A sustainable business strategy is one that is informed and engaged. The dialogues that inform our decision-making and long-term strategic view often result in collaborative efforts that are good for people, the environment, the economy and shareholders. We conducted or participated in nine stakeholder meetings during 2010 that provided us with insight and information related to a wide range of issues that are important to us, our customers, and our industry. These meetings helped to shape this report. They helped us to identify issues, concerns, strategies and actions. The main focus of many of our stakeholder discussions in 2010 was on energy efficiency, environmental issues, coal and the transformation of our business.

Our primary stakeholders are:

• Financial community including lenders, rating agencies, etc.
• Shareholders, prospective investors
• Customers, large and small
• AEP employees, prospective employees and retirees
• Labor unions
• Local communities
• Federal and state legislators, regulators, policymakers and other elected leaders
• Suppliers and others doing business with AEP
• Nongovernmental organizations
• Professionals in industry, government, labor and academia

Our Material Issues
This report reflects those issues we consider material to our business. We define issues material to our sustainability as those that: 1) have or may have a significant impact on the company’s finances or operations; 2) have or may have a significant impact on the environment or society, now or in the future; and 3) can substantially influence the assessments, decisions and actions of our stakeholders and shareholders. This report reflects those issues we consider material to our business.

A new set of issues has emerged during the past year focused on the need to identify and manage trends within our industry. For example, as new regulations evolve, we are developing a transition plan that will lead to a resource portfolio transformation that affects not only AEP but our entire industry. We are seeing changes in how customers use electricity as well as increased market competition; and we are seeing the growth of our transmission business as it relates to the urgency of modernizing the grid. Although these issues are now called out in a separate section, they are reflected throughout the report. For a full description of our material issues, visit the web at www.AEPsustainablity.com.

Financial Performance – Our ability to manage business risks and maintain a strong financial foundation allows us to deliver returns to our shareholders; meet our commitments to our lenders; provide safe, reliable electricity to our customers; and deliver broader economic, environmental, and social benefits to society.

Energy Security, Reliability & Growth – Our electric generation and delivery systems must be modern, reliable and must utilize a diverse fuel supply and diverse technologies. They also must keep pace with customer demand. Collaboration with others is essential to create and maintain these systems and to ensure adequate and timely cost recovery.

Environmental Performance – Although environmental laws and regulations are complex and changing, we are committed to compliance at all times. We are dedicated to reducing our impact on the environment. We will work with regulators, policymakers, and other stakeholders to address the complexity of environmental regulations, the cost to customers and the environmental benefits we desire.

Global Climate Change – AEP can play a major role in addressing climate change, including bringing advanced coal and other technologies to commercial scale, securing access to large-scale renewable energy through transmission development, and increasing energy efficiency through our gridSMART® initiative. Our company’s and our customers’ economic well-being requires us to work cooperatively with regulators and policymakers, our stakeholders and our communities to reach a reasonable global solution that will protect the environment and foster economic growth. We continue to work internationally on this issue through the World Business Council for Sustainable Development, the e8 and through new partnerships with three of China’s largest energy companies.

Public Policy –We must actively engage legislators, regulators, policymakers and other stakeholders to ensure that public policy, laws and regulations enable us to continue to serve our customers, compensate our shareholders, and pursue our vision for sustainability.

Work Force – Protecting the safety and health of our employees and contractors and reducing the severity of work-related injuries and illnesses is a core value. We seek a skilled, diverse and highly motivated work force to support all aspects of our business.

Stakeholder Engagement – All of the material issues and risks we face and our well-being as a company increasingly depend on working closely with our stakeholders, disclosing our intentions, reporting on our performance, and engaging in active and forthright dialogue.