As part of American Electric Power’s (AEP) ongoing efforts to conserve cash, slash debt and improve its balance sheet, the electric utility last Wednesday said that its board of directors approved a 42% reduction in AEP’s quarterly dividend from 60 cents per share to 35 cents per share.

AEP in January disclosed that it would urge its board to cut its quarterly dividend to 35 cents a share from 60 cents. The dividend cut will result in annual cash savings of $340 million, immediately improving retained earnings and creating free cash flow that can be used to pay down debt, AEP CEO E. Linn Draper said at the time (see NGI, Jan. 27). Draper recently said that he will retire in 2004 (see NGI, April 14).

Meanwhile in an appearance last week before shareholders attending the company’s annual meeting, Draper said that AEP has made significant progress toward improving its performance and returning to stable, steady growth. “We are acting decisively to put the company back on a steady growth track. We believe we have the right plan to continue our recovery and return to stable growth. Clearly, the task before us now is to continue to execute our plan and thereby continue to restore investor confidence and shareholder value.”

AEP has made progress in the financing arena at a time when many of its peers are having difficulty accessing the financial markets. Already this year, AEP has issued $1.1 billion in equity and $2.5 billion in debt. It also renegotiated and extended a credit facility that was due to mature in May.

Additionally, AEP touted its improved balance sheet, which shows debt of 53.5%, down from 58.5%. AEP’s liquidity is $4 billion, including about $1.7 billion in cash.

The company plans to focus on its core utility operations. “The business of producing, transmitting and delivering electricity continues to be a solid business, despite the soft economy. And it is a business in which we have always excelled,” Draper said.

The utility also intends to continue an “orderly scale back” of its energy marketing and trading activities, focusing only on those activities that enable it to obtain more value from its core assets. In addition, the company will divest of non-core assets when market conditions are favorable. AEP has already sold two foreign retail companies in the United Kingdom and Australia, most of its Texas retail operations, a telecommunications subsidiary and other smaller holdings.

At the meeting, shareholders rejected two proposals. Approximately 16% of shares (or 10% of total outstanding shares) were voted in favor of a resolution to adopt a performance-based executive compensation policy linked to an industry peer group stock performance index.

Also, less than 27% of shares (or less than 15% of total outstanding shares) were voted in favor of a resolution to require AEP to report on the economic risks associated with the company’s past, present and future emissions.

But the Interfaith Center on Corporate Responsibility (ICCR), which was supporting the emissions-related resolution, noted that only 3% is required by the U.S. Securities and Exchange Commission for this proxy resolution to be reintroduced at AEP’s 2004 meeting. The resolution garnered 26.7% of AEP shareholder support.

The resolution was sponsored by the State of Connecticut Plans and Trust Fund and Christian Brothers Investment Services, both of which are members of the ICCR. Plans for the resolution were detailed earlier this year.

Similar resolutions were also filed through ICCR for shareholders of Southern Co., Xcel Energy Inc., TXU Corp. and Cinergy Corp. to consider.

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