The development of a competitive electricity retail market in Ohio – our largest state in terms of revenues, employees and customers – presents a challenge to AEP. While competition has existed in Ohio since 2000, there were few attempts to sign up AEP Ohio customers because our rates have always been among the lowest in the state. With recent changes in the market, however, some competitors are able to undercut our regulated rates to certain customers, particularly commercial customers. The lost load has not significantly harmed our business at this time. We formed a subsidiary, AEP Retail Energy, which also allows us to offer competitive services, including in other states that have deregulated markets.

In addition, Demand Response Curtailment Service Providers are currently enrolling AEP retail customers in demand response programs sponsored by regional transmission organizations, such as those offered by PJM Interconnection. We contend that it is not appropriate for retail customers, who are taking service under regulated retail rates, to participate in wholesale market-based programs under the current rules and arrangements. The current structure allows a select few customers to independently benefit from generation capacity that is dedicated to serving all retail customers. In addition, we are working to correct the rate inequities that have prompted these customers to shop for less expensive electricity.

We believe that participation by retail customers in such programs should be offered only through their utility and under terms approved by the responsible state regulatory commission. This arrangement would allow the costs and benefits of such programs to be shared among all retail customers. We continue to work with our state public service commissions on this issue.