________________________________
5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
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APPALACHIAN POWER COMPANY
40 Franklin Road, S.W.
Roanoke, Virginia 24011
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF
APPALACHIAN POWER COMPANY:
The annual meeting of the stockholders of Appalachian Power
Company will be held on Tuesday, April 28, 1998, at 11:00 a.m. at
the principal office of American Electric Power Service
Corporation, 1 Riverside Plaza, Columbus, Ohio, for the following
purposes:
1. To elect seven directors of the Company to hold office
for one year or until their successors are elected and
qualified; and
2. To transact such other business (none known as of the
date of this notice) as may legally come before the
meeting or any adjournment thereof.
Only holders of record of Common Stock and certain issues of
Cumulative Preferred Stock, no par value, at the close of
business on March 9, 1998 are entitled to notice of and to vote
at the annual meeting.
THERE WILL BE NO SOLICITATION OF PROXIES BY THE BOARD OF
DIRECTORS OF THE COMPANY.
JOHN F. DI LORENZO, JR.,
Secretary
March 26, 1998
INFORMATION STATEMENT
This information statement is being furnished in connection
with the annual meeting of stockholders of Appalachian Power
Company (the "Company"), to be held on Tuesday, April 28, 1998 at
11:00 a.m. at the principal office of American Electric Power
Service Corporation, 1 Riverside Plaza, Columbus, Ohio.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
Voting at Meeting
On March 9, 1998, the date for determining stockholders
entitled to notice of and to vote at the meeting, there were
197,465 shares of Cumulative Preferred Stock and 13,499,500
shares of Common Stock outstanding.
Each holder of Cumulative Preferred Stock (except holders of
the 5.90%, 5.92% and 6.85% Cumulative Preferred Stock) and each
holder of Common Stock has the right to one vote for each share
standing in such holder's name on the books of the Company at the
close of business on March 9, 1998 for the election of directors
and on any other business which may come before the meeting.
Holders of Cumulative Preferred Stock issued by the Company on or
after June 1, 1977 are not entitled to notice of, or to vote at,
the meeting.
Principal Stockholders
American Electric Power Company, Inc. ("AEP"), 1 Riverside
Plaza, Columbus, Ohio 43215, a registered public utility holding
company under the Public Utility Holding Company Act of 1935,
owns all of the Company's outstanding Common Stock. The Common
Stock represents approximately 98.5% of the combined voting power
of the capital stock of the Company entitled to vote at the
meeting. Management of the Company does not know of any person
(including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934) who beneficially owns
more than 5% of the Cumulative Preferred Stock of the Company
entitled to vote at the meeting.
AEP also owns, directly or indirectly, all of the common
stock of the other companies which constitute the American
Electric Power System (the "AEP System"). The AEP System is an
integrated electric utility system and, as a result, the member
companies of the AEP System, including the Company, have
contractual, financial and other business relationships with the
other member companies, such as participation in the AEP System
savings and retirement plans and tax returns; sales of
electricity; sales, transportation and handling of fuel; sales or
rentals of property; and interest or dividend payments on the
securities held by the companies' respective parents. American
Electric Power Service Corporation (the "Service Corporation"), a
wholly-owned subsidiary of AEP, renders management, advisory,
engineering and other similar services at cost to the principal
operating companies of the AEP System, including the Company.
ELECTION OF DIRECTORS
Seven directors are to be elected to hold office for one
year or until their successors are elected and qualify. The
Company has been informed that AEP will nominate, and cast the
votes of all of the outstanding shares of Common Stock for, the
persons named below. In the event that any of such persons
should unexpectedly be unable to stand for election, AEP has
informed the Company that it will cast its votes for a substitute
chosen by the Board of Directors of the Company and approved by
AEP.
The following brief biographies of the nominees include
their ages as of March 15, 1998, an account of their business
experience and the names of certain publicly-held corporations of
which they are also directors.
<TABLE>
<CAPTION>
Name Age Business Experience
<S> <C> <C>
PETER J. DEMARIA 63 Vice president and controller of the
Company, controller of AEP and vice
chairman of the Service Corporation.
Joined the Service Corporation in
1959, became an assistant treasurer
in 1969, assistant vice president in
1971, vice president in 1974,
treasurer and senior vice president
in 1978, executive vice president-
administration and chief accounting
officer in 1984 and assumed his
present position with the Service
Corporation in 1998. Became
treasurer of the Company in 1978 and
assumed his present position in
1995. Has been a director of the
Company since 1988 and a vice
president since 1991. Became
treasurer of AEP in 1978 and assumed
his present position in 1995. A
director of AEP and certain other
AEP System companies.
E. LINN DRAPER, JR. 56 Chairman of the board and chief
executive officer of the Company,
chairman of the board, president and
chief executive officer of AEP and
the Service Corporation. Joined the
Service Corporation in 1992 as
president and chief operating
officer and assumed his present
position in 1993. President of AEP
and vice president and director of
the Company from 1992 until assuming
his present positions in 1993. From
1987 until 1992 was chairman of the
board, president and chief executive
officer of Gulf States Utilities
Company, an unaffiliated electric
utility. A director of the Company,
AEP, certain other AEP System
companies, BCP Management, Inc.,
which is the general partner of
Borden Chemicals and Plastics L.P.,
and CellNet Data Systems, Inc.
HENRY W. FAYNE 51 Executive vice president-financial
services of the Service Corporation.
Joined the Service Corporation in
1974, became assistant controller in
1978, controller in 1984, vice
president and controller in 1988,
senior vice president in 1993,
senior vice president-corporate
planning and budgeting in 1995 and
assumed his present position in
1998. A director of certain other
AEP System companies.
WILLIAM J. LHOTA 58 President and chief operating
officer of the Company and executive
vice president of the Service
Corporation. Joined Ohio Power
Company, a subsidiary of AEP, in
1965, was president of Columbus
Southern Power Company, a subsidiary
of AEP, from 1987 until 1989, when
he became executive vice president-
operations of the Service
Corporation. Assumed his present
position with the Service
Corporation in 1993. Became a vice
president of the Company in 1989 and
assumed his present position in
1996. Has been a director of the
Company since 1990. A director of
certain other AEP System companies,
Huntington Bancshares Incorporated
and State Auto Financial
Corporation.
G. P. MALONEY 65 Vice president of the Company, vice
president and secretary of AEP and
vice chairman of the Service
Corporation. Joined the Service
Corporation in 1955, became
controller in 1965, vice president-
finance in 1970, senior vice
president-finance in 1974, executive
vice president-chief financial
officer in 1991 and assumed his
present position with the Service
Corporation in 1998. Has been a
vice president and director of the
Company since 1970. Became a vice
president of AEP in 1974 and
secretary of AEP in 1994. A
director of AEP and certain other
AEP System companies.
JAMES J. MARKOWSKY 53 Vice president of the Company and
executive vice president-power
generation of the Service
Corporation. Joined the Service
Corporation in 1971 as a senior
engineer, became assistant vice
president-mechanical engineering in
1984, senior vice president and
chief engineer in 1988, executive
vice president-engineering and
construction in 1993 and assumed his
present position in 1996. Became a
director of the Company in 1993 and
a vice president of the Company in
1995. A director of certain other
AEP System companies.
JOSEPH H. VIPPERMAN 57 Vice president of the Company and
executive vice president-corporate
services of the Service Corporation.
Joined the Company in 1962,
transferred to the Service
Corporation and became controller in
1978, vice president in 1980, was
executive vice president-operations
from 1984 until 1989, executive vice
president-energy delivery in 1996,
and assumed his present position in
1998. Became a vice president of
the Company in 1985, executive vice
president in 1989, was president
from 1990 until 1995, and assumed
his present position in 1996. Has
been a director since 1985.
</TABLE>
Messrs. DeMaria, Draper, Lhota, Maloney, Markowsky and
Vipperman are directors of Columbus Southern Power Company
("CSPCo"), Indiana Michigan Power Company ("I&M"), Kentucky Power
Company ("Kentucky") and Ohio Power Company ("Ohio"), all of
which are subsidiaries of AEP and have one or more classes of
publicly held preferred stock or debt securities. Mr. Fayne is a
director of CSPCo and Ohio. Messrs. DeMaria, Draper, Fayne,
Lhota, Maloney and Markowsky are also directors of AEP Generating
Company, another subsidiary of AEP.
OTHER BUSINESS
Management does not intend to bring any matters before the
meeting other than the election of directors and does not know of
any matters that will be brought before the meeting by others.
EXECUTIVE COMPENSATION
Certain executive officers of the Company are employees of
the Service Corporation. The salaries of these executive
officers are paid by the Service Corporation and a portion of
their salaries has been allocated and charged to the Company.
The following table shows for 1997, 1996 and 1995 the
compensation earned from all AEP System companies by the chief
executive officer and the four other most highly compensated
executive officers (as defined by regulations of the Securities
and Exchange Commission) of the Company at December 31, 1997.
<TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Payouts All Other
Salary Bonus Compensation
Name and Principal Position Year ($) ($)(1) LTIP Payouts($)(1) ($)(2)
<S> <C> <C> <C> <C> <C>
E. Linn Draper, Jr. - 1997 720,000 327,744 951,132 31,620
Chairman of the board and 1996 720,000 281,664 675,903 31,990
chief executive officer of 1995 685,000 236,325 334,851 30,790
the Company; chairman of the
board, president and chief
executive officer of AEP and
the Service Corporation;
chairman of the board and
chief executive officer of
other AEP System companies
Peter J. DeMaria - Vice 1997 385,000 153,345 391,793 21,570
president, controller and 1996 360,000 140,832 290,825 21,190
director of the Company; 1995 330,000 113,850 143,829 20,050
controller and director of
AEP; vice chairman and
director of the Service
Corporation; vice president,
controller and director of
other AEP System companies
G. P. Maloney - Vice 1997 385,000 153,345 391,793 21,570
president and director of the 1996 360,000 140,832 286,288 21,190
Company; vice president, 1995 330,000 113,850 141,582 20,060
secretary and director of
AEP; vice chairman and
director of the Service
Corporation; vice president
and director of other AEP
System companies
William J. Lhota - President, 1997 355,000 141,396 364,436 20,570
chief operating officer and 1996 320,000 125,184 263,114 19,690
director of the Company; 1995 300,000 103,500 132,592 19,140
executive vice president and
director of the Service
Corporation; president, chief
operating officer and
director of other AEP System
companies
James J. Markowsky - Vice 1997 325,000 129,447 338,382 18,020
president and director of the 1996 303,000 118,534 254,535 19,480
Company; executive vice 1995 285,000 98,325 126,599 17,515
president-power generation
and director of the Service
Corporation; vice president
and director of other AEP
System companies
</TABLE>
___________
(1)Amounts in the "Bonus" column reflect payments under the
Senior Officer Annual Incentive Compensation Plan (and
predecessor Management Incentive Compensation Plan) for
performance measured for each of the years ended
December 31, 1995, 1996 and 1997. Payments are made in
March of the subsequent year. Amounts for 1997 are
estimates but should not change significantly.
Amounts in the "Long-Term Compensation" column reflect
performance share unit targets earned under the Performance
Share Incentive Plan (which became effective January 1,
1994) for the two-, three- and three-year performance
periods ending December 31, 1995, 1996 and 1997,
respectively. The two-year performance period was a
transition performance period.
See below under "Long-Term Incentive Plans - Awards in 1997"
and page 10 for additional information.
(2) For 1997, includes (i) employer matching contributions under
the AEP System Employees Savings Plan: Dr. Draper, $3,400;
Mr. DeMaria, $3,306; Mr. Maloney, $4,800; Mr. Lhota, $4,800;
and Dr. Markowsky, $3,250; (ii) employer matching
contributions under the AEP System Supplemental Savings
Plan, a non-qualified plan designed to supplement the AEP
Savings Plan: Dr. Draper, $18,200; Mr. DeMaria, $8,244;
Mr. Maloney, $6,750; Mr. Lhota, $5,850; and Dr. Markowsky,
$6,500; and (iii) subsidiary companies director fees: Dr.
Draper and Messrs. DeMaria and Maloney, $10,020; Mr. Lhota,
$9,920; and Dr. Markowsky, $8,270.
Long-Term Incentive Plans - Awards In 1997
Each of the awards set forth below establishes performance
share unit targets, which represent units equivalent to shares of
Common Stock, pursuant to AEP's Performance Share Incentive Plan.
Since it is not possible to predict future dividends and the
price of AEP Common Stock, credits of performance share units in
amounts equal to the dividends that would have been paid if the
performance share unit targets were established in the form of
shares of Common Stock are not included in the table.
The ability to earn performance share unit targets is tied
to achieving specified levels of total shareholder return ("TSR")
relative to the S&P Electric Utility Index. Notwithstanding
AEP's TSR ranking, no performance share unit targets are earned
unless AEP shareholders realize a positive TSR over the relevant
three-year performance period. The Human Resources Committee
may, at its discretion, reduce the number of performance share
unit targets otherwise earned. In accordance with the
performance goals established for the periods set forth below,
the threshold, target and maximum awards are equal to 25%, 100%
and 200%, respectively, of the performance share unit targets.
No payment will be made for performance below the threshold.
Payments of earned awards are deferred in the form of
restricted stock units (equivalent to shares of AEP Common Stock)
until the officer has met the equivalent stock ownership target
discussed in the Human Resources Committee Report. Once officers
meet and maintain their respective targets, they may elect either
to continue to defer or to receive further earned awards in cash
and/or Common Stock.
<TABLE>
<CAPTION>
Estimated Future Payouts of
Performance Share Units Under
Non-Stock Price-Based Plan
Performance
Number of Period Until
Performance Maturation Threshold Target Maximum
Name Share Units or Payout (#) (#) (#)
<S> <C> <C> <C> <C> <C>
E. L. Draper, Jr. 7,111 1997-1999 1,778 7,111 14,222
P. J. DeMaria 3,327 1997-1999 832 3,327 6,654
G. P. Maloney 3,327 1997-1999 832 3,327 6,654
W. J. Lhota 3,068 1997-1999 767 3,068 6,136
J. J. Markowsky 2,809 1997-1999 702 2,809 5,618
</TABLE>
Retirement Benefits
The American Electric Power System Retirement Plan provides
pensions for all employees of AEP System companies (except for
employees covered by certain collective bargaining agreements),<PAGE>
including the executive officers of the Company. The Retirement
Plan is a noncontributory defined benefit plan.
The following table shows the approximate annual annuities
under the Retirement Plan that would be payable to employees in
certain higher salary classifications, assuming retirement at age
65 after various periods of service.
<TABLE>
<CAPTION> PENSION PLAN TABLE
Years of Accredited Service
Highest Average
Annual Earnings 15 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 93,660 $124,880 $156,100 $187,320 $218,540 $245,140 $271,740
500,000 117,660 156,880 196,100 235,320 274,540 307,790 341,040
600,000 141,660 188,880 236,110 283,320 330,540 370,440 410,340
700,000 165,660 220,880 276,100 331,320 386,540 433,090 479,640
900,000 213,660 284,880 356,100 427,320 498,540 588,390 618,240
1,100,000 261,660 348,880 436,100 523,320 610,540 683,390 756,840
1,300,000 309,660 412,880 516,100 619,320 722,540 808,990 895,440
</TABLE>
The amounts shown in the table are the straight life
annuities payable under the Retirement Plan without reduction for
the joint and survivor annuity. Retirement benefits listed in
the table are not subject to any deduction for Social Security or
other offset amounts. The retirement annuity is reduced 3% per
year in the case of retirement between ages 60 and 62 and further
reduced 6% per year in the case of retirement between ages 55 and
60. If an employee retires after age 62, there is no reduction
in the retirement annuity.
AEP maintains a supplemental retirement plan which provides
for the payment of benefits that are not payable under the
Retirement Plan due primarily to limitations imposed by Federal
tax law on benefits paid by qualified plans. The table includes
supplemental retirement benefits.
Compensation upon which retirement benefits are based, for
the executive officers named in the Summary Compensation Table
above, consists of the average of the 36 consecutive months of
the officer's highest aggregate salary and Senior Officer Annual
Incentive Compensation Plan (and predecessor Management Incentive
Compensation Plan) awards, shown in the "Salary" and "Bonus"
columns, respectively, of the Summary Compensation Table, out of
the officer's most recent 10 years of service. As of
December 31, 1997, the number of full years of service applicable
for retirement benefit calculation purposes for such officers
were as follows: Dr. Draper, five years; Mr. DeMaria, 38 years;
Mr. Maloney, 42 years; Mr. Lhota, 33 years; and Dr. Markowsky,
26 years.
Dr. Draper has a contract with AEP and the Service
Corporation which provides him with a supplemental retirement
annuity that credits him with 24 years of service in addition to
his years of service credited under the Retirement Plan less his
actual pension entitlement under the Retirement Plan and any
pension entitlement from the Gulf States Utilities Company
Trusteed Retirement Plan, a plan sponsored by his prior employer.
Fourteen AEP System employees (including Messrs. DeMaria,
Maloney and Lhota and Dr. Markowsky) whose pensions may be
adversely affected by amendments to the Retirement Plan made as a
result of the Tax Reform Act of 1986 are eligible for certain
supplemental retirement benefits. Such payments, if any, will be
equal to any reduction occurring because of such amendments.
Assuming retirement in 1998 of the executive officers named in
the Summary Compensation Table, only Messrs. DeMaria and Maloney
would be affected and their annual supplemental benefit would be
$491 and $3,847, respectively.
AEP made available a voluntary deferred-compensation program
in 1982 and 1986, which permitted certain members of AEP System
management to defer receipt of a portion of their salaries.
Under this program, a participant was able to defer up to 10% or
15% annually (depending on the terms of the program offered),
over a four-year period, of his or her salary, and receive
supplemental retirement or survivor benefit payments over a 15-
year period. The amount of supplemental retirement payments
received is dependent upon the amount deferred, age at the time
the deferral election was made, and number of years until the
participant retires. The following table sets forth, for the
executive officers named in the Summary Compensation Table, the
amounts of annual deferrals and, assuming retirement at age 65,
annual supplemental retirement payments under the 1982 and 1986
programs.
<TABLE>
<CAPTION>
1982 Program 1986 Program
Annual Annual
Amount of Amount of
Annual Supplemental Annual Supplemental
Amount Retirement Amount Retirement
Deferred Payment Deferred Payment
(4-Year (15-Year (4-Year (15-Year
Name Period) Period) Period) Period)
<S> <C> <C> <C> <C>
P. J. DeMaria $10,000 $52,000 $13,000 $53,300
G. P. Maloney 15,000 67,500 16,000 56,400
</TABLE>
AEP BOARD HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The Human Resources Committee of the Board of Directors
regularly reviews executive compensation policies and practices
and evaluates the performance of management in the context of
AEP's performance. None of the members of the Committee is or
has been an officer or employee of any AEP System company or<PAGE>
receives remuneration from any AEP System company in any capacity
other than as a director.
The Human Resources Committee recognizes that the executive
officers are charged with managing a $16 billion, multi-state
electric utility during challenging times and with addressing
many difficult and complex issues.
AEP's executive compensation program is designed to maximize
shareholder value, to support the implementation of AEP's
business strategy and to improve both corporate and personal
performance. The Committee's compensation policies supporting
this program are:
* Pay for performance, motivating both short- and
long-term performance. Compensation for short- and
long-term performance focuses on meeting specified
corporate performance goals and the long-term interests
of shareholders, respectively.
* Require a significant amount of compensation for senior
executives to be "at risk," variable incentive
compensation versus fixed or base pay - with much of
this risk similar to the risk experienced by other AEP
shareholders.
* Enhance AEP's ability to attract, retain, reward,
motivate and encourage the development of exceptionally
knowledgeable, highly qualified and experienced
executives through compensation opportunities.
* Target compensation levels at rates that are reflective
of current market practices to maintain a stable,
successful management team.
In carrying out its responsibilities, the Committee utilizes
independent compensation consultants to obtain information and
recommendations relating to changing industry compensation
practices and programs.
The Committee also considers management's responses to the
impact of increased competition and other significant changes in
the rapidly evolving electric utility industry. It is the
Committee's opinion that, in this ever-changing environment,
Dr. Draper and the senior management team continue to develop and
implement strategies effectively to position AEP for the future.
This includes AEP's development of unregulated business
activities and proposals and actions taken in connection with the
industry's transition to competition. Four specific significant
initiatives in 1997 were the acquisition of 50% of Yorkshire
Electricity Group, a regional electric company in the United
Kingdom, a proposed joint venture with Conoco, developing a
national energy trading organization and the merger agreement
with Central and South West Corporation. The success of these
efforts and their benefits to AEP cannot be precisely measured in
advance, but the Committee believes they are vital to AEP's long-
term success.
Stock Ownership Guidelines. The AEP Board of Directors, upon
the Committee's recommendation, underscored the importance of<PAGE>
aligning executive and shareholder interests by adopting in
December 1994 stock ownership guidelines for senior management
participants in the Performance Share Incentive Plan. The
Committee and senior management believe that linking a
significant portion of an executive's current and potential
future net worth to AEP's success, as reflected in the stock
price and dividends paid, gives the executive a stake similar to
that of AEP's owners and further encourages long-term management
for the benefit of those owners.
Under the guidelines, the target ownership of AEP Common Stock is
directly related to the officer's corporate position with the
greatest ownership target for the chief executive officer. The
target for the CEO is 45,000 shares, which was equivalent to
approximately three times his then annual base salary. The
targets for the other four officers named in the Summary
Compensation Table are 15,000 shares each, equivalent to
approximately 1.5 times their then annual base salary. Each
officer is expected to achieve the ownership target within a
period of five years commencing on January 1, 1995. Common Stock
equivalents earned through the Management Incentive Compensation
Plan, Senior Officer Annual Incentive Compensation Plan and
Performance Share Incentive Plan, described below, are included
in determining compliance with the ownership targets. As of
January 1, 1998, Dr. Draper and the other four officers named in
the Summary Compensation Table exceeded their respective
ownership requirements (see the table on page 5 for actual
ownership amounts).
Components of Executive Compensation
Base Salary. When reviewing salaries, the Committee considers
pay practices used by other electric utilities and industry in
general. In addition, the Committee considers the respective
positions held by the executive officers, their levels of
responsibility, performance and experience, and the relationship
of their salaries to the salaries of other AEP managers and
employees.
For compensation comparison purposes, the Human Resources
Committee uses the electric utility companies in the S&P Electric
Utility Index. In recognition of AEP's relatively large size and
operational complexity, executive officer salary levels are
targeted to the second highest quartile (between the 50th and
75th percentiles) of the range of compensation paid by the other
electric utilities in this compensation peer group. Base salary
levels in 1997 for the CEO and next four most highly compensated
executive officers of AEP named in the Summary Compensation Table
were within this second highest quartile. In establishing salary
levels against that range, the Human Resources Committee
considers the competitiveness of AEP's entire compensation
package.
Salaries are adjusted, as appropriate, and reviewed annually to
reflect individual and corporate performance and consistency with
compensation changes within AEP and the compensation peer group
of other electric utilities.
The Committee meets without the presence of Dr. Draper, chairman,
president and chief executive officer, to evaluate his
performance and compensation and reports on that evaluation to
the outside directors of the Board. After full discussion, these
directors then act on the Committee's recommendation.
Annual Incentive. A variable, performance-based portion of the
executive officers' total compensation has been paid through the
Senior Officer Annual Incentive Compensation Plan ("SOIP"),
effective January 1, 1997, which is included in the "Bonus"
column in the Summary Compensation Table. The SOIP is the
successor to the Management Incentive Compensation Plan ("MICP")
for senior officers and is similar in operation and philosophy to
the MICP.
The SOIP is intended to motivate and reward senior officers to
achieve superior management performance in serving customer needs
and creating shareholder value. Each participant is assigned an
annual target award expressed as a percentage of annual salary.
For 1997, the target awards for Dr. Draper and the other
executive officers named in the compensation table were 40% and
35%, respectively. Actual awards can vary from 0-150% of the
target award-based on performance.
SOIP awards are based entirely on preestablished AEP corporate
performance criteria specified in the SOIP. For 1997, these four
criteria included (i) total investor return, which reflects stock
price and dividends paid, measured relative to the performance of
utilities in the S&P Electric Utility Index, (ii) return on
stockholder equity, measured relative to the performance of
utilities in the S&P Electric Utility Index and on absolute
performance, (iii) the extent to which the average price of power
sold to retail customers was lower as compared with other util-
ities in the states which AEP serves and, (iv) effective with the
1997 plan year, "safety performance". For 1997, the performance
merited an award of 113.8%. This percentage is an estimate but
should not change significantly.
To more closely align the financial interests of the executive
officers with AEP's shareholders, SOIP participants may elect to
defer their awards, with the deferrals treated as if invested in
Common Stock of AEP, although no stock is actually purchased.
Dividend equivalents are credited during the deferral period.
Long-Term Incentive. The Performance Share Incentive Plan (the
"Plan") provides longer-term, performance-driven, equity incen-
tive award opportunities directly related to shareholder value.
The Plan annually establishes performance share unit targets
which are earned based on AEP's subsequent three-year total
shareholder returns measured relative to the S&P peer utilities.
In 1997, the Committee established targets for Dr. Draper and the
other executive officers named in the Summary Compensation Table
equivalent to 40% and 35%, respectively, of their then base
salaries. The target number of performance share units has been
determined after an evaluation of long-term incentive oppor-
tunities provided by the S&P peer companies, again targeting the
second highest quartile of competitive practice. However, the
awards which will ultimately be paid to participants under the
Plan for a performance period are not determinable in advance and
can range from 0-200% of the target.
The Plan ended a three-year performance period at year end 1997.
AEP's total shareholder return for 1995-1997 ranked fourth
relative to the S&P peer utilities and, as a result, 185% of the
performance share unit targets originally established (and
dividend credits) were earned. The associated awards are listed
in the Summary Compensation Table.
Similar to the SOIP awards which are deferred, payments of earned
awards under the Plan are also deferred in the form of restricted
stock units (equivalent to shares of AEP Common Stock). Such
Plan deferrals continue until termination of employment or, if so
elected by the recipient, with payments commencing not later than
five years thereafter. Once the officers meet and maintain their
respective equivalent stock ownership targets discussed above,
they may then elect either to continue to defer or to receive
further earned Plan awards in cash and/or Common Stock. Dividend
equivalents are credited as though reinvested in additional
restricted stock units.
Tax Policy
The Committee has considered the impact of Section 162(m) of the
Internal Revenue Code, which provides a limit on the
deductibility of compensation for certain executive officers in
excess of $1,000,000 per year. It is the Committee's policy,
consistent with sound executive compensation principles and the
needs of AEP, to qualify all compensation for deductibility where
practicable.
Award payments under the Performance Share Incentive Plan have
been structured to be exempt from the deduction limit because
they are made pursuant to a shareholder-approved performance-
driven plan. Award payments under the SOIP currently are not
eligible for the performance-based exemption under the Code.
However, since Dr. Draper has deferred his SOIP award to dates
past his retirement from AEP, the Committee has not deemed it
necessary at this time to qualify compensation paid pursuant to
the SOIP for deductibility under Section 162(m). The Committee
may decide to do so in the future.
No named officer in the Summary Compensation Table had taxable
compensation for 1997 in excess of the deduction limit. The
Committee intends to continue to evaluate the impact of this Code
provision.
Human Resources
Committee Members
Morris Tanenbaum, Chairman
John P. DesBarres
Lester A. Hudson, Jr.
Donald G. Smith
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of
AEP Common Stock as of January 1, 1998 for all directors as of
the date of this Information Statement, each of the persons named
in the Summary Compensation Table and all directors and executive
officers as a group. Unless otherwise noted, each person had
sole voting and investment power over the number of shares of AEP
Common Stock and stock-based units of AEP set forth across from
his or her name. Fractions of shares have been rounded to the
nearest whole share. No executive officer, director or nominee
owns any shares of any series of the Cumulative Preferred Stock
of the Company.
<TABLE>
<CAPTION>
Stock
Name Shares Units(a) Total
<S> <C> <C> <C>
P. J. DeMaria . . . . 7,754(b)(c)(d)(e) 15,932 23,686
E. L. Draper, Jr. . . 7,373(b)(d) 62,857 70,230
H. W. Fayne . . . . . 4,318(b)(d) 8,745 13,063
W. J. Lhota . . . . . 15,056(b)(c)(d) 14,827 29,883
G. P. Maloney . . . . 5,803(b)(c)(d) 12,715 18,518
J. J. Markowsky . . . 5,126(b)(e) 12,417 17,543
J. H. Vipperman . . . 5,837(b)(d) 7,676 13,513
All directors and
executive officers as
a group (7 persons) . 136,498(f) 135,169 271,667
</TABLE>
__________
(a) This column includes amounts deferred in stock units and
held under the Management Incentive Compensation Plan,
Senior Officer Annual Incentive Compensation Plan and
Performance Share Incentive Plan. Certain of these stock
units are subject to forfeiture based on service as a
director or length of employment.
(b) Includes the following numbers of share equivalents held in
the AEP Employees Savings Plan over which such persons have
sole voting power, but the investment/disposition power is
subject to the terms of the Savings Plan: Mr. DeMaria,
3,187; Dr. Draper, 2,716; Mr. Fayne, 3,838, Mr. Lhota,
12,876; Mr. Maloney, 3,436; Dr. Markowsky, 5,074; Mr.
Vipperman, 5,142; and all executive officers, 36,269.
(c) Does not include, for Messrs. DeMaria, Lhota and Maloney,
85,231 shares in the American Electric Power System
Educational Trust Fund over which Messrs. DeMaria, Lhota and
Maloney share voting and investment power as trustees (they
disclaim beneficial ownership). The amount of shares shown
for all directors and executive officers as a group includes
these shares.
(d) Includes the following numbers of shares held in joint
tenancy with a family member: Mr. DeMaria, 462; Dr. Draper,
2,200; Mr. Fayne, 480; Mr. Lhota, 2,180; Mr. Maloney, 2,367;
and Mr. Vipperman, 64.
(e) Includes the following numbers of shares held by family
members over which beneficial ownership is disclaimed:
Mr. DeMaria, 3,192; and Dr. Markowsky, 19.
(f) Represents less than 1% of the total number of shares
outstanding.
MEETINGS OF THE BOARD OF DIRECTORS
Regular meetings of the Board of Directors were held once
each month during the year. In addition, the Board of Directors
holds special meetings from time to time as required. During
1997, the Board held twelve regular meetings and one special
meeting.
Directors of the Company receive a fee of $100 for each
meeting of the Board of Directors attended in addition to their
salaries.
The Board of Directors of the Company has no committees.
INDEPENDENT AUDITORS
The public accounting firm of Deloitte & Touche LLP has been
selected as the independent auditors of the Company for the year
1998.
A representative of Deloitte & Touche LLP will not be
present at the meeting unless prior to the day of the meeting the
Secretary of the Company has received written notice from a
stockholder addressed to the Secretary at 1 Riverside Plaza,
Columbus, Ohio 43215, that such stockholder will attend the
meeting and wishesto ask questions ofa representative ofthe firm.
JOHN F. DI LORENZO, JR.,
Secretary
March 26, 1998
