Effective risk management enables us to respond confidently in a rapidly changing environment. From safety risks on the job to financial or operational risks that can affect the company’s competitiveness, finances or reputation, risk management is an ongoing process at all levels of AEP. 

The Risk and Strategic Initiatives group reviews information about our enterprise-wide risks and helps the company understand the internal and external relationships that influence them. The group produces a material risk report based on many information sources, including input from the Risk Executive Committee (REC). The REC considers existing and emerging risks and ensures that controls are in place and mitigation is taken where necessary. 

While it is management’s responsibility to identify and manage risks, the Board of Directors oversees and reviews the company’s risk management process to help ensure that it is effective and responsive to changing circumstances. Some risks, such as changing public policy and potential systemic and catastrophic risk, are considered primarily at the Board level while others are delegated for consideration, oversight and recommendation to Board committees.

Under New York Stock Exchange standards and the Sarbanes-Oxley Act of 2002, the Audit Committee must discuss our policies for risk assessment and risk management, as well as risks that pertain specifically to the company’s operations and controls and disclosures.

We review all risks and devote significant time and effort to managing risks that relate to our material issues. For example, if we fail to comply with NERC (North American Electric Reliability Corp.) rules, we could potentially expose the bulk power supply system to reliability problems and the company to significant fines. Many business units are affected by these rules. Therefore, actions to ensure compliance are routinely monitored. The potential impact of environmental policies on our coal-fired generating plants is a material risk, and we weigh potential operational challenges such as a reliance on new technologies against potential cost increases to customers and available resources. For each risk, we consider a range of possible actions in order to assess and react to them effectively.