Chairman's Message

This is the third year in which we have met with many different stakeholders, including employees, regulators, environmental groups, investors, customers and others. These valuable interactions have taught us a lot about how our stakeholders perceive us and what they expect from us. I hope our stakeholders also have learned from these dialogues and now have a better understanding of AEP as we do of them.

We face resource constraints and economic challenges unlike any in our lifetimes. The economic crisis gripping our nation and the rest of the world is creating hardships on our customers, our employees and our business. Industries are closing their doors; jobs are being eliminated; homes are being foreclosed upon; retirement savings are drying up; and many are having difficulty making ends meet. We see the effect as electricity consumption decreases, customer delinquencies increase, and regulators signal their unwillingness to raise customer rates and instead choose to defer costs. Some of our employees face hardships as well. AEP has frozen salaries, curtailed hiring and reduced business travel for the year.

With significantly fewer resources to support business operations, we are responding in ways that ensure our sustainability. We cut approximately $750 million in spending on important capital projects and are operating with “no growth” budgets this year. The picture is no different for 2010 and 2011; we intend to hold our operating budgets flat going forward and further reduce capital spending in 2010 and 2011 by an additional $700 million from 2009 levels. We also issued 69 million shares of common stock to reduce debt and revised our 2009 ongoing earnings guidance. These actions will strengthen our balance sheet, improve our cash liquidity position, help ensure our credit ratings remain investment grade and provide us with continued access to credit markets. Inevitably, our progress on some commitments will slow. Our intent is to move forward when and where we can.

The search for solutions dares all of us to think more creatively and to address public policy more comprehensively, rather than as single-issue initiatives. We have to challenge ourselves to look beyond the assumptions that have historically guided our expectations and to work together.

Energy can and will play a central role in our global economic recovery. The time is now to advance policies and technologies, such as energy efficiency and smart grid technologies, that will stimulate growth, protect the environment and enhance communities. Conversely, poor policies could greatly impede our economic recovery.

We need a comprehensive domestic energy policy and workable, realistic international climate agreements that will enable us to meet the economic, energy and environmental challenges we face. As we continue to work with our stakeholders, we have found large tracts of common ground.

Highlights Of Our Progress In 2008

AEP has made significant progress toward the goals and commitments presented in our first two sustainability reports. One of our core values is the safety and health of our employees, and we are on track to achieve top quartile performance in our industry by 2010. We had our second consecutive year with no workplace employee fatalities in 2008 — for the first time in our 102-year history. I am grateful beyond words to everyone in the AEP family for making this possible, but I am very sad to report that one of our employees lost his life on the job at the Dolet Hills lignite mine in Louisiana in March 2009. Regardless of the cause, his family will never be the same. Fatalities and injuries are not acceptable. We must determine what went wrong, fix it, and refocus our efforts to ensure it is the very last time we have to report this news.

Our goal is zero harm, and clearly we have much more work to do. Two contractors lost their lives on the job, and several incidents occurred that caused loss of limbs and other serious injuries. We continue to experience serious near-misses, indicating that luck is still too much of a factor in our safety and health success.

I have many goals as chairman of AEP, but what I want most, by far, is for every employee, and those who work for us as contractors, to go home each night to their families and friends safe and sound.

We continue to have an excellent environmental performance record, although there is still room for improvement. We received one significant enforcement action in 2008 related to a water quality permit at one of our power plants in West Virginia. Our goal continues to be zero enforcement actions.

We are making good progress toward reducing our emissions. We exceeded our Chicago Climate Exchange commitment to reduce or offset carbon dioxide, and our investments in environmental controls for our coal-fired generation plants have resulted in significant emissions reductions. We received approval for the first ultra-supercritical pulverized coal plant in the United States. The Turk Plant in Arkansas is designed to be retrofitted with carbon capture and storage (CCS) technology and has one of the strictest air permits in the nation for coal-fired power plants.

At a time when the economy is in crisis and regulators are loathe to raise customer rates, energy efficiency is an excellent tool that can hold customer bills steady, delay the need for new generation resources and help us address climate change. To do it effectively, we must give customers more real-time information about how they use electricity so they know how to save it. Our gridSMART^SM initiative is key to solving that puzzle. We have installed 10,000 meters in a pilot in Indiana and received approval to install 100,000 meters in Ohio and 1 million meters in Texas.

Our Goals For 2009 and Beyond

Our vision for the future is unchanged, but our progress will slow as we manage our resources differently in this environment.

We want to build on the growing momentum for a national interstate transmission system, which is vital to enabling commerce and economic recovery and strengthening energy security. A modern transmission system would save energy, facilitate more efficient energy markets and give us far better options for addressing climate change by enabling renewable power to be sent from where it can be most efficiently produced to where it is needed most. We are working with many others to achieve this goal.

Our CCS validation project at the Mountaineer Plant is a priority and will be operational in 2009. More than 50 percent of the nation's electricity comes from coal, and CCS is an innovative way to deal with climate change.

We will continue to work diligently to advance policies and develop technologies that support energy efficiency and demand reduction. This year, we set a new goal for energy reduction that complements our 1,000-MW demand reduction goal. We believe it is achievable and will be acceptable to regulators. We also are doubling our goal for renewable energy to 2,000 MW by the end of 2011, with regulatory support.

We understand the new reality of today's economy. That's why our goal is to work to change the way the world produces, distributes and consumes energy. Supported by alternative regulatory solutions, new technologies, a strategic energy policy and greater collaboration with stakeholders and between nations, we believe that a secure, lower-carbon energy future that supports sustainable economic growth is within reach. We believe that coal will be part of our energy future and that advanced technology, more efficient use of energy and a modern interstate transmission grid are what will allow it. The near-term will be challenging, but the future is full of promise and opportunity — and the men and women of AEP are prepared and eager to lead the way. We invite you to join us.

Thank you for your interest in American Electric Power.

Michael G. Morris signature

The AEP Board of Directors has assigned the responsibility for monitoring and overseeing the company’s sustainability initiatives to the Board’s Committee on Directors and Corporate Governance. At two of the Committee’s meetings in the past year, the Committee and company management reviewed the company’s sustainability objectives, challenges, targets and progress. That Committee gave management input and guidance for the proposed approach to this report, and then reviewed and discussed the final text of this report before recommending its approval by the full Board of Directors.

The AEP Board of Directors has received periodic reports both from management and from the Committee on Directors and Corporate Governance about the company’s sustainability initiatives. Many of the topics in this report have been the subject of active discussion at Board and Committee meetings. Members of the Board all received copies of this report before it was published, and several directors made suggestions that have been incorporated into this report. Following its review, and upon recommendation of the Committee, the Board of Directors adopted a formal resolution approving this report.

The Board believes this report is a reasonable and transparent presentation of the company’s plans and performance and of its environmental, social and financial impacts. The Board realizes that the company must be prepared to make frequent adjustments in response to the difficult economic and financial situation that the nation is experiencing. The Board has emphasized to management that it will be evaluated by its success in executing the company’s strategic plan to meet stakeholders’ and the Board’s expectations, including being agile in responding to changing circumstances while respecting the commitments in this report.

Lester A Hudson, Jr.
Presiding Director of the AEP Board of Directors
April 2009

Our vision, mission, and values outline the principles that guide our business and provide the context for integrating sustainability into our strategy, daily operations, measurement and reporting. As we looked more closely at what sustainability means to us, we revised our Vision for Sustainability to better reflect our vision for the future.

Our goal is to help secure a lower-carbon energy future. That means more renewable energy, an extra-high voltage transmission backbone system, advanced coal technologies and energy efficiency. Our strategy and determination to achieve it have not changed. We want to work with all of our stakeholders to find common ground and move toward this goal.

For more information please visit the Corporate Citizenship section on AEP.com. For investor information, please visit the Investor Relations section of AEP.com.