Our Issues

We are faced with many challenges, new and old, but our obligation is to deliver returns to our shareholders and safe, reliable and affordable service to our customers. We also have a responsibility to protect our employees, contractors and the public from harm; mitigate our impacts to the environment and hold ourselves accountable with transparency and candor. We have made good progress and have become less inwardly focused. The influence of engaging with many different stakeholders has made us a stronger company and presented new opportunities for growth and collaboration.

Safety and health are a core value at AEP and our performance tells us we still have a lot of work to do to improve. It is unacceptable when people are put in harm’s way or fatally injured while on the job. We have taken swift and long-lasting actions as a result of lessons learned to prevent recurrences. When people are harmed, it is a failure we can not and will not tolerate. Through our Human Performance initiative, hazard recognition tools and other initiatives to prevent errors that can cause injuries, we are working to change our attitudes and actions to ensure everyone goes home at the end of each day the same way they came to work.

Overall, our environmental performance is excellent. Despite greater regulatory scrutiny, changing regulations and technology developments, our record is among the best in our industry. But we know we can do better; the five enforcement actions we received in 2009 are indicators of areas for improvement. Our intent is to continually improve, prevent recurrences and to go beyond compliance when it is in the best interest of our shareholders, customers and other stakeholders.

Our position on global climate change remains the same. We support a global solution that does not unfairly affect our customers, disproportionately impact the U.S. economy or move faster than technology development. We will continue to engage with policy makers, legislators, environmental groups and others on this issue. And we will continue to lead internationally through the e8 and the World Business Council for Sustainable Development.

We are at the start of what we believe will be a major transformation of our company and our industry. The desire for greater use of alternative fuels, combined with increasing environmental regulation, legislative or regulatory mandates to reduce carbon dioxide, higher use of natural gas, and the age of some of our coal-fired units will lead to major changes in how we produce, deliver and consume electricity. And while it is an exciting time as we test new technologies to enable this new future, such as carbon capture and storage, smart meters and distributed generation, there is still much uncertainty over the level of investment that we can afford or the technologies that we will deploy.

The national economic recovery has been slower than anticipated and as a result, we are adjusting our work force to match today’s new economic realities. Consequently, our progress has slowed on some of the key commitments we have made as resources have become more limited and regulator reluctance has increased.

For example, we set a goal to install 5 million smart meters by 2015. Although we have begun to do this in four states, achieving this goal will be impossible without full regulatory support in each of our states. Yet, we believe this goal is critical to improving the efficiency of our energy delivery system and changing how consumers use energy, so we will continue to move forward where we can. We will also continue to advocate for greater energy efficiency and convince our customers and our regulators that it is a good investment in America’s energy future.

Our commitment to transparency is reflected in our continuous engagement with our various stakeholders and by measuring and reporting our progress. Our strategy for sustainability is clear and we are positioning ourselves to be flexible and adaptable to a changing environment. But our resolve to put people first, to protect and enhance the environment, to hold ourselves accountable for our performance, and to be transparent and engage with our various stakeholders has not changed. As our Chairman Mike Morris has said, bold changes are around the corner and we are ready to embrace them. We invite you to join us.

Dennis E. Welch

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 significant impact on the environment or society, now or in the future; or 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.

Our material issues are:

Business Performance

Financial
Our ability to manage business risks and to maintain a strong financial foundation allows us to deliver returns to our shareholders; provide safe, reliable electricity to our customers; and deliver broader economic, environmental and social benefits to society. Our business performance has direct impacts on our stakeholders and society that we take into account by ensuring that our business strategy and management systems systematically address material issues and risks, by measuring and reporting our performance with accuracy and transparency, and by holding ourselves accountable for the results.
Energy Security, Reliability & Growth
Our electric generation and delivery systems must be modern, reliable, and able to handle a diverse fuel supply as well as 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.
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. We will continue to work with regulators and legislators on alternative regulatory solutions.

Environmental Performance

Environment
Although environmental laws and regulations are complex and changing, we are committed to compliance at all times. Our challenge is to achieve compliance, and go beyond compliance when we can, to reduce our impact on the environment and improve the economic well-being of our communities.
Global Climate Change
AEP has a major role to play in addressing global climate change, including bringing advanced coal and other technologies to commercial scale, securing access to large-scale renewables through transmission development and increasing energy efficiency through our gridSMART^SM initiative. Our company’s and our customers’ economic well-being requires us to work cooperatively with regulators and policy makers, our stakeholders, and our communities to reach a reasonable global solution that will protect the environment and foster economic growth.

Social Performance

Work Force Issues
Protecting the safety and health of our employees and contractors and reducing the severity of work-related injuries 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.

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