The Recession is Affecting Our Customers

The economic crisis is seriously affecting our customers. As job losses increase, more of our customers are unable to pay their bills. Net charge offs, or the amount of revenues the company classifies as uncollectible, began to increase in the second half of 2008 after decreasing for five years.

We want to keep uncollectibles in check because when customers can’t or don’t pay, those costs are spread among the rest of the customer base. We had aggressively reduced uncollectibles from a high of 0.5 percent in 2003 to less than 0.25 percent in the first half of 2008, but this has recently risen above 0.39 percent and is climbing. An increase in net charge offs, along with the average number of days that bills are outstanding, which also is increasing, are indicative of the weakening economy.

We are better protected against large losses by having strengthened our policies regarding customer deposits. Also, federal funding of LIHEAP — the Low Income Home Energy Assistance Program — almost doubled for 2009 to $5.1 billion in recognition of the difficult economy. To help expedite disbursement of LIHEAP funds, AEP is developing a secure Web site for government agencies to make pledges on behalf of our customers.

We can improve our customers’ overall experience, operate more efficiently and reduce energy and paper use by increasing the volume of online billing and other transactions. AEP mails about 53 million bills a year to customers. Converting these bills to electronic statements would save significant amounts of paper and trees in addition to the accompanying costs for printing and mailing of bills and allow us to use those resources to meet other needs.

As of December 2008, approximately 261,000 residential customers received their bills electronically, and approximately 1.3 million paid their bills electronically. Our goal is to shift approximately 1.5 million customers to receiving their bills electronically by 2013. Achieving this goal would yield a potential cost savings of approximately $3.9 million annually.