The safety and health of our employees, contractors and the public is a core value for AEP. Although we have made great progress, we failed to live up to this value when an employee lost his life while performing his job in March 2009. As an organization, we are single-minded about preventing harm. Every one of us is troubled that employees and contractors get hurt on the job. Putting people in harm’s way without the tools to keep them safe is unacceptable, and we must do everything in our power to reduce the risk of injury. The injuries our employees received last year, the two citations we received for non-compliance with Occupational Safety and Health Administration regulations and the 43 citations from the Mine Safety and Health Administration underscore our need to improve.

Our vision is to get to the cause of every accident, every injury and every near-miss. We are reducing events through job hazard analyses, hazard recognition and risk assessment training along with an error reduction initiative (also known as Human Performance). Although we are on track to achieve top quartile performance within our industry for safety and health, we will not be satisfied until we eliminate injuries completely. Only then can we be assured of no fatalities. Protecting the public is important for us, too. Although the public had fewer electrical contacts with our equipment last year, the number of fatalities increased, and copper theft continues to be a primary cause. Our efforts to improve our environ-ment, safety and health management systems are helping us to address these issues.

We value our work force by celebrating diversity, promoting personal growth and creating a workplace to engage and inspire employees. We are making progress in fostering the culture we need to move forward on our sustainability journey.

The political landscape changed dramatically in 2008 and so did the regulatory terrain. Two important environmental rules — the Clean Air Interstate Rule (CAIR) and the Clean Air Mercury Rule — were overturned by the courts. Until a new rule is in place, CAIR will be kept intact, but we expect that its replacement will be more stringent and require additional investments for compliance. The U.S. Environmental Protection Agency (EPA) already has said it will develop new rules for mercury. We also expect the EPA to take a closer look at coal ash. We oppose regulating coal ash as a hazardous waste, but agree that some level of coordinated federal oversight of coal ash dams has merit, as long as it does not duplicate or overlap existing regulations.

Climate legislation is a high priority for the Obama administration, and the proposed federal budget has provisions to establish a cap-and-trade bill. We are very concerned about the provision for 100 percent auction of allowances because of the negative impact that would have on customer rates. However, we intend to be part of the solution and will continue to work with Congress and the president toward that goal. AEP’s position is clear: we believe climate change is a global issue that requires reasonable, achievable actions that take into account affordability, the availability of technology, and timing.

We will work collaboratively with the new administration on a national energy policy and its connection to the environment and the economy. We will advocate for the rapid development of advanced technology to allow us to use coal in a more environmentally acceptable way, such as at our carbon capture and storage validation project at the Mountaineer Plant in West Virginia. The environmental effect of underground storage of CO₂ is another important area where we are working closely with federal and state regulators. We invited the public to learn more about this project in 2008. Additional public hearings will occur in 2009.

We continue to work both in Washington and internationally through the World Business Council for Sustainable Development (WBCSD) and the e8, among others. In 2008, the WBCSD released its second report at the U.N. Conference on Climate Change in Poland on technology and public policy solutions to address climate change.

We agree with stakeholders who say the United States should take the lead on climate change and go to the next round of climate negotiations in Copenhagen later this year in a leadership position. We will do our part to help make that happen.

I am pleased to share some of our many successes during the past year. AEP:

• Recorded one of the best years for environmental performance in company history;
• Brought two more scrubbers online at our power plants;
• Achieved a 4.2 percent reduction in energy consumption in our office buildings;
• Enlisted 10 suppliers to undergo an environmental review through the Green Suppliers Network, of which AEP is a corporate champion;
• Installed three additional advanced energy storage batteries to support reliability of the distribution system and gain experience with large-scale battery storage;
• Continued to press for Leadership in Energy and Environmental Design (LEED) Silver certification at three of our facilities;
• Deployed the first 10,000 meters of smart grid technology in South Bend, Ind.

We believe that climate change must be addressed as part of our nation’s energy policy and that energy efficiency is a resource that will help meet our energy needs. We believe that carbon capture and storage and advanced coal technology must be part of the solution and that the nation needs a bigger and more efficient transmission system, one that can have the same positive impact on the economy as the Federal Highway Act had in the 1950s and '60s.

We face many challenges: a new political landscape, a difficult economy, reluctance by regulators to raise rates, climate legislation, new and complex regulations, an aging work force, aging infrastructure and communities that are expecting businesses to step up their support of economic development in these hard times.

Sustainability encourages us to learn what others think and expect of us and look for ways to collaborate while adapting to change. As the challenges mount, it is even more important to work closely with regulators, environmental groups, legislators, our own employees and other stakeholders to achieve the best results. We will call on our stakeholders to publicly support issues we agree on, such as technology advancements and energy efficiency. We expect they will push us harder on some issues, too.

In spite of today’s uncertainties, this is a time of exciting new opportunities and renewal — the prospect of building a brighter future for America. AEP will be part of that renewal and among those leading the way. We look forward to working together as we continue our journey.