Much of our equipment that produces and delivers electricity is old and in need of modernization. As revenues declined during the recession, we were forced to alter or delay some maintenance. These aging assets could pose a reliability risk across our system and potentially affect customer satisfaction, regulatory oversight and our reputation.

Often we don’t know a failure has occurred until a customer reports it. Our inability to be more proactive results in additional customer outages and increased repair costs. We are discussing a preventive maintenance approach with regulators. We are considering seeking incremental rate increases dedicated to modernizing the grid in all rate cases going forward. This will help us to better prioritize needs and make continuous improvements in the system.

Kentucky Power Co. has proposed a 138-kilovolt (kV) transmission line between Knott and Perry counties that would enhance reliability and security. If regulators approve, construction of the 24-mile line could begin in 2012.

An extreme cold weather snap tested the electricity system in the Lower Rio Grande Valley in Texas in February 2011. A loss of supply and high demand led to rolling blackouts across the state that affected many AEP Texas customers. The event, which remains under investigation by federal and state regulators, could potentially lead to even stricter reliability rules for the industry. It also strengthens the argument for additional transmission in the area.