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
OHIO POWER COMPANY
(Name of Registrant As Specified in Its Charter)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
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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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[ ] Check box if any part of the fee is offset as provided by
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OHIO POWER COMPANY
301 Cleveland Avenue, S.W.
Canton, Ohio 44702
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
OHIO POWER COMPANY:
The annual meeting of the shareholders of Ohio Power Company
will be held on Tuesday, May 4, 1999, at 2:30 p.m. at the
principal office of American Electric Power Service Corporation,
1 Riverside Plaza, Columbus, Ohio, for the following purposes:
1. To elect six 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 Cumulative
Preferred Stock, par value $100 per share, at the close of
business on March 8, 1999 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 25, 1999
INFORMATION STATEMENT
This information statement is being furnished in connection
with the annual meeting of shareholders of Ohio Power Company
(the "Company"), to be held on Tuesday, May 4, 1999 at 2:30 p.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 8, 1999, the date for determining shareholders
entitled to notice of and to vote at the meeting, there were
256,417 shares of Cumulative Preferred Stock, par value $100 per
share, and 27,952,473 shares of Common Stock outstanding.
Each holder of Cumulative Preferred Stock, par value $100
per share, 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 8, 1999 for the
election of directors and on any other business which may come
before the meeting. Holders of Cumulative Preferred Stock, $25
non-voting of the par value $25 per share, and Cumulative
Preferred Stock, $100 non-voting of the par value of $100 per
share, are not entitled to notice of, or to vote at, the meeting.
If notice in writing is given by any shareholder to the
President, any Vice President, or the Secretary of the Company,
not less than 48 hours before the time fixed for the meeting,
that such shareholder desires that the voting at the meeting for
directors shall be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the meeting
by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice, each shareholder will have the
right to cumulate such voting power as he possesses and to give
one candidate as many votes as the number of directors to be
elected, multiplied by the number of his votes, or to distribute
his votes on the same principle among two or more candidates, as
he sees fit.
Principal Shareholders
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 99% 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 outstanding shares of Cumulative Preferred
Stock, par value $100 per share.
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
Six 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, 1999, 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>
E. LINN DRAPER, JR. 57 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 52 Vice president of the Company, vice
president and chief financial
officer of AEP and 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 59 President and chief operating
officer of the Company and executive
vice president of the Service
Corporation. Joined the Company 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 1989. A director of
certain other AEP System companies,
Huntington Bancshares Incorporated
and State Auto Financial
Corporation.
JAMES J. MARKOWSKY 54 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 1989 and
a vice president of the Company in
1995. A director of certain other
AEP System companies.
ARMANDO A. PENA 54 Vice president of the Company,
treasurer of AEP and senior vice
president-finance, treasurer and
chief financial officer of the
Service Corporation. Joined the
Service Corporation in 1971, became
assistant vice president in 1982,
vice president-finance in 1989,
senior vice president in 1996 and
assumed his present position in
1998. Became treasurer of the
Company and AEP in 1996. A director
of certain other AEP System
companies.
JOSEPH H. VIPPERMAN 58 Vice president of the Company and
executive vice president-corporate
services of the Service Corporation.
Joined Appalachian Power Company
("Appalachian"), a subsidiary of
AEP, 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.
Transferred to Appalachian as
executive vice president in 1989,
was president from 1990 until 1995
and became a vice president and a
director in 1996.
</TABLE>
Drs. Draper and Markowsky and Messrs. Fayne, Lhota, Pena and
Vipperman are directors of Appalachian, Columbus Southern Power
Company ("CSPCo"), Indiana Michigan Power Company ("I&M") and
Kentucky Power Company ("Kentucky"), all of which are
subsidiaries of AEP and have one or more classes of publicly held
preferred stock or debt securities. Drs. Draper and Markowsky
and Messrs. Fayne, Lhota, and Pena 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 1998, 1997 and 1996 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, 1998.
<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. - 1998 780,000 194,376 345,906 104,941
Chairman of the board and 1997 720,000 327,744 951,132 31,620
chief executive officer of 1996 720,000 281,664 675,903 31,990
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
William J. Lhota - President, 1998 380,000 82,859 134,266 56,493
chief operating officer and 1997 355,000 141,396 364,436 20,570
director of the Company; 1996 320,000 125,184 263,114 19,690
executive vice president and
director of the Service
Corporation; president, chief
operating officer and
director of other AEP System
companies
James J. Markowsky - Vice 1998 350,000 76,317 127,115 51,859
president and director of the 1997 325,000 129,447 338,382 18,020
Company; executive vice 1996 303,000 118,534 254,535 19,480
president-power generation
and director of the Service
Corporation; vice president
and director of other AEP
System companies
Joseph H. Vipperman - Vice 1998 310,000 67,595 82,859 58,435
president and director of the
Company; executive vice
president-corporate services
and director of the Service
Corporation; vice president
and director of other AEP
System companies
Henry W. Fayne - Vice 1998 290,000 63,234 61,555 34,124
president and director of the
Company; executive vice
president-financial services
and director of the Service
Corporation; vice president
and director of other AEP
System companies
</TABLE>
___________
(1) Amounts in the "Bonus" column reflect awards under the
Senior Officer Annual Incentive Compensation Plan (and
predecessor Management Incentive Compensation Plan).
Payments were made in March of the succeeding fiscal year
for performance in the year indicated. Amounts for 1998 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 for three-year performance periods.
See below under "Long-Term Incentive Plans - Awards in 1998"
and page 10 for additional information.
(2) Amounts in the All Other Compensation column include (i)
AEP's matching contributions under the AEP Employees Savings
Plan and the AEP Supplemental Savings Plan, a non-qualified
plan designed to supplement the AEP Savings Plan, and (ii)
subsidiary companies director fees. For 1998, the amounts
also include split-dollar insurance. Split-dollar insurance
represents the present value of the interest projected to
accrue for the employee's benefit on the current year's
insurance premium paid by AEP. Cumulative net life
insurance premiums paid are recovered by AEP at the later of
retirement or 15 years. Detail of the 1998 amounts in the
All Other Compensation column is shown below.
<TABLE>
<CAPTION>
Item Dr. Draper Mr. Lhota Dr. Markowsky Mr. Vipperman Mr. Fayne
<S> <C> <C> <C> <C> <C>
Savings Plan Matching Contributions $ 3,200 $ 4,800 $ 4,800 $ 4,800 $ 4,800
Supplemental Savings Plan Matching
Contributions 20,200 6,600 5,700 4,500 3,900
Split-Dollar Insurance 71,621 35,173 31,439 43,135 17,399
Subsidiaries Directors Fees 9,920 9,920 9,920 6,000 8,025
Total All Other Compensation $104,941 $ 56,493 $ 51,859 $ 58,435 $ 34,124
</TABLE>
(3) No 1996 or 1997 compensation information is reported for
Messrs. Vipperman and Fayne because they were not executive
officers in these years.
Long-Term Incentive Plans - Awards In 1998
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. 7,730 1998-2000 1,932 7,730 15,460
W. J. Lhota 2,636 1998-2000 659 2,636 5,272
J. J. Markowsky 2,428 1998-2000 607 2,428 4,856
J. H. Vipperman 2,150 1998-2000 537 2,150 4,300
H. W. Fayne 2,012 1998-2000 503 2,012 4,024
</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),
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
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 69,525 $ 92,700 $115,875 $139,050 $162,225 $182,175
400,000 93,525 124,700 155,875 187,050 218,225 244,825
500,000 117,525 156,700 195,875 235,050 274,225 307,475
700,000 165,525 220,700 275,875 331,050 386,225 432,775
900,000 213,525 284,700 355,875 427,050 498,225 588,075
1,200,000 285,525 380,700 475,875 571,050 666,225 746,025
</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 55 and 62. 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, 1998, the number of full years of service applicable
for retirement benefit calculation purposes for such officers
were as follows: Dr. Draper, six years; Mr. Fayne, 23 years;
Mr. Lhota, 34 years; Dr. Markowsky, 27 years; and Mr. Vipperman,
35 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.
Ten AEP System employees (including Messrs. Fayne, Lhota,
Vipperman 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 1999 of the executive officers named in the Summary
Compensation Table, none of the executive officers would receive
any supplemental benefits.
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>
J. H. Vipperman $11,000 $90,750 $10,000 $67,500
H. W. Fayne -0- -0- 9,000 95,400
</TABLE>
Severance Plan
In connection with a proposed merger with Central and South
West Corporation, AEP's Board of Directors adopted a severance
plan on February 24, 1999, effective March 1, 1999, that includes
Dr. Markowsky and Messrs. Lhota, Vipperman and Fayne. The
severance plan provides for payments and other benefits if,
within two years after the merger is completed, the officer's
employment is terminated by AEP without "cause" or by the officer
because of a detrimental change in responsibilities or a
reduction in salary or benefits. Under the severance plan, the
officer will receive:
* A lump sum payment equal to three times the officer's annual
base salary plus target annual incentive under the Senior
Officer Annual Incentive Compensation Plan.
* Maintenance for a period of three additional years of all
medical and dental insurance benefits substantially similar
to those benefits to which the officer was entitled
immediately prior to termination, reduced to the extent
comparable benefits are otherwise received.
* Outplacement services not to exceed a cost of $30,000 or use
of an office and secretarial services for up to one year.
AEP's obligation for the payments and benefits under the
severance plan is subject to the waiver by the officer of any
other severance benefits that may be provided by AEP. In
addition, the officer agrees to refrain from the disclosure of
confidential information relating to AEP.
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
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 $19 billion, multi-state
electric utility with international investments 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, proposals and actions taken in connection with the
industry's transition to competition, establishment of a national
energy trading organization and the merger agreement with Central
and South West Corporation. Two specific significant 1998
initiatives were the acquisition of Citipower, an Australian
electricity distribution and retail sales company, and the
acquisition of midstream natural gas assets in Louisiana and
Texas. 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
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 and the other four officers named in the
Summary Compensation Table is 45,000 shares and 15,000 shares,
respectively. Each officer is expected to achieve the ownership
target within a five year period. Common Stock equivalents
earned through the 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, 1999, Dr. Draper has met his ownership
requirements and the other officers named in the Summary
Compensation Table have either met, or are on target to meet,
their respective targets within the specified time period. See
the table on page 11 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 1998 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 base
salary levels against that range, the Human Resources Committee
considers the competitiveness of AEP's entire compensation
package.
Base 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. The primary purpose of annual incentive
compensation is to motivate senior managers, through short-term
(one-year) incentives and rewards, to maximize shareholder value
by maximizing the Company's financial performance.
The Senior Officer Annual Incentive Compensation Plan ("SOIP")
provides a variable, performance-based portion of the executive
officers' total compensation and this compensation is set forth
in the Bonus column of the Summary Compensation table. SOIP
participants are assigned an annual target award expressed as a
percentage of annual salary. For 1998, 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.
For 1998, SOIP awards were based on the following preestablished
AEP corporate performance criteria, each weighted 25%:
(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) average price of power sold to AEP's retail customers
compared with other utilities in the states which AEP
serves and,
(iv) safety.
For 1998, AEP corporate performance merited an award of 62.3%.
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 primary purpose of longer term,
equity-based, incentive compensation is to motivate senior
managers to maximize shareholder value by linking a portion of
their compensation directly to shareholder return.
The Performance Share Incentive Plan ("PSIP") 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 1998, the Committee
established targets for Dr. Draper and the other executive
officers named in the Summary Compensation Table equivalent to
50% 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 opportunities provided
by the S&P peer utilities, again targeting the second highest
quartile of competitive practice. However, the awards which will
ultimately be paid to participants under the PSIP for a perfor-
mance period are not determinable in advance and can range from
0-200% of the target.
The PSIP ended a three-year performance period at year end 1998.
AEP's total shareholder return for 1996-1998 ranked fourteenth
relative to the S&P peer utilities and, as a result, 85% 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 PSIP are also deferred in the form of restricted
stock units (equivalent to shares of AEP Common Stock). Such
PSIP 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. When
awards are deferred, 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 in excess of $1,000,000 paid in any
year to the Company's chief executive officer or any of its four
other most highly compensated executive officers. 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 PSIP 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 are not eligible for the performance-based
exemption and the deduction limit does apply to such awards.
Since Dr. Draper has deferred his 1998 SOIP award to dates past
his retirement from AEP (providing an exemption from the
deduction limit), 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 1998 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 and stock based units as of January 1, 1999 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>
E. L. Draper, Jr. . . 7,934(b)(d) 77,612 85,546
H. W. Fayne . . . . . 4,649(b) 10,135 14,784
W. J. Lhota . . . . . 16,042(b)(c)(d) 14,902 30,944
J. J. Markowsky . . . 3,942(b)(e) 13,062 17,004
J. H. Vipperman . . . 10,734(b)(c)(d) 4,718 15,452
A. A. Pena . . . . . 4,886(b) 5,213 10,099
All directors and
executive officers as
a group (6 persons) . 133,418(f) 125,642 259,060
</TABLE>
__________
(a) This column includes amounts deferred in stock units and
held under AEP's various officer benefit plans. Certain of
these stock units are subject to forfeiture based on 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: Dr. Draper, 3,033;
Mr. Fayne, 4,144; Mr. Lhota, 13,862; Dr. Markowsky, 3,888;
Mr. Pena, 3,464; Mr. Vipperman, 10,002; and all executive
officers, 38,393.
(c) Does not include, for Messrs. Lhota and Vipperman, 85,231
shares in the American Electric Power System Educational
Trust Fund over which Messrs. Lhota and Vipperman 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: Dr. Draper, 4,901; Mr. Lhota,
2,180; and Mr. Vipperman, 67.
(e) Includes the following numbers of shares held by family
members over which beneficial ownership is disclaimed:
Dr. Markowsky, 20.
(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
1998, the Board held twelve regular meetings.
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
1999.
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 wishes to ask questions of a representative of the
firm.
JOHN F. DI LORENZO, JR.,
Secretary
March 25, 1999
