Our performance in 2012 through the transition to our new business model will depend on the extent to which our operating companies can optimize their returns on equity, our ability to reposition our generation resources, and the success of our transmission strategy. The pace of economic recovery, the outcomes of rate cases and our spending discipline also will factor into our success.

2012 will be a challenging year because of the large number of customers switching to other electricity suppliers in Ohio. As of March 2012, approximately 37 percent of Ohio Power’s load had switched to competitive retail electric service (CRES) suppliers. We are recovering a portion of the lost gross margins through capacity payments from the CRES providers, off-system sales, and new revenues from our own CRES provider, AEP Retail Energy.   

In response to the competitive retail energy market in Ohio, AEP Retail Energy, a competitive subsidiary, is helping us to compete more effectively. Our acquisition of Chicago-based BlueStar Energy Holdings, Inc., provides a strong platform to grow this business and to hedge the output of our Ohio generation when it becomes competitive. We intend for these efforts to help offset the customer losses we have experienced in Ohio as a result of customer switching.

Other factors that could hamper 2012 earnings are the continuing effects of the nation’s economic downturn, the ultimate resolution of our Electric Security Plan case in Ohio, historically low natural gas prices, and mild weather.

We project continued economic recovery in our service territory this year but expect electricity sales volume growth will remain modest, at about 1.4 percent. The capital budget for 2012 is set at $3.1 billion compared with approximately $2.7 billion in capital invested in 2011. The 2012 amount reflects expenditures for environmental projects, increased investment in transmission and completion of the Turk Plant, projected to be on line in the fourth quarter. We forecast capital budgets of $3.5 billion to $3.7 billion for 2013 and 2014.

We expect to hold 2012 O&M expenses below the 2011 expenditure of $3.5 billion despite projected higher labor and benefits costs.

Our near-term focus on transmission is on our state transmission companies (Transcos). The contribution of the Transcos to earnings will increase as the capital investment climbs from $265 million in 2011 to an estimated $350 million in 2012.We expect that joint ventures with other utilities to develop transmission facilities inside and outside of our service territory will provide earnings growth later in the decade. We are participating in and pursuing transmission joint ventures elsewhere in the United States, in addition to our Electric Transmission Texas venture that owns and operates transmission assets in Electric Reliability Council of Texas region. Read more about our transmission strategy and projects in Energy Reliability, Security & Growth.

Maintaining the dividend for our shareholders will remain a priority. We expect the dividend, supported by our regulated operations, to maintain a payout ratio of 50 percent to 60 percent going forward. The yield recently has approached 5 percent.

Had we not taken steps to strengthen our financial condition in recent years, we would be in a much less secure position today. The near-term challenges ahead are substantial. But, looking a few years ahead, we feel confident that a resolution that provides long-term clarity in Ohio and the promise of earnings growth inherent in our regulated investment strategy will reap benefits.