"American Electric Power is a utility that thinks like a growth company. This growth will come from our strengths in power generation and related wholesale marketing and energy trading," says E. Linn Draper, CEO of AEP.
AEP will create value for its shareholders through our energy-related assets, through people with commercial skills, through knowledge of markets and electrical systems, through technical skills in construction, operation and maintenance and project management and through risk management.
We have the assets, the people and much experience already. We have 38,000 megawatts of low-cost, diversified-fuel generating capacity, of which some 25,000 megawatts will be deregulated by 2002. We possess and are building the skills to use our assets in the marketplace. We have created a single organization to acquire and transport fuel, operate power plants and market and trade energy. During the past three years AEP's marketing and trading organization has grown from a start-up that sold capacity not required by our connected customers to become the second-ranked U.S. trading organization. We now trade four times as much energy in other regions as we supply to our own service area. Our wholesale business now produces significant margins. Significantly, our engineers and plant operators pay attention to productivity and availability and to forward price curves and profitability. In the past two-and-a-half years AEP power plants have achieved record high availability (up almost 4 percent over 1999) and reduced operation and maintenance costs to new lows (down by almost 13 percent since 1998).
We are truly striving to turn cost centers into profit centers. An excellent example of this profit center approach is AEP Pro Serv Inc., the non-regulated professional services arm of AEP. This unregulated subsidiary provides a full array of services to industry worldwide - from design and licensing to clean-up projects. AEP Pro Serv is built upon and utilizes the experience and expertise responsible for AEP's tradition and practice of engineering innovation.
Among AEP Pro Serv's latest announced contracts is a $325 million cogeneration project for the Dow Chemical Co. AEP Pro Serv and Dow recently signed an agreement for the AEP subsidiary to develop and construct a 900-megawatt natural gas-fired power plant at Dow's Plaquemine, LA, chemical complex. The new plant will provide steam to the complex, which produces 50 different products from 23 units at the site, and meet some of Dow's electric power needs. AEP has a 20-year agreement to sell up to 900 megawatts of the output from the Dow cogeneration plant to Tractebel Energy Marketing, Inc., (TEMI) a subsidiary of Belgian energy concern, Tracetebel S.A.
By this time in 2002 it is our plan for AEP to be two easily identifiable parts - a growth-oriented power generation and related energy trading wholesale business and a separate business for our wires and other regulated assets. This is the thrust of a restructuring plan that AEP has filed with the Securities and Exchange Commission.
This corporate separation plan responds to regulatory concerns about acceptable conduct between regulated and competitive activities. It also aligns regulatory requirements and corporate goals. This plan allows us to integrate growth businesses to obtain a higher multiple valuation based on performance. Business unit performance is more readily apparent. Where our capitalization is now about $24 billion, including $10 billion long-term debt, $1 billion in subordinated debt and about $4 billion short-term debt, scattered among various entities, financing for separate units should be more efficient. Most importantly, corporate separation provides a range of choices: two companies wholly owned by AEP operating much like today; two separate companies, each with its own stock.
