AEP's Wholesale Earnings Top 2Q, Readies Separation of Unit

American Electric Power highlighted the benefits of wholesale energy marketing in its second quarter financial results, which came in at $0.89 per share, an 85% increase from the same quarter in 2000. Wall Street had expected earning of 70-89 cents/share, with a consensus estimate of 78 cents/share, according to Thomson Financial/First Call. Revenue increased 78% to $14 billion.

"The earnings contribution from wholesale increased 116%, or $0.44 per share, over the same quarter last year," said CEO E. Linn Draper Jr. "Even though wholesale power contributed $0.28 per share, representing a $0.15 improvement from the same quarter last year, the earnings contribution from wholesale natural gas almost matched it. Wholesale natural gas contributed $0.26 a share, a $0.24 improvement from last year's second quarter. This reflects both the improved margins for natural gas in the second quarter as well as the growth of our natural gas trading and wholesale marketing business, which has been boosted by the Houston Pipe Line acquisition completed in June."

AEP's wholesale business, which consists of wholesale sales in the United States, the generation component of domestic retail sales, worldwide trading and other related businesses, contributed $0.82 per share in the quarter, up from $0.38 in second quarter 2000. Wholesale electric domestic trading volume for the quarter was 121 million MWh, a 16% increase. Wholesale gas volume for the quarter was 774 Bcf (8.5 Bcf/d), a 178% increase from second-quarter 2000.

AEP's energy delivery business, which consists of domestic electric transmission and distribution, contributed $0.55 per share in the quarter, compared with $0.60 in second-quarter 2000.

AEP reaffirmed its expectations that ongoing earnings for 2001 will be between $3.50 and $3.60 per share, a 30-33% improvement over 2000 ongoing earnings of $2.71 per share.

"We have had a very good first six months and we are comfortable that our 2001 earnings will be in the upper range of the expectations," Draper said. "But several factors, primarily the implementation of electricity price caps in the West and uncertainty regarding the economy, have us reluctant to increase our guidance at this time. We expect earnings for 2002 will be between $3.75 and $3.85 per share."

On Tuesday, AEP filed documents with the Federal Energy Regulatory Commission seeking approval for changes to complete a planned restructuring of the corporation's regulated and unregulated holdings. The filings, said Draper, are expected to strengthen the corporation's wholesale operations, which is the focus of its growth. The news comes on the heels of its second quarter earnings announcement, which found wholesale energy marketing standing at $0.89 per share, an 85% increase from the same quarter in 2000.

``The separation will foster business unit accountability, enable investors to better evaluate our performance, and also provide us with options for the future," said Draper. "Our decisions will be based on what is in the best interests of our shareholders at that time.''

AEP's filings to the Commission include a Section 203 filing, which seeks to transfer jurisdictional facilities to accomplish the separation requirements of Texas and Ohio restructuring legislation; and a Section 205 filing, which seeks to amend the AEP East interconnection agreement and the AEP West operating agreement.

``Our separation plan, when combined with our continued leadership role in the development of regional transmission organizations encouraged by the FERC, supports the development of robust and open bulk power markets and meets federal and state restructuring objectives,'' Draper said.

AEP announced its restructuring plan last October and filed documents with the Securities and Exchange Commission in November that outlined the plan to form two wholly owned corporations. One corporation will hold AEP's subsidiaries that derive revenue from competitive, market-based, activities. The second will hold AEP's utility subsidiaries that are subject to regulation by at least one state utility commission or foreign utility subsidiaries subject to rate or tariff regulations.

AEP already has filed business separation plans in Ohio and Texas, as required by restructuring legislation in those states. Among other things, the plans separate all or most of the company's generation assets in Texas and Ohio from its transmission and distribution assets in those states. AEP's plan announced Tuesday extends the concepts included in the state business separation plans to the entire corporation, providing the company greater flexibility to make business decisions in the increasingly competitive energy marketplace.

AEP's FERC filings will be available on the company's web site at

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.