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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period from to
Commission Registrant, State of Incorporation I.R. S. Employer
File Number Address, and Telephone Number Identification No.
1-3525 AMERICAN ELECTRIC POWER COMPANY, INC. 13-4922640
(A New York Corporation)
0-18135 AEP GENERATING COMPANY (An Ohio Corporation) 31-1033833
0-346 AEP TEXAS CENTRAL COMPANY (A Texas Corporation) 74-0550600
0-340 AEP TEXAS NORTH COMPANY (A Texas Corporation) 75-0646790
1-3457 APPALACHIAN POWER COMPANY (A Virginia Corporation) 54-0124790
1-2680 COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation) 31-4154203
1-3570 INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation) 35-0410455
1-6858 KENTUCKY POWER COMPANY (A Kentucky Corporation) 61-0247775
1-6543 OHIO POWER COMPANY (An Ohio Corporation) 31-4271000
0-343 PUBLIC SERVICE COMPANY OF OKLAHOMA 73-0410895
(An Oklahoma Corporation)
1-3146 SOUTHWESTERN ELECTRIC POWER COMPANY 72-0323455
(A Delaware Corporation)
All Registrants 1 Riverside Plaza, Columbus, Ohio 43215-2373
Telephone (614) 223-1000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X
No
Indicate by check mark whether American Electric Power Company, Inc. is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes X
No
Indicate by check mark whether AEP Generating Company, AEP Texas Central
Company, AEP Texas North Company, Appalachian Power Company, Columbus Southern
Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio
Power Company, Public Service Company of Oklahoma and Southwestern Electric
Power Company, are accelerated filers (as defined in Rule 12b-2 of the Exchange
Act).
Yes
No X
AEP Generating Company, AEP Texas North Company, Columbus Southern Power
Company, Kentucky Power Company and Public Service Company of Oklahoma meet the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are
therefore filing this Form 10-Q with the reduced disclosure format specified in
General Instruction H(2) to Form 10-Q.
The number of shares outstanding of American Electric Power Company, Inc. Common
Stock, par value $6.50, at April 30, 2003 was 394,993,420.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q
For The Quarter Ended March 31, 2003
CONTENTS
Page
Glossary of Terms i - iii
Forward-Looking Information iv
Part I. FINANCIAL INFORMATION
Items 1 and 2 Financial Statements and Management's Discussion
and Analysis of Results of Operations:
American Electric Power Company, Inc. and Subsidiary Companies:
Management's Discussion and Analysis of Results of Operations A-1 - A-3
Consolidated Financial Statements A-4 - A-8
AEP Generating Company:
Management's Narrative Analysis of Results of Operations B-1 - B-2
Financial Statements B-3 - B-6
AEP Texas Central Company and Subsidiaries:
Management's Discussion and Analysis of Results of Operations C-1 - C-4
Consolidated Financial Statements C-5 - C-9
AEP Texas North Company:
Management's Narrative Analysis of Results of Operations D-1 - D-3
Financial Statements D-4 - D-8
Appalachian Power Company and Subsidiaries:
Management's Discussion and Analysis of Results of Operations E-1 - E-3
Consolidated Financial Statements E-4 - E-8
Columbus Southern Power Company and Subsidiaries:
Management's Narrative Analysis of Results of Operations F-1 - F-2
Consolidated Financial Statements F-3 - F-7
Indiana Michigan Power Company and Subsidiaries:
Management's Discussion and Analysis of Results of Operations G-1 - G-3
Consolidated Financial Statements G-4 - G-8
Kentucky Power Company:
Management's Narrative Analysis of Results of Operations H-1 - H-2
Financial Statements H-3 - H-7
Ohio Power Company:
Management's Discussion and Analysis of Results of Operations I-1 - I-3
Financial Statements I-4 - I-8
Public Service Company of Oklahoma and Subsidiary:
Management's Narrative Analysis of Results of Operations J-1 - J-2
Consolidated Financial Statements J-3 - J-7
Southwestern Electric Power Company and Subsidiaries:
Management's Discussion and Analysis of Results of Operations K-1 - K-2
Consolidated Financial Statements K-3 - K-7
Combined Notes to Financial Statements L-1 - L-33
Item 2. Registrants' Combined Management's Discussion and Analysis of
Financial Condition, Accounting Policies and Other Matters M-1 - M-14
Item 3. Quantitative and Qualitative Disclosures About Risk Management Activities N-1 - N-13
Item 4. Controls and Procedures O-1
Part II. OTHER INFORMATION
Item 5. Other Information P-1
Item 6. Exhibits and Reports on Form 8-K P-1
(a) Exhibits
Exhibit 12
Exhibit 99.1
Exhibit 99.2
(b) Reports on Form 8-K
SIGNATURES Q-1
CERTIFICATIONS R-1 - R-4
This combined Form 10-Q is separately filed by American Electric Power Company,
Inc., AEP Generating Company, AEP Texas Central Company, AEP Texas North
Company, Appalachian Power Company, Columbus Southern Power Company, Indiana
Michigan Power Company, Kentucky Power Company, Ohio Power Company, Public
Service Company of Oklahoma and Southwestern Electric Power Company. Information
contained herein relating to any individual registrant is filed by such
registrant on its own behalf. Each registrant makes no representation as to
information relating to the other registrants.
iii
GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report,
they have the meanings indicated below.
Term Meaning
2004 True-up Proceeding............A filing to be made after January 10, 2004 under the Texas Legislation to finalize the amount
of stranded costs and the recovery of such costs.
AEGCo..............................AEP Generating Company, an electric utility subsidiary of AEP.
AEP................................American Electric Power Company, Inc.
AEP Consolidated...................AEP and its majority owned consolidated subsidiaries.
AEP Credit.........................AEP Credit, Inc., a subsidiary of AEP which factors accounts receivable and accrued utility
revenues for affiliated and non-affiliated domestic electric utility companies.
AEP East companies.................APCo, CSPCo, I&M, KPCo and OPCo.
AEPR...............................AEP Resources, Inc.
AEP System or the System...........The American Electric Power System, an integrated electric utility system, owned and operated
by AEP's electric utility subsidiaries.
AEPSC..............................American Electric Power Service Corporation, a service subsidiary providing management and
professional services to AEP and its subsidiaries.
AEP Power Pool.....................AEP System Power Pool. Members are APCo, CSPCo, I&M, KPCo and OPCo. The Pool shares the
generation, cost of generation and resultant wholesale system sales of the member
companies.
AEP West companies.................PSO, SWEPCo, TCC and TNC.
Amos Plant.........................John E. Amos Plant, a 2,900 MW generation station jointly owned and operated by APCo and OPCo.
APCo...............................Appalachian Power Company, an AEP electric utility subsidiary.
Arkansas Commission................Arkansas Public Service Commission.
Buckeye............................Buckeye Power, Inc., an unaffiliated corporation.
COLI...............................Corporate owned life insurance program.
Cook Plant.........................The Donald C. Cook Nuclear Plant, a two-unit, 2,110 MW nuclear plant owned by I&M.
CSPCo..............................Columbus Southern Power Company, an AEP electric utility subsidiary.
CSW............................... Central and South West Corporation, a subsidiary of AEP (Effective January 21, 2003, the
legal name of Central and South West
Corporation was changed to AEP Utilities, Inc.).
CSW Energy.........................CSW Energy, Inc., an AEP subsidiary which invests in energy projects and builds power plants.
CSW International..................CSW International, Inc., an AEP subsidiary which invests in energy projects and entities
outside the United States.
D.C. Circuit Court.................The United States Court of Appeals for the District of Columbia Circuit.
DOE................................United States Department of Energy.
ECOM...............................Excess Cost Over Market.
EITF...............................The Financial Accounting Standards Board's Emerging Issues Task Force.
EITF 02-3..........................Recognition and Reporting of Gains and Losses on Energy Contracts under Issues No. 98-10 and
00-17.
ERCOT..............................The Electric Reliability Council of Texas.
FASB...............................Financial Accounting Standards Board.
Federal EPA........................United States Environmental Protection Agency.
FERC...............................Federal Energy Regulatory Commission.
GAAP...............................Generally Accepted Accounting Principles.
I&M................................Indiana Michigan Power Company, an AEP electric utility subsidiary.
ICR................................Interchange Cost Reconstruction.
IRS................................Internal Revenue Service.
IURC...............................Indiana Utility Regulatory Commission.
ISO................................Independent System Operator.
KPCo...............................Kentucky Power Company, an AEP electric utility subsidiary.
KPSC...............................Kentucky Public Service Commission.
KWH................................Kilowatthour.
LIG................................Louisiana Intrastate Gas.
Michigan Legislation...............The Customer Choice and Electricity Reliability Act, a Michigan law which provides for
customer choice of electricity supplier.
MISO...............................Midwest Independent System Operator (an independent operator of transmission assets in the
Midwest).
MLR................................Member Load Ratio, the method used to allocate AEP Power Pool transactions to its members.
Money Pool.........................AEP System's Money Pool.
MPSC...............................Michigan Public Service Commission.
MTM................................Mark-to-Market.
MW.................................Megawatt.
MWH................................Megawatthour.
NOx................................Nitrogen oxide.
NOx Rule...........................A
final rule issued by Federal EPA
which requires NOx reductions in 22
eastern states including seven of
the states in which AEP companies
operate.
NRC................................Nuclear Regulatory Commission.
OCC................................The Corporation Commission of the State of Oklahoma.
Ohio Act...........................The Ohio Electric Restructuring Act of 1999.
Ohio EPA...........................Ohio Environmental Protection Agency.
OPCo.............................. Ohio Power Company, an AEP electric utility subsidiary.
PJM................................Pennsylvania - New Jersey - Maryland regional transmission organization.
PSO................................Public Service Company of Oklahoma, an AEP electric utility subsidiary.
PUCO...............................The Public Utilities Commission of Ohio.
PUCT...............................The Public Utility Commission of Texas.
PUHCA..............................Public Utility Holding Company Act of 1935, as amended.
PURPA..............................The Public Utility Regulatory Policies Act of 1978.
RCRA...............................Resource Conservation and Recovery Act of 1976, as amended.
Registrant Subsidiaries............AEP subsidiaries who are SEC registrants; AEGCo, APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo,
TCC and TNC.
REP................................Retail Electric Provider.
Rockport Plant.....................A generating plant, consisting of two 1,300 MW coal-fired generating units near Rockport,
Indiana owned by AEGCo and I&M.
RTO................................Regional Transmission Organization.
SEC................................Securities and Exchange Commission.
SFAS...............................Statement of Financial Accounting Standards issued by the Financial Accounting Standards
Board.
SFAS 71............................Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation.
SFAS 101...........................Statement of Financial Accounting Standards No. 101, Accounting for the
Discontinuance of Application of Statement 71.
SFAS 133...........................Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities.
SFAS 143...........................Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations.
SNF................................Spent Nuclear Fuel.
SPP................................Southwest Power Pool.
STP................................South Texas Project Nuclear Generating Plant, owned 25.2% by AEP Texas Central Company, an
AEP electric utility subsidiary.
STPNOC.............................STP Nuclear Operating Company, a non-profit Texas corporation which operates STP on behalf of
its joint owners including TCC.
SWEPCo.............................Southwestern Electric Power Company, an AEP electric utility subsidiary.
TCC................................AEP Texas Central Company, an AEP electric utility subsidiary [formerly known as Central
Power and Light Company (CPL)].
Texas Legislation..................Legislation enacted in 1999 to restructure the electric utility industry in Texas.
TNC................................AEP Texas North Company, an AEP electric utility subsidiary [formerly known as West Texas
Utilities Company (WTU)].
TVA ...............................Tennessee Valley Authority.
U.K................................The United Kingdom.
VaR................................Value at Risk, a method to quantify risk exposure.
Virginia SCC.......................Virginia State Corporation Commission.
WVPSC..............................Public Service Commission of West Virginia.
WPCo...............................Wheeling Power Company, an AEP electric distribution subsidiary.
Zimmer Plant.......................William H. Zimmer Generating Station, a 1,300 MW coal-fired unit owned 25.4% by Columbus
Southern Power Company, an AEP subsidiary.
iv
FORWARD LOOKING INFORMATION
These reports made by AEP and its registrant subsidiaries contain
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. Although AEP and its registrant
subsidiaries believe that their expectations are based on reasonable
assumptions, any such statements may be influenced by factors that could
cause actual outcomes and results to be materially different from those
projected. Among the factors that could cause actual results to differ
materially from those in the forward-looking statements are:
o Electric load and customer growth.
o Abnormal weather conditions.
o Available sources and costs of fuels.
o Availability of generating capacity.
o The speed and degree to which competition is introduced to our service
territories.
o The ability to recover stranded costs in connection with
possible/proposed deregulation.
o New legislation and government regulation.
o Oversight and/or investigation of the energy sector or
its participants.
o Our ability to successfully control costs.
o The success of acquiring new business ventures and disposing of
existing investments that no longer match our corporate profile.
o International and country-specific developments affecting foreign
investments including the disposition of any current foreign
investments and potential additional foreign investments.
o The economic climate and growth in our service territory and
changes in market demand and demographic patterns.
o Inflationary trends.
o Electricity and gas market prices.
o Interest rates.
o Liquidity in the banking, capital and wholesale power markets.
o Actions of rating agencies.
o Changes in technology, including the increased use of distributed
generation within our transmission and distribution service territory.
o Other risks and unforeseen events, including wars, the effects of terrorism,
embargoes and other catastrophic events.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
American Electric Power Company, Inc.'s principal operating business segments
and their major activities are:
Utility Operations
oDomestic generation of electricity for sale to retail
and wholesale customers
oDomestic electricity transmission and distribution
Investments - Gas Operations
oGas pipeline and storage services
Investments - UK Operations
oInternational generation of electricity for sale to wholesale customers
Investments - Other
oCoal mining, bulk commodity barging operations and other
energy supply businesses
o
Results of Operations
Net Income of $440 million or $1.24 per share in the first quarter of 2003
included $193 million of Income from Cumulative Effect of Accounting Changes
(see Note 3). Income Before Discontinued Operations and Cumulative Effect
increased $97 million or 61% due to improved earnings from system sales
resulting from the interactions of plant availability, the colder winter weather
and higher margins.
Changes in Revenues
AEP's total revenue increased 36% in the first quarter of 2003. The following
table shows the components of revenue.
Increase (Decrease)
(in millions) %
REVENUES:
Electric Generation $ 441 31
Electric Transmission and
Distribution 74 9
Gas Pipeline and Storage 669 155
Investments ( 96) (32)
TOTAL REVENUES $ 1,088 36
The increase in revenues was primarily due to higher levels of Electric
Generation and Electric Transmission and Distribution resulting from plant
availability and the colder winter weather as well as the higher revenue from
Gas Pipeline and Storage sales resulting primarily from higher prices. Heating
degree days were up 20% which resulted in higher residential KWH sales of 4%.
System sales volume increased 10% to 7,681 gigawatt hours. Higher gas prices
were caused by the decreasing availability of gas. Fuel inventories at gas
storage facilities were reduced to low levels reflecting the colder winter
weather compared to 2002. Investment revenues decreased 32% due to the completed
construction of a gas-fired plant for a third party in the summer of 2002 and a
reduction in U.K. operating margins due to market conditions.
Changes in Expenses
Increase (Decrease)
(in millions) %
EXPENSES:
Fuel for Electric Generation $ 39 6
Purchased Electricity for Resale 176 N.M.
Purchased Gas for Resale 795 225
Maintenance and Other Operation (43) (4)
Depreciation and Amortization (17) (5)
Taxes Other Than Income Taxes (3) (2)
TOTAL OPERATING EXPENSES $947 37
N.M. = Not Meaningful
The increase in Fuel for Electric Generation includes the effect of an increase
in AEP's domestic net generation of 6% and higher generation output of 31% in
the U.K. operation. The increase in Purchased Electricity for Resale expense was
primarily attributable to an increase in MWH purchased to meet the demand.
Purchased Gas for Resale increased due primarily to higher market prices.
Maintenance and Other Operation expense decreased primarily due to the effect of
material and labor costs related to the construction of a gas-fired plant for a
third party that was completed in 2002. Project fees for the construction of the
gas-fired plant for a third party were recognized in revenues on a percentage of
completion method, consequently, the decrease in expense for material and labor
cost does not affect net income. In addition, payroll expense decreased due in
part to personnel reductions in late 2002. These decreases were partially offset
by increases in U.K. operational expenses, pension and postretirement benefits
expense, accretion expense related to asset retirement obligations (ARO) SFAS
143 (see Note 2 and explanation of decrease in Depreciation and Amortization
expense below) and nuclear refueling outage amortization expenses.
The decrease in Depreciation and Amortization expense is primarily due to the
adoption of SFAS 143 for certain subsidiary utility companies effective January
1, 2003. Effective January 1, 2003 the generation depreciation rate for certain
non-regulated jurisdictions was reduced to exclude the non-ARO removal cost
portion that was included in the depreciation rate. In addition, certain
amortization related to nuclear decommissioning costs was reclassified as ARO
accretion expense which is included in Maintenance and Other Operations expense.
Additionally, APCo reduced its Depreciation and Amortization expense related to
the amortization of generation related regulatory assets due to the return to
SFAS 71 regulatory accounting for the West Virginia jurisdiction (see Note 6 for
further discussion of the return to SFAS 71 regulatory accounting).
Other Income and Other Expenses
Other Income includes non-operating revenue including non-utility revenue
associated with energy related projects for customers, equity earnings of
non-consolidated subsidiaries, a gain on the sale of our customer care
operations in Texas, and interest and miscellaneous income.
Other Expenses includes non-utility expenses associated with energy related
projects for customers, losses on dispositions of property, donations and
various other non-operating and miscellaneous expenses.
Other Income increased mainly due to a gain of $39 million on the sale of our
customer care operations in Texas and an increase in miscellaneous income. In
the first quarter of 2003, AEP sold Mutual Energy Service Company, a customer
care operation which was created to serve retail customers in the deregulated
Texas market, to Alliance Data Systems. This sale continues our exit of the
retail electric supply business in Texas and refocuses our resources on
wholesale generation and power supply markets. Miscellaneous income increased
due to additional contracts for the staffing of nonassociated companies'
outages. Other Expenses increased due to increased non-utility expenses
associated with energy related construction projects for third parties.
Other Changes
The increase in Income Taxes is due to an increase in pre-tax income and the tax
effects of foreign operations.
The increase in Interest was primarily due to an increase in outstanding
balances of long-term debt in the first quarter of 2003. The increase was
partially offset by a decrease in short-term debt interest expense due to a
decrease in outstanding balances of short-term debt in the first quarter of
2003.
Cumulative Effect of Accounting Changes
The Cumulative Effect of Accounting Changes is due to the one-time after-tax
impact of adopting SFAS 143 and implementing the requirements of EITF 02-3 (see
Notes 2 and 3).
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
(UNAUDITED)
Three Months Ended March 31,
2003 2002
REVENUES:
Electric Generation $1,863 $ 1,422
Electric Transmission and Distribution 910 836
Gas Pipeline and Storage 1,102 433
Investments 205 301
TOTAL REVENUES 4,080 2,992
EXPENSES:
Fuel for Electric Generation 660 621
Purchased Electricity for Resale 205 29
Purchased Gas for Resale 1,149 354
Maintenance and Other Operation 963 1,006
Depreciation and Amortization 315 332
Taxes Other Than Income Taxes 188 191
TOTAL EXPENSES 3,480 2,533
OPERATING INCOME 600 459
OTHER INCOME 118 12
OTHER EXPENSES 45 20
LESS: INTEREST 205 195
PREFERRED STOCK DIVIDEND REQUIREMENTS OF
SUBSIDIARIES
3 2
MINORITY INTEREST IN FINANCE SUBSIDIARY 9 9
INCOME BEFORE INCOME TAXES 456 245
INCOME TAXES 200 86
INCOME BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE
EFFECT 256 159
DISCONTINUED OPERATIONS (LOSS) INCOME (NET OF TAX) (9) 22
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NET OF TAX):
Goodwill and Other Intangible Assets - (350)
Accounting for Risk Management Contracts (49) -
Asset Retirement Obligation 242 -
NET INCOME (LOSS) $ 440 $ (169)
AVERAGE NUMBER OF SHARES OUTSTANDING 356 322
EARNINGS (LOSS) PER SHARE:
Income Before Discontinued Operations and
Cumulative Effect of Accounting Changes
$ 0.72 $ 0.49
Discontinued Operations (0.02) 0.07
Cumulative Effect of Accounting Changes 0.54 (1.08)
Earnings (Loss) Per Share (Basic and Diluted) $ 1.24 $(0.52)
CASH DIVIDENDS PAID PER SHARE $ 0.60 $ 0.60
See Notes to Consolidated Financial Statements beginning on page L-1.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
(in millions)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,764 $ 1,213
Accounts Receivable (net) 2,572 1,740
Fuel, Materials and Supplies 966 1,166
Risk Management Assets 1,105 1,012
Other 1,037 935
TOTAL CURRENT ASSETS 7,444 6,066
PROPERTY, PLANT AND EQUIPMENT:
Electric:
Production 17,239 17,031
Transmission 5,909 5,882
Distribution 9,585 9,573
Other (including gas, coal mining and
nuclear fuel) 3,911 3,965
Construction Work in Progress 1,510 1,406
Total Property, Plant and Equipment 38,154 37,857
Accumulated Depreciation and Amortization 15,826 16,173
NET PROPERTY, PLANT AND EQUIPMENT 22,328 21,684
REGULATORY ASSETS 2,669 2,688
SECURITIZED TRANSITION ASSETS 726 735
INVESTMENTS IN POWER AND DISTRIBUTION PROJECTS 291 283
GOODWILL 396 396
ASSETS HELD FOR SALE 280 292
LONG-TERM RISK MANAGEMENT ASSETS 812 819
OTHER ASSETS 1,955 1,783
TOTAL ASSETS $36,901 $34,746
See Notes to Consolidated Financial Statements beginning on page L-1.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
(in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 2,930 $ 2,030
Short-term Debt 239 3,164
Long-term Debt Due Within One Year 1,696 1,633
Risk Management Liabilities 1,268 1,113
Other 2,020 1,802
TOTAL CURRENT LIABILITIES 8,153 9,742
LONG-TERM DEBT 10,436 8,487
EQUITY UNIT SENIOR NOTES 376 376
LONG-TERM RISK MANAGEMENT LIABILITIES 543 481
DEFERRED INCOME TAXES 4,037 3,916
DEFERRED INVESTMENT TAX CREDITS 448 455
DEFERRED CREDITS AND REGULATORY LIABILITIES 830 770
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2 183 185
LIABILITIES HELD FOR SALE 161 142
OTHER NONCURRENT LIABILITIES 2,073 1,903
COMMITMENTS AND CONTINGENCIES (Note 7)
CERTAIN SUBSIDIARY OBLIGATED, MANDATORILY REDEEMABLE,
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING
SOLELY JUNIOR SUBORDINATED DEBENTURES OF SUCH
SUBSIDIARIES 321 321
MINORITY INTEREST IN FINANCE SUBSIDIARY 759 759
CUMULATIVE PREFERRED STOCKS OF SUBSIDIARIES 144 145
COMMON SHAREHOLDERS' EQUITY Common Stock-Par Value $6.50:
2003 2002
Shares Authorized.. . 600,000,000 600,000,000
Shares Issued. . . . .403,993,412 347,835,212
(8,999,992 shares were held in treasury at
March 31, 2003 and December 31, 2002) 2,626 2,261
Paid-in Capital 4,175 3,413
Accumulated Other Comprehensive Income (Loss) (602) (609)
Retained Earnings 2,238 1,999
TOTAL COMMON SHAREHOLDERS' EQUITY 8,437 7,064
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY
$36,901 $34,746
See Notes to Consolidated Financial Statements beginning on page L-1.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in millions)
OPERATING ACTIVITIES:
Net Income (Loss) $ 440 $(169)
Plus: Discontinued Operations 9 (22)
Net Income from Continuing Operations 449 (191)
Adjustments for Noncash Items:
Depreciation and Amortization 315 336
Deferred Income Taxes 27 (59)
Deferred Investment Tax Credits (7) (9)
Cumulative Effect of Accounting Changes (193) 350
(Gain)/Loss on Sale of Assets (36) -
Mark to Market of Risk Management Contracts 69 158
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net) (834) (796)
Fuel, Materials and Supplies 165 101
Accrued Utility Revenues (48) (51)
Prepayments and Other (74) (49)
Accounts Payable 905 43
Taxes Accrued 196 12
Interest Accrued 29 94
Rent Accrued - Rockport Plant Unit 2 37 37
Over/Under Fuel Recovery 74 (31)
Change in Other Assets (209) (341)
Change in Other Liabilities (90) 376
Net Cash Flows From (Used For) Operating Activities 775 (20)
INVESTING ACTIVITIES:
Construction Expenditures (324) (300)
Proceeds from Sale of Assets 35 -
Other - (32)
Net Cash Flows Used For Investing Activities (289) (332)
FINANCING ACTIVITIES:
Issuance of Common Stock 1,177 14
Issuance of Long-term Debt 2,525 872
Change in Short-term Debt (net) (2,925) (49)
Retirement of Long-term Debt (509) (295)
Dividends Paid on Common Stock (203) (193)
Net Cash Flows From Financing Activities 65 349
Effect of Exchange Rate Change on Cash - (14)
Net Increase (Decrease) in Cash and Cash Equivalents 551 (17)
Cash and Cash Equivalents at Beginning of Period 1,213 224
Cash and Cash Equivalents at End of Period $1,764 $ 207
Net Decrease in Cash and Cash Equivalents from Discontinued Operations
$ (3) $ (9)
Cash and Cash Equivalents from Discontinued Operations - Beginning of Period
8 108
Cash and Cash Equivalents from Discontinued Operations - End of Period
$ 5 $ 99
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $177 million and $126
million in 2003 and 2002, respectively. There was no cash paid for income taxes
in 2003. Cash paid for income taxes in 2002 was $94 million.
See Notes to Consolidated Financial Statements beginning on page L-1.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions)
Accumulated Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
JANUARY 1, 2002 $2,153 $2,906 $3,296 $(126) $8,229
Issuance of Common Stock 3 3
Common Stock Dividends (193) (193)
Other 6 4 10
8,049
Comprehensive Income (Loss):
Other Comprehensive Income (Loss),
Net of Taxes
Foreign Currency Translation Adjustments
(6) (6)
Unrealized Losses on Cash Flow
Hedges (38) (38)
Net Loss (169) (169)
Total Comprehensive Income (Loss) (213)
MARCH 31, 2002 $2,156 $2,912 $2,938 $(170) $7,836
JANUARY 1, 2003 $2,261 $3,413 $1,999 $(609) $7,064
Issuance of Common Stock 365 812 1,177
Common Stock Dividends (203) (203)
Common Stock Expense (35) (35)
Other (15) 2 (13)
7,990
Comprehensive Income:
Other Comprehensive Income (Loss),
Net of Taxes
Foreign Currency Translation Adjustments
13 13
Unrealized Gains on Securities 1 1
Unrealized Losses on Cash Flow Hedges
(22) (22)
Minimum Pension Liability 15 15
Net Income 440 440
Total Comprehensive Income 447
MARCH 31, 2003 $2,626 $4,175 $2,238 $(602) $8,437
See Notes to Consolidated Financial Statements beginning on page L-1.
AEP GENERATING COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
AEGCo is engaged in the generation and wholesale sale of electric power to two
affiliates under long-term agreements. Operating revenues are derived from the
sale of Rockport Plant energy and capacity to two affiliated companies pursuant
to FERC approved long-term unit power agreements. The unit power agreements
provide for recovery of costs including a FERC approved rate of return on common
equity and a return on other capital net of temporary cash investments.
Results of Operations
Net Income declined $97 thousand or 5% for the first quarter of 2003 as a result
of terms in the unit power agreements which limits recovery of return on capital
related to operating and in-service ratios of the Rockport Plant calculated and
adjusted monthly.
Changes in Operating Revenues
An increase in Operating Revenues of $10.6 million resulted from an increase in
recoverable expenses, primarily fuel, as generation increased 50% due to an
increase in the Rockport Plant's availability during 2003. Outages for planned
maintenance at both units decreased the Rockport Plant's generation in 2002.
Changes in Operating Expenses Operating expenses increased 22% as follows:
Increase (Decrease)
(in thousands) %
Fuel for Electric Generation $12,897 74
Rent - Rockport Plant
Unit 2 - -
Other Operation (673) (21)
Maintenance (1,325) (45)
Depreciation (12) -
Taxes Other Than Income
Taxes (262) (25)
Income Taxes (156) (24)
Total Operating Expenses $10,469 22
Fuel for Electric Generation expense increased due to a 50% increase in
generation in 2003. Planned maintenance outages during the first quarter of 2002
reduced the Rockport Plant's availability and generation in 2002.
The decreases in Other Operation and Maintenance expenses are primarily due to
higher costs incurred during the 2002 plant outages.
The decrease in Taxes Other Than Income Taxes reflects a decline in the accrual
of real and personal property tax for Indiana for the Rockport Plant, reflecting
a favorable change in the law effective March 2002.
Income Taxes attributable to operations decreased primarily due to a decrease in
pre-tax operating income and a decrease in accrued state income.
Other Changes
The increase in Nonoperating Expense reflects additional expenses related to a
construction project.
AEP GENERATING COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
OPERATING REVENUES $60,428 $49,875
OPERATING EXPENSES:
Fuel for Electric Generation 30,397 17,500
Rent - Rockport Plant Unit 2 17,071 17,071
Other Operation 2,549 3,222
Maintenance 1,651 2,976
Depreciation 5,621 5,633
Taxes Other Than Income Taxes 791 1,053
Income Taxes 497 653
TOTAL OPERATING EXPENSES 58,577 48,108
OPERATING INCOME 1,851 1,767
NONOPERATING INCOME 2 2
NONOPERATING EXPENSES 217 12
NONOPERATING INCOME TAX CREDITS 894 832
INTEREST CHARGES 734 696
NET INCOME $ 1,796 $ 1,893
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
BALANCE AT BEGINNING OF PERIOD $18,163 $13,761
NET INCOME 1,796 1,893
CASH DIVIDENDS DECLARED 1,171 1,050
BALANCE AT END OF PERIOD $18,788 $14,604
The common stock of AEGCo is wholly owned by AEP.
See Notes to Financial Statements beginning on page L-1.
AEP GENERATING COMPANY
BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
(in thousands)
ASSETS
ELECTRIC UTILITY PLANT:
Production $638,481 $637,095
General 4,643 4,728
Construction Work in Progress 10,707 10,390
Total Electric Utility Plant 653,831 652,213
Accumulated Depreciation 364,316 358,174
NET ELECTRIC UTILITY PLANT 289,515 294,039
OTHER PROPERTY AND INVESTMENTS 119 119
CURRENT ASSETS:
Accounts Receivable - Affiliated Companies 21,583 18,454
Fuel 18,005 20,260
Materials and Supplies 4,859 4,913
Prepayments 73 -
TOTAL CURRENT ASSETS 44,520 43,627
REGULATORY ASSETS 5,701 4,970
DEFERRED CHARGES 9,297 6,974
TOTAL ASSETS $349,152 $349,729
See Notes to Financial Statements beginning on page L-1.
AEP GENERATING COMPANY
BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
(in thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common Stock - Par Value $1,000:
Authorized and Outstanding - 1,000 Shares $ 1,000 $ 1,000
Paid-in Capital 23,434 23,434
Retained Earnings 18,788 18,163
Total Common Shareholder's Equity 43,222 42,597
Long-term Debt 44,804 44,802
TOTAL CAPITALIZATION 88,026 87,399
OTHER NONCURRENT LIABILITIES 1,333 301
CURRENT LIABILITIES:
Advances from Affiliates 9,650 28,034
Accounts Payable:
General - 26
Affiliated Companies 12,585 15,907
Taxes Accrued 7,294 2,327
Rent Accrued - Rockport Plant Unit 2 23,427 4,963
Other 633 1,111
TOTAL CURRENT LIABILITIES 53,589 52,368
DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT
PLANT UNIT 2 109,654 111,046
REGULATORY LIABILITIES:
Deferred Investment Tax Credit 52,108 52,943
Amounts Due to Customers for Income Taxes 16,143 16,670
TOTAL REGULATORY LIABILITIES 68,251 69,613
DEFERRED INCOME TAXES 28,299 29,002
COMMITMENTS AND CONTINGENCIES (Note 7)
TOTAL CAPITALIZATION AND LIABILITIES $349,152 $349,729
See Notes to Financial Statements beginning on page L-1.
AEP GENERATING COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
OPERATING ACTIVITIES:
Net Income $ 1,796 $ 1,893
Adjustment for Noncash Items:
Depreciation 5,621 5,633
Deferred Income Taxes (1,230) (1,470)
Deferred Investment Tax Credits (835) (835)
Amortization of Deferred Gain on Sale and Leaseback -
Rockport Plant Unit 2 (1,392) (1,392)
Deferred Property Taxes (2,329) (2,693)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (3,129) 1,337
Fuel, Materials and Supplies 2,309 (1,214)
Accounts Payable (3,348) (1,221)
Taxes Accrued 4,967 5,529
Rent Accrued - Rockport Plant Unit 2 18,464 18,464
Change in Other Assets (1,021) 586
Change in Other Liabilities 554 (545)
Net Cash Flow From Operating Activities 20,427 24,072
INVESTING ACTIVITIES - Construction Expenditures (872) (4,282)
FINANCING ACTIVITIES:
Change in Advances from Affiliates (net) (18,384) (15,511)
Dividends Paid (1,171) (1,050)
Net Cash Flows Used For Financing Activities (19,555) (16,561)
Net Increase in Cash and Cash Equivalents - 3,229
Cash and Cash Equivalents at Beginning of Period - 983
Cash and Cash Equivalents at End of Period $ - $ 4,212
Supplemental Disclosure:
Cash paid (received) for interest net of capitalized amounts was $1,123,000 and
$1,108,000 and for income taxes was $(384,000) and $176,000 in 2003 and 2002,
respectively.
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS CENTRAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
AEP Texas Central Company (TCC), formerly known as Central Power and Light
Company (CPL), is a public utility engaged in the generation, purchase, sale,
transmission and distribution of electric power in southern Texas. TCC sells
electric power to utilities, municipalities, rural electric cooperatives and
beginning in 2002 to retail electric providers (REPs) in Texas.
Wholesale risk management activities are conducted on TCC's behalf by AEPSC.
TCC, along with the other AEP electric operating subsidiaries, shares in AEP's
electric power transactions with other utility systems and power marketers.
On January 1, 2002, customer choice of electricity supplier began in the
Electric Reliability Council of Texas (ERCOT) area of Texas where TCC operates.
Under the Texas Restructuring Legislation, each electric utility was required to
submit a plan to structurally unbundle its business into an affiliated REP, a
power generator, and a transmission and distribution utility. During the year
2000, TCC submitted a plan for separation that was subsequently approved by the
PUCT. TCC functionally separated its generation from its transmission and
distribution operations and AEP formed separate affiliated REPs, Mutual Energy
CPL and AEP Texas Commercial & Industrial Retail Limited Partnership. Mutual
Energy CPL provides default electric service to residential and small commercial
customers (customers eligible for price-to-beat rates). AEP Texas Commercial &
Industrial Retail Limited Partnership provides default electric service to large
commercial and industrial customers not eligible for price- to-beat rates.
Mutual Energy CPL, a separate legal entity that was an AEP subsidiary (not owned
by or consolidated with TCC), was sold in December 2002.
Since REPs are the electricity suppliers to retail customers in the ERCOT area,
TCC sells its generation to the REPs and other market participants and provides
transmission and distribution services to retail customers of the REPs in the
TCC service territory. As a result of the provision of retail electric service
by REPs, effective January 1, 2002, TCC no longer supplies electricity directly
to retail customers. The implementation of REPs as suppliers to retail customers
has caused a significant shift in TCC's sales as further described below under
"Results of Operations."
In December 2002, AEP sold Mutual Energy CPL to an unrelated third party, who
assumed the obligations of the affiliated REP including the provision of
price-to-beat rates under the Texas Restructuring Legislation. Prior to the
sale, during 2002 sales to Mutual Energy CPL were classified as Sales to AEP
Affiliates. Subsequent to the sale, energy transactions with Mutual Energy CPL
are classified as Electric Generation and delivery charges as Electric
Transmission and Distribution.
Results of Operations
In 2003 Net Income increased $40 million or 164% driven by a $56 million ($36
million, net of tax) increase in revenues associated with recognition of
stranded costs in Texas, and a $5.0 million ($3.2 million, net of tax) increase
in profits on derivative contracts.
Changes in Operating Revenues
Increase (Decrease)
(in millions) %
Electric Generation $166.4 198
Electric Transmission and Distribution
124.9 346
Sales to AEP Affiliates (141.9) (89)
Total Operating Revenues $149.4 54
In 2003, Electric Generation revenues increased due to the reclassification of
energy revenues as a result of the sale of Mutual Energy CPL in December 2002,
discussed above, and increased MWH sales at higher prices, and increased
revenues from ERCOT of $77 million. These revenues were offset in part by a
decrease in average electric rates, as 2002 included a transition period which
included fuel revenue collections from retail customers; and a reduction of $27
million resulting from a provision for rate refund (see Note 5).
Additionally, delivery charges provided to Mutual Energy CPL are classified as
Sales to AEP Affiliates in 2002, whereas in 2003 they are classified as
Electricity Transmission and Distribution revenue. Actual delivered MWHs
increased in 2003. Revenues for 2003 include $56 million of revenue associated
with recognition of stranded costs in Texas (see Note 6). Electric Transmission
and Distribution revenue also included revenues received for securitized assets
beginning in February 2002 and revenues from ERCOT for system management
services.
In 2003, Sales to AEP Affiliates decreased primarily due to the reclassification
of revenues as a result of the sale of Mutual Energy CPL in December 2002,
discussed above.
Changes in Operating Expenses
Increase (Decrease)
(in millions) %
Fuel for Electric Generation $ 0.3 1
Fuel from Affiliates for Electric Generation
11.0 40
Purchased Electricity for Resale 68.1 N.M.
Purchased Electricity from AEP Affiliates
3.6 46
Other Operation 3.4 5
Maintenance 5.2 47
Depreciation and Amortization 2.2 5
Taxes Other Than Income Taxes (4.9) (18)
Income Taxes 24.0 229
Total Operating Expenses $112.9 51
N.M. = Not meaningful
The increase in total fuel expense was due to an increase in the average unit
cost of fuel offset in part by decreased MWH generation. The increase in the
average unit cost was due to gas generation as the per unit cost of gas more
than doubled from 2002 to 2003, while the actual gas MWH generation decreased
due to the mothballing of several gas plants in late 2002. Nuclear generation
decreased due to outages at the STP nuclear plant during the first quarter of
2003. See Note 7 for further information regarding the outage at the STP nuclear
plant.
The increase in total purchased electricity expense in 2003 was mainly due to
increased MWHs purchased as a result of the mothballed plants, the STP outage
and higher open market purchase prices.
Other Operation expense increased due primarily to the accretion expense for
nuclear decommissioning associated with the adoption of SFAS 143 (see Note 2). A
corresponding offsetting decrease in Depreciation and Amortization is also a
result of the adoption of SFAS 143. See Depreciation and Amortization
explanation below.
Maintenance expense increased due to an unscheduled outage at one of the nuclear
units and a refueling outage at the other nuclear unit (see Note 7).
The increase in Depreciation and Amortization is attributable to the absence in
2003 of an excess earnings favorable true-up adjustment offset in part by
reduced expense attributable to the adoption of SFAS 143, the amortization of
regulatory assets associated with the securitization during the first quarter of
2002 and decreased depreciation due to several plants mothballed during late
2002.
The decrease in Taxes Other Than Income Taxes resulted primarily from decreased
gross receipts tax, due to deregulation.
The increase in Income Taxes is due to an increase in pre-tax income.
Other Changes
Nonoperating Income increased as a result of premium payments on derivative
contracts, offset in part by decreased non-utility revenue associated with
energy related construction projects for third parties. Nonoperating Expenses
also decreased due to lower expenses associated with energy related construction
projects for third parties.
Cumulative Effect of Accounting Change
This amount represents the one-time after-tax effect of the application of EITF
02-3 (see Notes 2 and 3).
AEP TEXAS CENTRAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
OPERATING REVENUES:
Electric Generation $250,377 $ 83,988
Electric Transmission and Distribution 161,006 36,060
Sales to AEP Affiliates 16,975 158,862
TOTAL OPERATING REVENUES 428,358 278,910
OPERATING EXPENSES:
Fuel for Electric Generation 27,339 26,989
Fuel from Affiliates for Electric Generation 38,289 27,339
Purchased Electricity for Resale 72,122 4,012
Purchased Electricity from AEP Affiliates 11,562 7,927
Other Operation 69,402 65,986
Maintenance 16,099 10,959
Depreciation and Amortization 44,073 41,847
Taxes Other Than Income Taxes 22,979 27,922
Income Taxes 34,483 10,484
TOTAL OPERATING EXPENSES 336,348 223,465
OPERATING INCOME 92,010 55,445
NONOPERATING INCOME 10,162 9,531
NONOPERATING EXPENSES 5,195 9,387
NONOPERATING INCOME TAX EXPENSE 558 133
INTEREST CHARGES 31,982 31,011
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 64,437 24,445
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NET OF TAX)
122 -
NET INCOME 64,559 24,445
PREFERRED STOCK DIVIDEND REQUIREMENTS 60 60
EARNINGS APPLICABLE TO COMMON STOCK $ 64,499 $ 24,385
The common stock of TCC is wholly owned by AEP.
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS CENTRAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
Accumulated Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
(in thousands)
JANUARY 1, 2002 $168,888 $405,015 $826,197 $ - $1,400,100
Redemption of Common Stock (113,596) (272,409) (386,005)
Common Stock Dividends (38,502) (38,502)
Preferred Stock Dividends (60) (60)
975,533
Comprehensive Income:
Other Comprehensive Income - -
Net Income 24,445 24,445
Total Comprehensive Income 24,445
MARCH 31, 2002 $ 55,292 $132,606 $812,080 $ - $ 999,978
JANUARY 1, 2003 $ 55,292 $132,606 $986,396 $(73,160) $1,101,134
Common Stock Dividends (30,201) (30,201)
Preferred Stock Dividends (60) (60)
1,070,873
Comprehensive Income:
Other Comprehensive Income (Loss),
Net of Taxes:
Unrealized Loss on Cash Flow
Power Hedges (1,018) (1,018)
Net Income 64,559 64,559
Total Comprehensive Income 63,541
MARCH 31, 2003 $ 55,292 $132,606 $1,020,694 $(74,178) $1,134,414
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS CENTRAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2003 2002
(in thousands)
ASSETS
ELECTRIC UTILITY PLANT:
Production $2,977,890 $2,903,942
Transmission 715,195 698,964
Distribution 1,305,884 1,296,731
General 260,834 258,386
Construction Work in Progress 180,178 200,947
Nuclear Fuel 270,521 266,766
Total Electric Utility Plant 5,710,502 5,625,736
Accumulated Depreciation and Amortization 2,356,530 2,405,492
NET ELECTRIC UTILITY PLANT 3,353,972 3,220,244
OTHER PROPERTY AND INVESTMENTS 4,219 3,977
SECURITIZED TRANSITION ASSETS 725,597 734,591
LONG-TERM RISK MANAGEMENT ASSETS 11,547 4,392
CURRENT ASSETS:
Cash and Cash Equivalents 32,796 85,420
Advances to Affiliates 18,346 -
Accounts Receivable:
General 190,905 113,543
Affiliated Companies 110,291 121,324
Allowance for Uncollectible Accounts (230) (346)
Fuel Inventory 22,103 32,563
Materials and Supplies 47,220 51,593
Accrued Utility Revenues 27,540 27,150
Risk Management Assets 21,395 22,493
Prepayments and Other Current Assets 4,769 2,133
TOTAL CURRENT ASSETS 475,135 455,873
REGULATORY ASSETS 570,058 458,552
REGULATORY ASSETS DESIGNATED FOR OR SUBJECT TO SECURITIZATION
321,156 336,444
NUCLEAR DECOMMISSIONING TRUST FUND 97,128 98,474
DEFERRED CHARGES 88,896 43,891
TOTAL ASSETS $5,647,708 $5,356,438
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS CENTRAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2003 2002
(in thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common Stock - $25 Par Value:
Authorized - 12,000,000 Shares
Outstanding - 2,211,678 Shares $ 55,292 $ 55,292
Paid-in Capital 132,606 132,606
Accumulated Other Comprehensive Income (Loss) (74,178) (73,160)
Retained Earnings 1,020,694 986,396
Total Common Shareholder's Equity 1,134,414 1,101,134
Preferred Stock 5,942 5,942
CPL - Obligated, Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures of TCC 136,250 136,250
Long-term Debt 1,980,640 1,209,434
TOTAL CAPITALIZATION 3,257,246 2,452,760
OTHER NONCURRENT LIABILITIES 309,028 74,572
CURRENT LIABILITIES:
Short-term Debt - Affiliates - 650,000
Long-term Debt Due Within One Year 209,705 229,131
Advances from Affiliates (net) - 126,711
Accounts Payable - General 81,997 72,199
Accounts Payable - Affiliated Companies 65,725 36,242
Customer Deposits 1,803 666
Taxes Accrued 94,315 24,791
Interest Accrued 24,920 51,205
Risk Management Liabilities 28,334 19,811
Other 18,142 36,698
TOTAL CURRENT LIABILITIES 524,941 1,247,454
DEFERRED INCOME TAXES 1,239,961 1,261,252
DEFERRED INVESTMENT TAX CREDITS 116,384 117,686
LONG-TERM RISK MANAGEMENT LIABILITIES 5,824 1,713
REGULATORY LIABILITIES AND DEFERRED CREDITS 194,324 201,001
COMMITMENTS AND CONTINGENCIES (Note 7)
TOTAL CAPITALIZATION AND LIABILITIES $5,647,708 $5,356,438
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS CENTRAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
OPERATING ACTIVITIES:
Net Income $ 64,559 $ 24,445
Adjustments to Reconcile Net Income to Net Cash Flows
From (Used For) Operating Activities:
Depreciation and Amortization 44,073 41,847
Deferred Income Taxes (2,260) (8,083)
Deferred Investment Tax Credits (1,302) (1,302)
Cumulative Effect of Accounting Change (122) -
Mark-to-Market of Risk Management Contracts 5,197 6,466
Changes in Certain Assets and Liabilities:
Accounts Receivable (net) (66,445) (69,400)
Fuel, Materials and Supplies 14,833 (1,359)
Interest Accrued (26,285) 8,942
Accrued Utility Revenue (390) (4,458)
Accounts Payable 39,281 (28,577)
Taxes Accrued 69,524 17,767
Deferred Property Tax (31,590) (32,899)
Change in Other Assets (51,108) (20,966)
Change in Other Liabilities (15,185) (19,726)
Net Cash Flows From (Used For) Operating Activities 42,780 (87,303)
INVESTING ACTIVITIES:
Construction Expenditures (21,851) (21,002)
Other - -
Net Cash Flows Used For Investing Activities (21,851) (21,002)
FINANCING ACTIVITIES:
Change in Short-term Debt Affiliated (Net) (650,000) -
Issuance of Long-term Debt 800,000 796,613
Retirement of Long-term Debt (48,235) (149,998)
Change in Advances to/from Affiliates (Net) (145,057) (115,447)
Retirement of Common Stock - (386,004)
Dividends Paid on Common Stock (30,201) (38,502)
Dividends Paid on Cumulative Preferred Stock (60) (60)
Net Cash Flows From (Used For) Financing Activities (73,553) 106,602
Net Decrease in Cash and Cash Equivalents (52,624) (1,703)
Cash and Cash Equivalents at Beginning of Period 85,420 10,909
Cash and Cash Equivalents at End of Period $ 32,796 $ 9,206
Supplemental Disclosure:
Cash paid (received) for interest net of capitalized amounts was $55,483,000 and
$18,505,000 and for income taxes was $(22,959,000) and $18,482,000 in 2003 and
2002, respectively.
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS NORTH COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
AEP Texas North Company (TNC), formerly known as West Texas Utilities Company
(WTU), is a public utility engaged in the generation, purchase, sale,
transmission and distribution of electric power in west and central Texas. TNC
sells electric power to utilities, municipalities, rural electric cooperatives
and beginning in 2002 to retail electric providers (REPs) in Texas.
Wholesale risk management activities are conducted on TNC's behalf by AEPSC.
TNC, along with the other AEP electric operating subsidiaries, shares in AEP's
electric power transactions with other utility systems and power marketers.
On January 1, 2002, customer choice of electricity supplier began in the
Electric Reliability Council of Texas (ERCOT) area of Texas. TNC operates in
both the ERCOT and Southwest Power Pool (SPP) regions of Texas, with the
majority of its operations being in the ERCOT territory.
Under the Texas Restructuring Legislation, each electric utility was required to
submit a plan to structurally unbundle its business into an affiliated REP, a
power generator, and a transmission and distribution utility. During the year
2000, TNC submitted a plan for separation that was subsequently approved by the
PUCT. TNC functionally separated its generation from its transmission and
distribution operations and AEP formed separate affiliated REPs, Mutual Energy
WTU and AEP Texas Commercial & Industrial Retail Limited Partnership. Mutual
Energy WTU provides default electric service to residential and small commercial
customers (customers eligible for price-to-beat rates). AEP Texas Commercial &
Industrial Retail Limited Partnership provides default electric service to large
commercial and industrial customers not eligible for price- to-beat-rates.
Mutual Energy WTU, a separate legal entity that was an AEP subsidiary (not owned
by or consolidated with TNC), was sold in December 2002.
Since REPs are the electricity suppliers to retail customers in the ERCOT area,
TNC sells its generation to the REPs and other market participants and provides
transmission and distribution services to retail customers of the REPs in the
TNC service territory. As a result of the provision of retail electric service
by REPs effective January 1, 2002, TNC no longer supplies electricity directly
to retail customers. The implementation of REPs as suppliers to retail customers
has caused a significant shift in TNC's sales as further described below under
"Results of Operations."
In December 2002, AEP sold Mutual Energy WTU to an unrelated third party, who
assumed the obligations of the affiliated REP, including the provision of
price-to-beat rates under the Texas Restructuring Legislation. Prior to the
sale, during 2002 sales to Mutual Energy WTU were classified as Sales to AEP
Affiliates. Subsequent to the sale, energy transactions with Mutual Energy WTU
are classified as Electric Generation and delivery charges as Electric
Transmission and Distribution.
Results of Operations
In 2003, Net Income increased $5.8 million or 146% primarily due to the
cumulative effect of accounting changes and increased nonoperating results,
offset by lower Operating Income.
Changes in Operating Revenues
Increase (Decrease)
(in millions) %
Electric Generation $ 41.9 109
Electric Transmission and
Distribution 18.5 126
Sales to AEP Affiliates (47.8) (95)
Total Operating Revenues $ 12.6 12
In 2003, Electric Generation revenues increased due to the reclassification of
energy revenues as a result of the sale of Mutual Energy WTU in December 2002,
discussed above, decreased MWH sales at higher prices and increased revenues
from ERCOT of $17 million. These revenues were offset in part by a decrease in
average electric rates, as 2002 included a transition period which included fuel
revenue collections from retail customers; and a reduction of $13 million
resulting from a provision for rate refund (see Note 5).
The increase in Electric Transmission and Distribution is primarily due to
delivery charges classified as Electric Transmission and Distribution in 2003,
whereas in 2002 they were classified as Sales to AEP Affiliates. In addition,
TNC had increased MWHs delivered in 2003 and increased revenues from ERCOT for
system management services.
In 2003, Sales to AEP Affiliates decreased primarily due to the reclassification
of energy revenues as a result of the sale of Mutual Energy WTU in December
2002, discussed above.
Changes in Operating Expenses
Increase (Decrease)
(in millions) %
Fuel for Electric Generation $ 2.7 32
Fuel from Affiliates for Electric Generation
(10.1) (63)
Purchased Electricity for Resale 18.3 280
Purchased Electricity from AEP Affiliates
7.7 66
Other Operation (3.6) (15)
Maintenance (0.2) (5)
Depreciation and Amortization (2.1) (18)
Taxes Other Than Income Taxes (0.3) (4)
Income Taxes 1.5 50
Total Operating Expenses $ 13.9 15
Net fuel for electric generation decreased due to lower MWHs generated, offset
in part by an increase in the average per unit fuel cost. TNC used coal for 91%
of its generation in 2003 since many of its gas plants were mothballed in late
2002. This higher use of coal helped lower the fuel costs in 2003.
The increase in total Purchased Electricity expense in 2003 was mainly due to
both increased MWHs purchased as a result of the mothballed plants and higher
open market purchase prices.
Other Operation expense decreased in 2003 due to lower uncollectible account
expenses and lower administrative and general expenses.
Depreciation and Amortization expense decreased due to the absence in 2003 of
excess earnings expense adjustments under Texas Restructuring Legislation and
the decrease in depreciation due to the mothballing of several power plants in
late 2002.
The increase in Income Tax Expense is primarily a result of an increase in
pre-tax income.
Other Changes
Nonoperating Income and Nonoperating Expenses increased significantly as a
result of increased non-utility revenue and expenses associated with energy
related construction projects for third parties. Additionally, Nonoperating
Income increased due to increased earnings on derivative contracts.
Interest Charges declined primarily due to lower average borrowings in 2003
versus 2002.
Cumulative Effect of Accounting Changes
The Cumulative Effect of Accounting Changes is due to a one time after-tax
impact of adopting SFAS 143 (see Notes 2 and 3).
AEP TEXAS NORTH COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
OPERATING REVENUES:
Electric Generation $ 80,369 $ 38,437
Electric Transmission and Distribution 33,124 14,672
Sales to AEP Affiliates 2,769 50,517
TOTAL OPERATING REVENUES 116,262 103,626
OPERATING EXPENSES:
Fuel for Electric Generation 11,461 8,714
Fuel from Affiliates for Electric Generation 6,085 16,266
Purchased Electricity for Resale 24,778 6,513
Purchased Electricity from AEP Affiliates 19,345 11,650
Other Operation 20,619 24,170
Maintenance 4,141 4,356
Depreciation and Amortization 9,532 11,569
Taxes Other Than Income Taxes 6,033 6,300
Income Tax Expense 4,403 2,943
TOTAL OPERATING EXPENSES 106,397 92,481
OPERATING INCOME 9,865 11,145
NONOPERATING INCOME (LOSS) 13,463 (1,488)
NONOPERATING EXPENSES 11,559 1,372
NONOPERATING INCOME TAX EXPENSE (CREDIT) 339 (989)
INTEREST CHARGES 4,665 5,282
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 6,765 3,992
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NET OF TAX) 3,071 -
NET INCOME 9,836 3,992
PREFERRED STOCK DIVIDEND REQUIREMENTS 26 26
EARNINGS APPLICABLE TO COMMON STOCK $ 9,810 $ 3,966
The common stock of TNC is wholly owned by AEP.
See Note to Financial Statements beginning on Page L-1.
AEP TEXAS NORTH COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
Accumulated Other
Comprehensive
Common Paid-in Retained Income (Loss)
Stock Capital Earnings Total
(in thousands)
JANUARY 1, 2002 $137,214 $2,351 $105,970 $ - $245,535
Common Stock Dividends (6,749) (6,749)
Preferred Stock Dividends (26) (26)
238,760
Comprehensive Income:
Other Comprehensive Income - -
Net Income 3,992 3,992
Total Comprehensive Income 3,992
MARCH 31, 2002 $137,214 $2,351 $103,187 $ - $242,752
JANUARY 1, 2003 $137,214 $2,351 $71,942 $(30,763) $180,744
Common Stock Dividends (4,970) (4,970)
Preferred Stock Dividends (26) (26)
175,748
Comprehensive Income:
Other Comprehensive Income (Loss),
Net of Taxes:
Unrealized Loss on Cash Flow
Power Hedges (421) (421)
Unrealized Loss on Minimum
Pension Liability (7) (7)
Net Income 9,836 9,836
Total Comprehensive Income 9,408
MARCH 31, 2003 $137,214 $2,351 $ 76,782 $(31,191) $185,156
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS NORTH COMPANY
BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
(in thousands)
ASSETS
ELECTRIC UTILITY PLANT:
Production $ 354,117 $ 353,087
Transmission 255,343 254,483
Distribution 446,150 445,486
General 109,200 111,679
Construction Work in Progress 39,991 37,012
Total Electric Utility Plant 1,204,801 1,201,747
Accumulated Depreciation and Amortization 518,631 521,792
NET ELECTRIC UTILITY PLANT 686,170 679,955
OTHER PROPERTY AND INVESTMENTS 1,065 1,213
LONG-TERM RISK MANAGEMENT ASSETS 4,433 2,248
CURRENT ASSETS:
Cash and Cash Equivalents 4,681 1,219
Advances to Affiliates 8,460 -
Accounts Receivable:
Customers 32,776 62,660
Affiliated Companies 37,796 43,632
Allowance for Uncollectible Accounts (4,728) (5,041)
Fuel Inventory 8,916 12,677
Materials and Supplies 10,029 9,574
Accrued Utility Revenues 5,591 6,829
Risk Management Assets 3,411 4,130
Prepayments and Other 1,198 1,070
TOTAL CURRENT ASSETS 108,130 136,750
REGULATORY ASSETS 44,165 45,097
DEFERRED CHARGES 27,481 11,912
TOTAL ASSETS $ 871,444 $ 877,175
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS NORTH COMPANY
BALANCE SHEETS
(UNAUDITED)
March 31, 2003 December 31, 2002
(in thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common Stock - $25 Par Value:
Authorized - 7,800,000 Shares
Outstanding - 5,488,560 Shares $137,214 $137,214
Paid-in Capital 2,351 2,351
Accumulated Other Comprehensive Income (Loss) (31,191) (30,763)
Retained Earnings 76,782 71,942
Total Common Shareholder's Equity 185,156 180,744
Cumulative Preferred Stock Not Subject to
Mandatory Redemption 2,367 2,367
Long-term Debt 333,473 132,500
TOTAL CAPITZALIZATION 520,996 315,611
OTHER NONCURRENT LIABILITIES 41,859 28,861
CURRENT LIABILITIES:
Short-term Debt - Affiliates - 125,000
Long-term Debt Due Within One Year 24,036 -
Advances from Affiliates - 80,407
Accounts Payable - General 17,297 32,714
Accounts Payable - Affiliated Companies 37,152 76,217
Customer Deposits 320 117
Taxes Accrued 25,425 3,697
Interest Accrued 4,847 2,776
Risk Management Liabilities 4,761 3,801
Other 8,237 17,414
TOTAL CURRENT LIABILITIES 122,075 342,143
DEFERRED INCOME TAXES 113,465 117,521
DEFERRED INVESTMENT TAX CREDITS 21,130 21,510
LONG-TERM RISK MANAGEMENT LIABILITIES 2,300 557
REGULATORY LIABILITIES AND DEFERRED CREDITS 49,619 50,972
COMMITMENTS AND CONTINGENCIES (Note 7)
TOTAL CAPITALIZATION AND LIABILITIES $871,444 $877,175
See Notes to Financial Statements beginning on page L-1.
AEP TEXAS NORTH COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2003 2002
(in thousands)
OPERATI